Answer to Question #187935 in Accounting for Ledwaba

Question

Financial statements should reflect a true and fair view of the business. Explain in your own words what is meant by this statement by explaining the qualitative characteristics of financial statements

Answer 1

The Statement true and fair view of business represents that enterprise should provide true and fair view of business financial conditions and operating results and true and view also shows that financial statements are free from material statements.

Financial statements with true and fair view is required for management estimates and judgements. True and fair view defined that business enterprise complying with all the relevant required accounting principles.

Financial statement true and fair Information should make a difference in decision making of user.

True and fair information of financial Statements should be helpful for the users to assess the impact of present, past and future events.

Financial Information should be reliable and without omissions and errors.

True and fair information of financial statement should be of sufficient clarity and quality that will be helpful for the users to correct or confirm their previous expectations.

Two Fundamental Qualitative characteristics is defined by relevance and faithful representation

Relevance is affected by its nature and materiality and in order to have relevance, financial information must be timely while the faithful representation shows the completeness, Neutrality and free from Error, where completeness shows all the relevant explanations and descriptions and Neutrality stands for presentation of financial information without biasness and Free form error shows that no inaccuracies arise in making estimates.

Some other attributes of enhancing Qualitative characteristics are :

Comparability - It is useful for user to understand and identify differences and similarities among items.

Verifiability - It shows that different observers and knowledgeable could reach consensus that a particular depiction is a faithful representation.

Timeliness - It describe the provision of information to users quickly enough to make them to take action.

Understandability - Financial Information should be presented very concisely and clearly to make it understandable for users.