DIPLOMA IN ACCOUNTING (DIA)

SEPTEMBER 2021

BDFA2103

FINANCIAL ACCOUNTING II

MATRICULATION NO : 850920016066001
IDENTITY CARD NO. : 850920-01-6066
TELEPHONE NO. : 019-7024937
E-MAIL : jue9002@oum.edu.my
LEARNING CENTRE : OUM BATU PAHAT
Contents

1. INTRODUCTION OF THE SELECTED COMPANY...........................................................1

2. EXPLANATION ON THE QUALITATIVE CHARACTERISTICS OF...............................3

ACCOUNTING INFORMATION..................................................................................................3

Fundamental (Primary) Qualitative Characteristics..........................................................3

Enhancing (Secondary) Qualitative Characteristics...........................................................3

Relevance.................................................................................................................................3

Verifiability..............................................................................................................................4

3. DISCUSSION ON THE IMPORTANCE OF ‘RELEVANCE’ CHARACTERISTIC OF

ACCOUNTING INFORMATION FOR DECISION MAKING....................................................5

4. DISCUSSION ON THE IMPORTANCE OF ‘FAITHFUL REPRESENTATION’

CHARACTERISTIC OF ACCOUNTING INFORMATION FOR DECISION MAKING...........7

Complete Presentation........................................................................................................8

Error Free Presentation.....................................................................................................8

Unbiased Presentation........................................................................................................8

5. SUMMARY.................................................................................................................................9

6. REFERENCES............................................................................................................................9

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1. INTRODUCTION OF THE SELECTED COMPANY

Top Vision Eye Specialist Centre is a comprehensive medical eye care service provider
with ambulatory surgical centre in Malaysia. Their humble beginning started in year 2010 and to
date they have seven ambulatory care eye specialist centres in the region of Selangor and Johor.
They offer modern and advanced treatments for both general and complex eye diseases. Their
doctors are renowned Ophthalmologists, whom have mastered in many treatments enabling
patients to enjoy maximum safety, accuracy and comfort when undergoing eye treatment and
surgery with them.

Their Group’s history began in August 2010 when founder, Datuk Kenny Liew
established the first ambulatory eye care centre in Banting, Selangor. It is a comprehensive one-
stop eye specialist centre which provides high quality and affordable eye care and treatment to
the local community in Banting. In the year 2011, their second centre was established in Setia
Alam, Selangor, which is also a referral centre for complex eye diseases, including vitreoretinal
surgeries. The Setia Alam centre also functions as the headquarters.

In 2015, their third centre was opened in Kuala Selangor, Selangor. They began
expanding the operations to Johor, opening the Group’s fourth centre in Batu Pahat in the year
2016. The Group’s fifth centre was opened in Kulai, Johor in May 2018. In a short span of seven
years, TOPVISION has set up five ambulatory care eye specialist centres. In the year 2020, they
continued the expansion within the southern region of Malaysia, opening their sixth centre in
Seremban and the seventh centre in Johor Bahru. The eye specialist centre in Johor Bahru is also
our first glaucoma subspecialty centre, fully equipped to facilitate medical and surgical
treatments for any glaucoma related conditions.

Top Vision Eye Specialist Centre covers for Cataract problem, Diabetic Retinopathy,
Retinal Detachment, and other eye problems such as Conjunctivitis, Corneal Ulcer, Stye,
Chalazian, and lot more.

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Top Vision Eye Specialist Centre financial highlights are as below:

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2. EXPLANATION ON THE QUALITATIVE CHARACTERISTICS OF
ACCOUNTING INFORMATION.

The demand for accounting information by investors, lenders, creditors, etc., creates

fundamental qualitative characteristics that are desirable in accounting information. There
are six qualitative characteristics of accounting information. Two of the six qualitative
characteristics are fundamental (must have), while the remaining four qualitative
characteristics are enhancing (nice to have).

