Characteristics

• Qualitative characteristics of financial information

  • Relevance
  • Faithful representation
  • Comparability
  • Verifiability
  • Timeliness
  • Understandability
• Relevance


  Relevant information directly assists the user in making decisions, related to making an economic decision, assists the user in forming predictions about outcomes of past, present or future events, confirms or changes previous evaluations
• Faithful representation


  The information reported must be a faithful representation of the real-world economic event it represents, complete, free from material error, and neutral (without bias)
• Comparability


  Enables the user to identify and understand similarities and differences between 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 date or period
• Verifiability


  The ability to ensure that different knowledgeable and independent observers can reach a consensus that a particular depiction of an event is faithfully represented, maintained by retaining the source documents used to record the transaction, checked through auditing, to hold the accounting professional accountable for their work
• Timeliness


  Information is available to decision-makers in time to be capable of influence on decisions, the older the information, the less useful it is
• Understandability


  Financial information must be comprehensible to users with reasonable knowledge of business and economic activities, presented clearly and concisely
• Accounting assumptions


  • Accounting entity assumption
  • Accrual basis assumption
  • Going concern assumption
  • Period assumption
• Accounting entity assumption


  The records of assets, liabilities and business activities of an 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
• Accrual basis assumption


  Revenue is recognised in the period in which the expected inflow of economic benefits can be measured in a faithful and verifiable manner, expenses are recognised when the consumption of goods and services can be measured, the accrual basis profit for an accounting period is determined by subtracting expenses incurred for a period from revenue earned in the same period
• Going concern assumption


  Financial reports are prepared on the assumption that an existing entity will continue to operate into the future, it is assumed that the entity will not be wound up in the near future but will continue its activities
• 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 revenue for a period and deducting the expenses incurred for the same period, a distinction can be made between assets, that will provide benefit to future reporting periods, and expenses which are totally consumed within one reporting period