Underlying Assumptions

Accrual Accounting recognizes transactions and other events of reporting entity in the periods in which those effects occur, even if the resulting cash receipts and payments occur in different periods.

Going Concern is the assumption that that the enterprise is a going concern and will continue in operation in foreseeable future. Hence it is assumed that the enterprise has neither the intention nor the need to liquidate or curtail materially the scare of operations. If prepared on different basis then disclosure is needed.

Qualitative Characteristics of the useful Financial Information

  1. Relevance – relevant financial information is capable of making a difference in the decisions made by the user. Under relevance predictive and confirmatory value. Predictive value if it can be input into processes employed by users to predict future outcomes. Confirmatory value, if it provides feedback about previous valuations, it enables users to confirm and correct expectations. Materially is material omitting it or misstating it that could influence users make decision.
  2. Faithful Representation – characteristics of faithful representation is completeness and neutrality. Neutrality is presentation of information without bias. Completeness includes information necessary to understand the event including all necessary descriptions and explanations.
  3. Freedom from error – means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process.

Enhancing Qualitative Characteristics

  1. Comparability – users enable to identify and understand similarities in and differences among items. Consistency refers to the use of same methods.
  2. Verifiability – Means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement.
  3. Timeliness – means having information available to decision makers in time to be capable of influencing their decisions.
  4. Understandability – means classifying and charaterizing and presenting information clearly and concisely.



About Jonathan Ruiz CPA

Entrepreneur, CPA Mentor, Stock market Newbie Mentor, Influential Author and Master's Degree in International Business graduate in Hult International Business School, UK. A father of two lovely daughters.
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