BAMA302 Enumerate and discuss the following: 1. Components/ingredients of faithful representation
When we say faithful representation, the financial data in financial
reports should accurately reflect what it claims to represent. That is, it should accurately depict what occurred, with the appropriate financial values. A faithful depiction has three characteristics: 1. Completeness, meaning it provides a sufficient or complete presentation of all necessary facts. Second, Neutrality or objectivity and lack of bias. And third, it must be Error-free or no inaccuracies and omissions.
2. Qualitative characteristics of financial statements per Conceptual Framework
The two most significant qualitative characteristics are all still
relevance and faithful representation. Relevance refers to the idea that the records by an accounting system should influence the decision-making of the person looking at it. The term can refer to the information's content as well as its timeliness, both of which might influence decision-making. The connection or agreement between accounting measures or descriptions in financial reports and the economic phenomena they purport to describe is known as faithful representation.
3. Enhancing characteristics of financial statements per Conceptual Framework
Enhancing qualitative features is an extra benefit to the essential to
improve the decision-making use of financial data. Users' ability to detect similarities and differences between two economic events is referred to as comparability. Comparability between entities and consistency in applying procedures or methods through time will improve the informational value in relative economic performance. Verifiability relates to a user's ability to ensure that the information accurately represents what it claims to represent, and that the measuring technique chosen is free of bias and error. When several experienced evaluators confirm and come to the same conclusion, the information is verified. Meanwhile, timeliness refers to the need for users to acquire information at the correct moment before it loses its potential to influence a decision. Information should be presented in a timely manner to offer shareholders with a clear and meaningful perspective. Information that is not available when decision makers need it is useless, and the information's potential value may be wasted. Last but not the least, understandability, it shows the level of financial information that allows users to recognize or discern the meaning of the message being delivered.