Qualitative aspects of Financial Statements

Understanding qualitative aspects help provide information which

• Make sense to the end-user
• Have consistency across financial statements.

Qualitative aspects about financial statements can be divided into the following categories:

Let's understand them one by one,

Understandability

• it's stating the information provided is readily understandable by users who have a reasonable knowledge of the basic operations of the business.
• The information provided is not too complex.

Relevance

• Information is considered relevant when it influences the economic decisions of users by helping them evaluate past, present and future or confirming or correcting past evaluations
• Materiality: Information is material if its omission or misstatement could influence the decision of end-users.

Reliability

• Unreliable information misleads financial statements presentation and may result in wrong decision inference by end-users.
• Faithful Representation: Financial statement items(such as assets, liabilities etc) should be recognised only if the recognition criteria of each such item is met.
• Substance over form: Substance and economic reality of transaction prevail over legal form.
• Neutrality: Information free from any bias and financial statements do not influence the decision of end-users to achieve predetermined results or outcomes.
• Prudence: Whenever estimates are made, prudence is to be followed i.e they are not excessive or biased.
• Completeness: All transactions relating to the period should be covered in preparing financial statements.

Comparability

• Information should be comparable with past data of the same entity as well as present data of other entities in the same line of business.
• Financial statements should show the corresponding information of the previous periods.
• Any change in accounting policy over periods should be mentioned.