Acc Qualitative Characteristics PDF

#### Relevance Relevant means **\"useful\"**. Relevant information is capable of making a difference to the decisions made by users. Information is relevant to a decision if it helps users to form predictions about the outcomes of past, present or future events, and/or confirms or changes their pre...

#### Relevance Relevant means **\"useful\"**. Relevant information is capable of making a difference to the decisions made by users. Information is relevant to a decision if it helps users to form predictions about the outcomes of past, present or future events, and/or confirms or changes their previous evaluations by providing suitable feedback. If a particular item is omitted from a report, and this influences the decision-making of an individual in relation to the business, it would be deemed to be relevant. #### Faithful representation The information reported must be a faithful representation of the real-world economic event it represents. The user of the information should be assured that the information presented is **complete, without personal bias, free from material error and neutral**. That is, it faithfully represents the **true** situation. #### Verifiability Financial information should be **supported by evidence** and independent individuals can check the information to verify that it is actually faithfully represented. Such evidence will quite often be in the form of business documents[,] which provides the details of financial transactions. The 3 QCs below will be covered in more details and applied in the later topic. But at this stage, it is good for you to be aware of these 3. #### Comparability This is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items. Information about an entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date. It is quite common for accountants to compare the results achieved by a business in one year to those of previous years. It is valuable to be able to compare such results before making business decisions. #### Timeliness Timeliness means having information available to decision makers in time to be capable of influencing their decisions. Having relevant information available sooner rather later can enhance its capacity to influence decisions, and a lack of timeliness can diminish the potential usefulness of information. Generally, the older the information is the less useful it is. #### Understandability Understandability requires financial information to be understandable or comprehensible to users with a reasonable knowledge of business and economic activities. To be understandable, information should be presented clearly and concisely. Accounting reports are often quite complex and contain specialised terminology. It is important to prepare financial reports so that as many users as possible can have a basic understanding of what the report is trying to show. #### Accounting entity assumption This assumption states that the records of assets,liabilities and business activities of the entity are kept completely separate from those of the owner of the entity as well as from those of other entities. A separate set of accounting records is maintained for each entity, and the financial statements prepared provide information on that entity only. This is done in order to allow an evaluation of the performance of the actual business, as distinct from personal or wealth. #### Going concern assumption The financial reports are prepared on the assumption that the existing entity will continue to operate in the future. It is assumed that the entity will not be wound up in the near future but will continue its business activities. A distinction can be made between assets which will provide benefit to future accounting periods and expenses that are totally consumed within one accounting period. The 2 assumptions below will be discussed deeper in the later topics. At this stage, it is important for you just to be aware of these. #### Accrual basis assumption Under the accrual basis of accounting,revenue is recognised in the period in which it is earned. Expenses are recognised when it is incurred/consumed. The accrual basis of profit for an accounting period is determined by subtracting expenses incurred during the period from revenue earned in that same period. The characteristic of relevance is important here, as the accountant should only be recognising revenues and expenses relevant to that particular period. #### Period assumption Reports are prepared for a particular period of time, such as a month or a year, in order to obtain comparability of results. Profit determination involves a process of recognising the revenuefor a period and deducting the expenses incurred in that same period. There is no minimum period of time over which profit is measured, but the maximum is one year, due to the demands of the Taxation Office to assess all businesses or their owners for income tax. The characteristic of relevance plays a part again, as only information relevant to that one particular period should be reported at that time. Items not relevant to that period should be entered in other reports for other accounting periods.