Fundamental (Primary) Qualitative Characteristics

Qualitative characteristics of accounting information that must be present for information

to be useful in making decisions:

 Relevance
 Representational faithfulness

 Enhancing (Secondary) Qualitative Characteristics

Qualitative characteristics of accounting information that impact how useful the

information is:

 Verifiability
 Timeliness
 Understandability
 Comparability
Relevance

Relevance refers to how helpful the information is for financial decision-making

processes. For accounting information to be relevant, it must possess:

 Confirmatory value – Provides information about past events

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  Predictive value – Provides predictive power regarding possible future events

Therefore, accounting information is relevant if it can provide helpful information about

past events and help in predicting future events or in taking action to deal with possible
future events. For example, a company experiencing a strong quarter and presenting these
improved results to creditors is relevant to the creditors’ decision-making process to
extend or enlarge credit available to the company.

Representational Faithfulness

Representational faithfulness, also known as reliability, is the extent to which information

accurately reflects a company’s resources, obligatory claims, transactions, etc. To help,
think of a pictorial depiction of something in real life – how accurately does the picture
represent what you see in real life? For accounting information to possess
representational faithfulness, it must be:

 Complete – Financial statements should not exclude any transaction.

 Neutral – The degree to which information is free from bias. Note that there
are subjectivity and estimation involved in financial statements, therefore
information cannot be truly “neutral.” However, if a company polled 1,000
accountants and took the average of their answers, that would be considered
neutral and free from bias.
 Free from error – The degree to which information is free from errors.

Verifiability

Verifiability is the extent to which information is reproducible given the same data and
assumptions. For example, if a company owns equipment worth $1,000 and told an
accountant the purchase cost, salvage value, depreciation method, and useful life, the
accountant should be able to reproduce the same result. If they cannot, the information is
considered not verifiable.

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3. DISCUSSION ON THE IMPORTANCE OF ‘RELEVANCE’ CHARACTERISTIC
OF ACCOUNTING INFORMATION FOR DECISION MAKING.

Relevance in accounting means the information we get from the accounting system will
help the end-users to take important decisions. End users can be either internal or external
stakeholders. Internal stakeholders include managers, employees, and business owners.
By external stakeholders, we mean investors, lenders etc. Therefore, relevance in
accounting indicates the capacity of influencing the end-users of the financial statement
in their decision-making process. As per GAAP, the information should be useful,
understandable, timely, and pertinent for the end-users in making important decisions. A
ten-year-old income statement doesn’t hold much significance to an investor.
The financial information must be timely to be relevant to the investors. Finally,
relevance in accounting also means that it should be useful for the decision making
process for the end-users. For example, companies could report the current salary of the
employees in an understandable and timely manner, but this doesn’t make this
information relevant to an investor.

Next thing we should understand which information would be relevant for whom?

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 The annual report of the company which is prepared by the company managers is of great
importance to the shareholders. Now there may be different kinds of shareholders in a
company. The shareholders who hold some shares in the company are more interested in
the price of the share per day. The share price will never be mentioned in a balance sheet
or the income statement. The balance sheet and the income statement shows the ability to
generate future cash flows. In this way, the shareholders will find meaning in it and will
be useful for their decision making the purpose of investment.
 A manager who is an insider to the company will be in charge of taking some strategic or
operational decisions based on the situation. Like the manager has to estimate the
price/profitability of a product. This information will directly not be available in the
annual report. The annual report, which is generally prepared by the managers, will help
the manager for the pricing of a product. So by taking the annual report and keeping in
mind the accounting principles and going backward in a calculation, the manager can
calculate the price/profitability of a product.
 The shareholder who holds a large number of shares in the company will be more
interested in knowing the profit generated and distributed by the company. But it must
also be understood that the shareholders should not jump to a conclusion by only seeing
the current financial report. It should also understand the assumptions and policies
followed in making the accounting report. Then by using the numbers for some time, it
will be able to understand the profit generated and profit distributed, which the annual
reports will also throw light on. In this way, the information will be relevant for the
shareholders in making a decision.

Every stakeholder needs useful information. It is the reason why the relevance principle
is of prime importance to financial accounting. For example, if a company wanted to take
a loan from a bank, then the bank will want to know first whether the company will be
able to pay them back the loan with interests. Therefore, the financial statements of the
company should be relevant for the bank in making their decision regarding granting a
loan to the company.

