The Fundamental and Enhancing Qualitative Characteristics Essay Example
This study examines the influence of business ethics commitment toward financial reporting quality. This study uses explanatory research method and a multivariate regression test to conduct the statistic testing.
The results further indicate that the respondents perceived faithful representation and relevance as having greater potential of enhancing the quality of financial reporting, with an average mean score of 3.2 and 3.1 respectively. Findings also revealed that, although the adoption of IFRS has greatly impacted the quality of financial reporting, training on IFRS and qualitative characteristic-based study are still scanty.
Decisions made on information provided by accountants can materially affect the lives of any or all of these stakeholders. Therefore Behaving ethically is an essential and expected trait.
The body who releases the IFRS standards (the International Accounting Standards Board or IASB) recently made changes to the framework for how financial statements are prepared, the so-called conceptual framework. So, if Australia is to maintain its IFRS basis of accounting, our framework also needs to change to align with the international framework. All public companies are required to issue an audited set of general-purpose financial statements by the Public Company Accounting Oversight Board or PCAOB. Most public companies issue quarterly earnings reports as well as annual financial statements. This gives potential investors more financial information about the company to base their decisions on.
Lack of professional ethics accompanied with qualitative characteristics of financial reporting can make an unrealistic picture of financial reporting. Regardless of accounting standards and rules, without professional ethics, accountants can provide manipulated financial reports.
Expectations of society is very much from the Professionals and People need to have confidence in the accounting profession by providing quality of complex services. therefore, The information provided by accountants should significantly efficient, reliable, realistic and are unbiased.
Faithful representation
The study recommends training of accounting personnel on IFRS and more research studies in this area. Accountants have obligations to shareholders, creditors, employees, suppliers, the government, the accounting profession and the public at large. In other words, their obligations go beyond their immediate client.
The provisions stated under framework as opposed to the standards are not instructions based because standards provide clear cut rules that must be followed. Also when framework and standards are in conflict over any matter then standards prevail. But there is one exception to this rule which will be discussed later.
Simply put, someone with a reasonable amount of accounting or business knowledge should be able to read and understand your company’s financial reports. Statements that include lengthy explanations or data that confuses the bottom line may be evidence of a company’s attempt to gloss over poor performance.
Comparability and understandability of our financial reports need to be internationally recognised to allow our businesses to remain competitive. Australia is the only country that allows general purpose and so-called special purpose financial statements to be prepared. While in some other countries – such as the US or the UK – a separate financial reporting framework (non-IFRS) is available, this is not an option in Australia for legislative reasons. For Australia to maintain a single framework based on IFRS there will be only one way to prepare a financial report in accordance with accounting standards and that is by adopting all the applicable IFRS standards.
According to IAS 1 fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions, recognition criteria and substance of transactions. Simply put, IAS 1 almost equates the fair presentation with the compliance with accounting standards which is presumed to result in the fair presentation of financial statements. More specific financial reports like production flow processes and market analyzes are not included in a set of general-purpose financial statements. These types of reports are only available to company management.
A coherent set of accounting standards and rules should result. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. A third enhancing quality of accounting is understandability.
A conceptual framework should increase financial statement users’ understanding of and confidence in financial reporting. Practical problems should be more quickly solvable by reference to an existing conceptual framework.
According to the FASB conceptual framework, the objective of financial reporting for business enterprises is based on the needs of the users of financial statements. Explain the level of sophistication that the Board assumes about the users of financial statements. In accounting the qualitative characteristics include relevance, reliability, comparability, and consistency. Qualitative characteristics are discussed in the Financial Accounting Standards Board’s Statement of Financial Accounting Concepts No. 2. Financial statements should not be described as compliant with IFRSs unless they comply with all of the International Financial Reporting Standards.
The existence of accounting standards and rules per se does not guarantee a sound and appropriate financial reporting. Hence, combination of professional ethics and qualitative characteristics of financial reporting must be used. Developing professional ethics in accounting profession lead to promoting the quality of financial reporting.
- The study examined the perception of Nigerian accountants on the quality of financial reporting and the use of qualitative characteristics in the measurement of financial reporting quality.
- The study adopted a survey approach.
Comparability. Timeliness. Understandability. Verifiability. Which of the following is not a benefit associated with the FASB Conceptual Framework Project?
The result indicates a positive influence of the implicit business ethics commitment on the financial reporting quality. This fiinding reveals that top management support, culture, ethical leadership, open communication channels, and ethics training are considered essential to improve the quality of fiinancial reporting.
The study examined the perception of Nigerian accountants on the quality of financial reporting and the use of qualitative characteristics in the measurement of financial reporting quality. The objective was to demonstrate how the qualitative characteristics, as defined by the IASB can be operationalised. The study adopted a survey approach. 120 copies of structured questionnaire, designed in accordance with the underneath attributes of the qualitative characteristics, were distributed to professional accountants in three major cities in Nigeria. The data generated from the survey was analysed using tables, percentages, mean and descriptive analysis.
Comparability, verifiability, timeliness and understandability are identified as enhancing qualitative characteristics. They increase the usefulness of information that is relevant and faithfully represented. However, the framework acknowledges that information may not possess all of the enhancing characteristics but that it may still be useful.
Relevance
After we revise our framework, there will no longer be a distinction between “reporting” and “non-reporting” entities. This means all financials to be prepared in accordance with accounting standards will, in fact, be “general purpose”. The concept of special purpose financial reports will no longer be able to be applied where a business is required to prepare its financial report in accordance with accounting standards. Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information?
IAS 1 Presentation of Financial Statements
The framework also acknowledges that the cost of providing financial information is a pervasive constraint upon our ability to satisfy the objective of financial reporting. In setting standards we will strive to require information that has both of the fundamental characteristics and as many of the enhancing characteristics as possible while minimising the cost of producing it. IASB framework provides conceptual guidance regarding preparation and presentation of financial statements whereas IAS 1 sets out the principles and rules for preparation and presentation of financial statements. So the difference between these two documents must be clear as framework does not amount to standard and is separate from International Accounting Standards.
What are the three ingredients of faithful representation?
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.
Enhancing Qualitative Characteristics
These qualities are outlined in Chapter 3 of the Conceptual Framework for Financial Reporting, approved by the International Accounting Standards Board (IASB). A soundly developed conceptual framework of concepts and objectives should a.
These activities are time-consuming and costly. The benefits of providing accounting information are experienced by society in general, since informed financial decisions help allocate scarce resources to the most effective enterprises. Occasionally new accounting standards require presentation of information that is not readily assembled by the accounting systems of most companies. A determination should be made as to whether the incremental or additional costs of providing the proposed information exceed the incremental benefits to be obtained. This deter-mination requires careful judgment since the benefits of the proposed information may not be readily apparent.
In Australia, we adopt the International Financial Reporting Standards (IFRS) basis of financial reporting. This means that every time you refer to an AASB accounting standard, it has come from the international equivalent IFRS standard. By taking this approach, Australian businesses preparing financial statements under AASBs also conform with IFRS financial reporting which is the basis used by a majority of international businesses. If we do not revise our own framework to align with the international framework, Australia will not be able to claim its IFRS compliance. Whilst this may not affect all businesses, the impact on those who do business internationally could be detrimental.
increase financial statement users’ understanding of and confidence in financial reporting. enhance comparability among companies’ financial statements. allow new and emerging practical problems to be more quickly solved. All of these answer choices are correct.