Qualitative Characteristics Of Financial Reporting

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A Financial Statement is a document reporting business financial performance and resources. It shows how a firm has used the funds entrusted to it by its stockholders, shareholders and lenders, and what is its current financial position. The three basic financial statements are the balance sheet, which shows firm's assets, liabilities, and owner's equity or retained earnings on a stated date; the income statement, also called profit & loss account, which shows the sales and expenses of a business over a period of time, and cash flow statement, which shows the inflows and outflows of cash caused by the firm's activities during a stated period. Financial statements are usually compiled on a quarterly and annual basis. Qualitative characteristics of Financial Statement The qualitative characteristics of financial statements are a set of attributes which together make the information in the financial statements useful to the users. The qualitative characteristics of useful financial reporting identify the types of information are likely to be most useful to users in making decisions about the reporting entity on the basis of information in its financial report. The qualitative characteristics apply equally to financial information in general purpose financial reports as well as to financial information provided in other ways. The four principal qualitative characteristics are understandability, relevance, reliability and comparability. Financial information is useful when it is relevant and represents faithfully what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. Relevance and faithful representation are the fundamental qualitative characteristics of useful financial information. The four main principal qualitative characteristics are understandability, relevance,

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