In: Accounting
Within the Conceptual Framework are qualities of financial information. A key is that information is to be useful and a primary part of being useful is that information must faithfully represent what is being presented. What is faithful representation?
Faithful representation is the concept based on which financial statements prepared and reported should accurately reflect the condition of a business. There are three attributes of Faithful representation:
· Complete: The Financial statement should be complete in order to give a clear picture of business results. Hence all Statements needed to present as part of financial statements should be given – Income statement, Statement of stockholders equity, Balance sheet and Cash flow statement. In addition to this all notes of account for material information should be provided. For example : Change in inventory valuation method, change in depreciation method, etc
· Error free: The financial statements should give true and fair view of the business with no errors so that it is reliable. There should not be any material errors or intentional misrepresentation which can amount to fraud.
· Unbiased: The financial statements should be prepared and presented on actual sate of organisation without making them look better or worse. For example: profits can be inflated by increasing closing stock to show better results which is biased.