Qualitative Characteristics of financial statements

The qualitative Characteristics of financial statements - The financial reports that are useful to the user the information that should be there are four principal qualitative characteristics i.e. can understandable, relevant, reliability, and can be compared. Each of these characteristics can be described here.

Introduction

the quality of important information in the financial statements is its convenience to immediately be understood by users. For this purpose, the user is assumed to have adequate knowledge about the business and economic activities, accounting, as well as a willingness to study the information with reasonable diligence. However, complex information that should be included in the financial statements cannot be issued only on the basis of the consideration that the information are too difficult to be understood by a particular user.

The Relevant

Information should be relevant to meet the needs of users in the decision-making process. Information has the quality of relevant if it could affect economic decisions users by helping them evaluate the events of the past, present or future, affirm, or corrects the results of their evaluation in the past. The role of information in forecasting (predictive) and discernment (confirmatory) related to each other. For example information the structure and size of owned assets beneficial to users when they try to predict the company's capabilities in harnessing opportunities and react to adverse situations. The same information also plays a role in giving an affirmation (confirmatory role) against December predictions, for example about how the company's expected financial structure composed of or about the outcome of the planned operation.

Financial position and performance Information in the past was often used as a basis for predicting the financial position and performance of the future and other things that instantly attract the attention of users, such as payment of dividends and wages, price movement of securities and the company's ability to meet its commitment when due. To have predictive value, information need not necessarily in the form of an explicit forecast. However, the ability of the financial statements to make predictions can be increased with the appearance of information on transactions and events of the past. Predictive value of profit and loss reports for example can be enhanced if the revenue accounts or entities that are unusual, abnormal and rare disclosed separately.

Reliability

Characteristics of financial reporting and the third is reliability. Information must also be reliable (reliable). Information has the quality of reliable if free from misleading notions, materials, and reliable to use as genuine or honest rendering of which should be presented or which is reasonably expected to be presented. The information may be relevant but if nature or has not reliable then the use of such information can potentially be misleading. For example, if legal action is still confused, may not be appropriate for the company to acknowledge the demands of the entire amount in the balance sheet, although it may be appropriate to disclose the amount and circumstances of these claims.

Honest Presentation

information should be described with honest transactions and other events should be presented or that reasonably can be expected to be served. So for example, the balance sheet should describe honestly deals as well as other events in the form of assets, liabilities and equity of the company on the date of reporting that meets the criteria for recognition.

Substance outperformed

If the information is intended for presenting with honest transactions and other events should be presented, then the event should be noted and presented in accordance with their substance and economic reality and not just a form of law.

Neutrality

of the information should be directed to the needs and desires of a particular party. There should be no effort to present information that benefit some parties, while it would be detrimental to other parties who have an interest in the opposite.

Considerations healthy

financial report preparation there are times when facing the uncertainty of events and circumstances, such as the billing accounts receivable which is doubtful, the approximate time of the benefits factory as well as tools, and the demands of warranties warranty that may arise. That kind of uncertainty is acknowledged by revealing substance as well as the rate and using the healthy consideration in the preparation of the financial statements.

Considerations of prudence in the when doing element contains an estimate of the uncertainty, so that assets or income is not declared is too low. However, the use of the healthy consideration is not allowed, for example, the establishment of a reserve of hidden or excessive stage and accidentally setting the earning assets or lower or recording an obligation or burden is higher, so that the financial report be not neutral, and therefore do not have a reliable quality.

Completeness

Information in the financial statements must be complete in terms of materialize and the load. Deliberate action to not reveal results in information into incorrect or misleading and therefore unreliable and not perfect in terms of its relevance.

Can be compared

The user should be able to compare the financial statements of the company between periods to identify the tendency of the position and financial performance. Users should also be compared between the company financial reports to evaluate the relative financial positions.

Therefore, measurement and presentation of financial impact, transactions, and other similar events should be done consistently for the Corporation in question, between periods of the same company and for different companies.