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 Financial statements like balance sheets, income statements, and cash flow present
important information to the banker in making decisions. It should also be noted that the
information should be timely. The banker will not consider the financial statements
which are more than ten years old. The information should be understandable. The
financial statement should be in proper accounting format. Lastly, the information should
be useful for the banker in making the important decision of whether to grant a loan to
the company or not.

4. DISCUSSION ON THE IMPORTANCE OF ‘FAITHFUL REPRESENTATION’

CHARACTERISTIC OF ACCOUNTING INFORMATION FOR DECISION
MAKING.

Financial reports expressed in numbers and words depict economic phenomena. Since
useful financial report represent relevant phenomena, it is expected that it should be a
faithful representation of such economic phenomena, and nothing less. Thus, the faithful
representation of financial report is found in its completeness, neutrality and freedom-
from-error. A financial report is considered complete, if it reflects all the information it
ought to reflect. These are financial information arising from transactions and other
activities of an entity. Completeness of a financial report also extends to the description
and explanation of significant facts about transactions and other events. Neutral depiction
of financial reports is expressed in the objectivity and fairness in the preparation of
financial reports. A neutral financial information is devoid of bias nor any form of
manipulation. Error-free depiction of financial report points to the absence of errors or
omissions in the description of the economic phenomena.

Faithful representation is the concept that financial statements be produced that

accurately reflect the condition of a business. For example, if a company reports in
its balance sheet that it had $1,200,000 of accounts receivable as of the end of June,
then that amount should indeed have been present on that date. The faithful
representation concept should extend to all parts of the financial statements,

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including the results of operations, financial position, and cash flows of the reporting
entity. Financial statements that faithfully represent these aspects of a business
should have the following three attributes:

Complete Presentation

All of the information that a user needs in order to form a clear picture of the results,
financial position, and cash flows of a business are included in the financial
statements. This also means that no information is omitted that might have led a user
to have a different opinion of the business. For example, a business could report that
it had a $500,000 loan as of the balance sheet date, but this would not be considered
complete unless additional information about the loan were provided, such as its
maturity date.

Error Free Presentation

The financial statements should contain no errors, so that the information contained
within them presents a fair view of the organization. If there is a continuing series of
"errors" that tend to bias the results of the financial statements in a certain direction,
this may be considered a case of financial reporting fraud.

Unbiased Presentation

The financial statements represent the actual state of an organization, without trying
to amplify its results unnecessarily or make them look worse than they really are. For
example, biased financial statements could be used to give an overly optimistic view
of a business in order to encourage a prospective buyer to pay a higher price for it.
Conversely, financial statements could be made to look worse in order to reduce its
related income tax liability.

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5. SUMMARY

Qualitative characteristics of accounting information are important because they assist business
professionals in understanding and using the information found in accounting reports. These
characteristics provide explanations for the numbers in accounting reports and show
professionals how to use them to make decisions and predict future financial outcomes. The
company can use it for Uncovers trends. Applying qualitative research to accounting
information can uncover financial trends that might not have been otherwise apparent.
Secondly, provides explanations by looking at the information from a qualitative
perspective allows individuals to understand why a business may be performing in a
certain way. Thirdly, Offers insight. If a company experiences economic hardship, using
qualitative research can offer insight into the causes of problems. Lastly, develop
predictions by using qualitative characteristics can help a company make predictions on
how it can better perform financially.

6. REFERENCES

Accountingverse. (2021). Qualitative Characteristics of Financial Information. Retrieved

from Accounting Verse:
https://www.accountingverse.com/financial-accounting/introduction/qualitative-
characteristics.html
Berhad, B. M. (2021). Listed Company. Retrieved from Bursa Malaysia:
https://www.bursamalaysia.com/trade/trading_resources/listing_directory/company-
profile?stock_code=03013

Team, I. E. (2021, April 22). Qualitative Characteristics of Accounting Information: Definition

and Types. Retrieved from Indeed: https://www.indeed.com/career-advice/career-
development/qualitative-characteristics-of-accounting-information45

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