06 Jul OTHER CHARACTERISTICS IN FINANCIAL INFORMATION DESCRIBED AS ENHANCING THE FIRST TWO SUBTOPICS ARE:
1. The FASB issues new standards on accounting. The implementation date is usually a year from the date of issuance with early implementation encouraged. Jane Durham, chief accountant is discussing implementing this new standard as soon as possible. The CFO however realizes that an early implementation will have a negative effect on the firm’s net income for the year. The CFO discourages the chief Accountant from implementing the standard until the required date. Is the CFO’s action proper? Why or why not? Is there an ethical issue involved? If so how?
The FASB conceptual framework defines the objective of financial reporting as well as provide information that is useful in making decisions on resource allocation.
In addition, the framework identifies the characteristics of the quality of accounting standards as well as defines the elements of the financial reporting system, with regards to assets and liabilities and specifies the recognition and measurements used in the practice of accounting.
This specification is very important to investors and other users of financial statements in their analyses as it aids the readers in understanding how statements are prepared and what is contained therein and what each line of the statement represents.
So in short we can describe the conceptual framework as setting forth the theory, concepts and principles that ensures the accounting standards are coherent and uniform which is extremely important since we have so many different entities using accounting systems in different areas of business.
Characteristics of Financial Information
Let’s review the qualitative characteristics of financial information. These are the characteristics that pretty much distinguish financial information that is useful from that which is not.
Relevance is one of the subheading that describes the characteristics and what it means which is that information will be relevant if it has certain attributes:
Predictive value
Confirmatory value
Materiality
Some students sometimes sense a challenge relating to materiality which really means that information is material if not reported, or reporting it inaccurately would affect financial statement user’s decision- making. Materiality depends on its size and nature and accountants and auditors must use what the “profession titles” professional judgment in determining materiality.
The second subtitle, faithful representation indicates whether financial information depicts the substance of an economic event or transaction in a manner that consists of the following:
Completeness
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