Accounting 3a/B Theory Assignment Essay

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Stage 3 Theory Assignment Accounting and Finance 3A/B What are the 4 qualitative characteristics that financial reports should have: List and describe each of these 4 qualities: Paragraph 24 of the AASB Framework identifies the four principal qualitative characteristics as: * Relevance * Reliability * Comparability, and * Understandability Relevance: Relevance is a quality of information that exists when information assists users to make economic decisions by helping them evaluate past, present or future events or confirm or change past evaluations.* The relevance of information is affected by materiality. Reliability: Reliability is a quality of information that exists when information is free from significant errors and bias and can be depended upon by users to present faithfully that which it either claims to represent or could reasonably be expected to represent. Comparability: The measurement and display of identical transactions, in the accounting reports of a business, should be consistent over time. Understandability: Understandability exists when the users of financial statements are able to comprehend the meaning of these statements. Is it possible for information to be reliable but not relevant? Provide an example to illustrate your response. Yes, it is possible for information to be reliable but not relevant. Some information may be reliable such as the historical cost of an asset 20 years ago, but obviously it won’t be relevant because there is more recent information from 20 years ago. Conversely, information, such as forecasts of future profits, may be relevant but cannot be measured with an acceptable degree of reliability to be included in general purpose financial reports. What are Accounting Standards? The AASB accounting standards are a set of rules that companies listed on the

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