ACCOUNTING

Comparison between qualitative characteristics of 1980 and 2004

Comparison between qualitative characteristics of 1980 and 2004

Introduction

Manufacturing of financial statement and reporting are the most considerable issue for the accounting world with questions like who will decide which information would be included in financial statement, or who will decide that during the formation of financial statement all the subsidiaries company would be shown as one (Beest, et al, 2009). Issues like, selection of a common accounting method, inclusion of values and information in the financial statement, and procedure that would be adopted in the presentation of these statements were creating numerous difficulties for companies, and their stakeholders (Deborah, 2010). In this scenario, Financial accounting standard board has drafted a qualitative characteristic framework that would ensure inclusion of appropriate and best information in the financial statement, and would help in decision-making process.

Qualitative characteristics of SFAC no 2

For making the process of financial reporting acceptable across the globe, financial accounting standard board drafted a qualitative characteristics chapter, that would enable company to present authentic information in their financial report. The structure of qualitative structure can be observed from the diagram below (FASB, 2008).

Figure 1: Framework of qualitative characteristics (Kieso et al, 2009).

Decision Makers (Users) and Understand ability

Financial statements are primarily formed to enable users (shareholders, stakeholders, and other individual) to understand the performance of the company, and in their decision making process (IFRS, 2012). Decision taken by these individual depends on variety of factors such as (condition in which decision are taken, their understand ability of company financial performance, is they information they know is sufficient, reliable and authentic, and what are the pros and cons of their decision). In order to make correct decision it is imperative for them to create a relationship with their knowledge and with presented facts.

Process of decision makers could be understand from the example, for instance, Microsoft in his quarterly report announced to increase its share price. Some shareholders after reading this report will tempt to sell of the share to earn maximum profit, and others might not understand the objective of increasing the price of the share(Kieso et al, 2009).

Relevance and reliability

These are the two principal traits of financial statement that ensure information present in these statements is fruitful for people in decision-making process. According to FASB, presence of certain qualities makes information more useful for readers and differentiates it with less useful information (Shahwan, 2008).

Relevance

A relevant accounting information has the capability of influencing the decision making process of individual. If presented information has no impact on decision making process, than that information is irrelevant and must not be given importance, whereas, relevant information enable individual in predicting the past, present, and futuristic events of the company (Tomassinis, 2009). For example, when Microsoft released its quarterly report, the presented information is viewed as authentic because it provides the foundation of future forecasting of companies performance, and enable users to express his views regarding company's previous ...