Objectives of Financial Reporting

Answer 1

-Relevance - Accounting information is relevant if it is capable of making a difference in a decision.

Relevant information has:

(a) Predictive value

(b) Feedback value

(c) Timeliness

- Reliability - Accounting information is reliable to the extent that users can depend on it to represent the economic conditions or events that it purports to represent.

Reliable information has:

(a) Verifiability

(b) Representational faithfulness

(c) Neutrality

2) Secondary qualities of useful accounting information:

Comparability - Accounting information that has been measured and reported in a similar manner for different enterprises is considered comparable.

Consistency - Accounting information is consistent when an entity applies the same accounting treatment to similar accountable events from period to period.

Accounting Qualities and Useful Information for Analysts

Here is how these qualities provide analysts with useful information:

Relevance- Relevant information is crucial in making the correct investment decision.

Reliability - If the information is not reliable, then no investor can rely on it to make an investment decision.

Comparability - Comparability is a pervasive problem in financial analysis even though there have been great strides made over the years to bridge the gap.

Consistency - Accounting changes hinder the comparison of operation results between periods as the accounting used to measure those results differ.