This characteristic of financial statements is very important to maintain, as it makes sure that the performance of the company could be monitored and compared. Accounting users is the people who need accounting information to make decisions, invest, planning and budgeting. Next, the 5 characteristics of financial statement is comparability, reliability, timely, relevance, and accuracy. Financial statements should therefore abide by a common set of general principles: information demonstrates certain characteristics and readers can also assume certain things about this information. External users are the users outside of the organization which includes of creditors, suppliers, investors, tax authorities, government agencies, customers, and financial analysts or adviser. One of the elements of financial statements is comprehensive income. In order for the financial statements to be useful to the stakeholders of a business they must embody certain qualitative characteristics. In task 3, income statement and balance sheet for external reporting or publication must be prepared neatly and precisely. Secondly, is the stock turnover period of Continental Limited which is 117.36 days and the industry average is about 90 days. Accounting information is needed to a manager to know that whether the organization are earning or losing. One of the elements of financial statements is comprehensive income. According to the table above, it has show that the current ratio of Continental Limited is 3.32:1 and the current ratio of industry average is 2:1. A. Prudence and neutrality B. Completeness and neutrality C. Prudence and substance over form D. Completeness and substance over form 4. Timely is referring to the information which is present or past. This means they are more likely to report increased performance and neglect to report unfavorable events. FALSE. Any information contained within this essay is intended for educational purposes only. The main purpose of financial statements is to provide necessary information about the company’s resources and performance. In this situation, it shows that the finance of the organization is stable and did not face any short-term financial problems. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. 10. It should not be treated as authoritative or accurate when considering investments or other financial products. Since 2010, the structure of fundamental and enhanced characteristics of useful information was as below. Effective Presentation 3. The elements of financial statements. When the operating profit margin is high, its means that the organization profits are still high even finish paying those variables cost. a. revenues minus expenses plus gains minus losses. Choice "a" is correct. It turned out that the IASB fell short of their expectation. Lastly, the return on capital employed (ROCE) of Continental Limited in 2010 is 11.26% while it is 9% in industry average. Besides, the five regulatory characteristics of the financial statements that help to provide useful information to those accounting users will be explain too. Financial Statement such as  balance sheet depicts position of assets of the company strong enough to cover its liabilities. Based on this period we can know that Continental Limited is taking longer time than industry average to collect debts from the debtors. According to Michael Russell, he demonstrates that account is a recording of financial or money transactions. © 2000-2020 Bayt.com, Inc. All Rights Reserved. 1st Jan 1970 Unbiased information must be the overriding consideration. Get Fresh Updates On your job applications, and stay connected. Historical Cost. Privacy Statement - Suppliers are the person who provide or supply products or services and in return get an agreed payment. This is not an example of the work produced by our Essay Writing Service. Accounting information also helps managers in organization budgeting process by know the financial situation of the organization and allocate the money to each department wisely. Last, industry averages provided to access profitability and liquidity of Continental Limited will be compared. Consistency 3. The qualitative characteristics of financial information . Neutrality is one of the ingredients of faithful representation, along with completeness and free from material error. It is the qualitative characteristics of financial statements comparability. It can help accounting users to predict future outcome such as profit or loss. Ideal Financial Statement Characteristic # 1. It is difficult to design financial reports which may be relevant to user needs on the one hand and also free from bias towards any particular user group on the other. They must know the account information of an organization to insure employee’s benefits or pension funding is able to pay to them. Thus, Neutrality is a Characteristic of Financial Statements. Neutrality requires that management prepare completely unbiased financial statements. Neutrality means lack of bias-that financial reporting does not have a preconceived objective or agenda. Because it might affect the image and the business of the organization. b. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners. They are the boss of the company, so they were needed to know the performance of the organization and determine the future plan. 4.2 QUALITATIVE CHARACTERISTICS: Financial statements are governed by GAAP (generally accepted accounting principles). Our academic experts are ready and waiting to assist with any writing project you may have. As described in ... comparability characteristic. Their needs includes of making decision, invest, giving loan and know the situations of the organization. The four important characteristics of financial information are understandability, relevance, reliability, and comparability. In this situation, when the gross profit margin are higher, it means that the organization are controlling their purchasing cost effective and efficient Besides, it also show that the organization perform good in allocating their raw materials and labor force to helps in reduce production cost and increase their gross profit. The following points highlight the nine characteristics of financial statements, i.e, 1. It will be prepared in an accepted format for the needs of external reporting and publication. Users of financial statements frequently rely upon the data displayed in the financial statements to predict future financial outcomes. To export a reference to this article please select a referencing stye below: If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: Our academic writing and marking services can help you! Relevance (b) Quality of information that confirms users’ earlier expectations. Statement of Financial Position It contains information about the assets, liabilities and equity of the reporting entity at a point in time. Analytical Representation 8. Register now Accounting ratio is one of the ways to define the relationship among result and the others, such as balance sheet, and profit loss account. Information is not manipulated to increase the probability that users will receive it favorably or unfavorably. Since cost RM65000 < net resale value RM70000, so the cost RM65000 should be closing stock and put in the trading accounting of income statement. 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