Financial statements

Topics: Balance sheet, Financial statements, Income statement Pages: 2 (634 words) Published: September 27, 2013
Relevance and Reliability
Relevance and reliability are two of the four key qualitative characteristics of financial accounting information. The others being understandability and comparability. Relevance requires that the financial accounting information should be such that the users need it and it is expected to affect their decisions. Reliability requires that the information should be accurate and true and fair. Relevance and reliability are both critical for the quality of the financial information, but both are related such that an emphasis on one will hurt the other and vice versa. Hence, we have to trade-off between them. Accounting information is relevant when it is provided in time, but at early stages information is uncertain and hence less reliable. But if we wait to gain while the information gains reliability, its relevance is lost. Examples

1. After the balance sheet date but before the date of issue a company wants to dispose of one of its subsidiaries and is in final stages of reaching a deal but the outcome is still uncertain. If the company waits they are expected to find more reliable information but that would cost them relevance. The information would be outdated and no longer very relevant. 2. After the balance sheet date during the time when audit is carried out, it becomes clear which debts were realized and where were not hence it improves the reliability of allowance for bad debts estimate but the information loses its relevance due to too much time being taken. Timeliness is key to relevance. Home > Financial Accounting > Principles > Comparability

Comparability Principle
Comparability is one of the key qualities which accounting information must possess. Accounting information is comparable when accounting standards and policies are applied consistently from one period to another and from one region to another. The characteristic of comparability of financial statements is important because it allows us to compare a set...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on Uniliver Case Study for Financial Management
  • Essay on Financial Accounting Assignment: You Are an Entrepreneur
  • Why and What of Income Statement, Balace Sheet, Cash Flow Essay
  • Review of Financial Statements Essay
  • horngren's financial & managerial accounting Essay
  • Significance of Financial Reporting Essay
  • CUC Cendant Corporation: Fraudulent Financial Reporting Essay
  • Advanced Financial Accounting Assignment Research Paper

Become a StudyMode Member

Sign Up - It's Free
Copyright | Baby Doll Clothes Suit Zapf Doll Jumpsuit Suit Doll Nightdress Sleeping Clothes | w 8 sklepach