To provide a fair presentation of a company’s financial performance, that should be useful to a wide range of users for making their economic decisions.
Qualitative characteristics
- Understandable- users having basic knowledge of business and accounting are able to understand the infomation.
- Relevant -should be timely and sufficiently detailed so that can make a difference in decision making
- Reliable - should reflect economic reality (faithful representation), is unbaised (neutrality), free of material errors.
Factors support reliability
- Faithful repesentation
- Substance over form
- Neturality
- Prudence
- Completness
- Comparable - consistent among firms and across time periods.
Notes:
- The market value of an investment can be highly relevant but may be accurate only to a certain extent. On the other hand, the historical cost, while reliable, may have little relevance.
Constraints
- Balance between relevancy and reliability
- Costs
- Cannot capture intangible and non-quantifiable information
Assumptions:
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