Question

If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable’ (IASB Conceptual Framework for Financial Reporting 2010).

Required:

(a) Identify and explain the fundamental and enhancing characteristics of financial information, as defined by the IASB.

(b) Critically evaluate the use of a conceptual framework as a frame of reference for the regulation of financial reporting.

Answer 1

a) a) Financial information has a few characteristics that make it helpful.

These characteristics are sketched out in Chapter 3 of the Conceptual Framework for Financial Reporting, affirmed by the International Accounting Standards Board (IASB).

Accoding to the Conceptual Framework, financial information is helpful when it is applicable and speaks to dependably what it indicates to speak to.

The value of financial information is upgraded in the event that it is similar, unquestionable, opportune and justifiable.

Major Qualitative Characteristics

1. Pertinence

Important information is fit for having any kind of effect in the choices made by clients. Importance requires financial information to be identified with a monetary choice. Something else, the information is futile.

Financial information is helpful in the event that it has prescient esteem and corroborative esteem. Prescient esteem helps clients in foreseeing or envisioning future results. Corroborative esteem empowers clients to check and affirm prior forecasts or assessments.

Materiality is a part of significance which is substance explicit. It implies that what is material to one element may not be material to another. It is relative. Information is material on the off chance that it is sufficiently noteworthy to impact the choice of clients. Materiality is influenced by the nature and extent (or size) of the thing.

2. Loyal Representation

The financial information in the financial reports ought to speak to what it indicates to speak to. Which means, it should indicate what truly are available and what truly occurred, by and large.

There are three attributes of devoted portrayal: 1. Culmination (sufficient or total honesty of all fundamental information), 2. Impartiality (decency and opportunity from predisposition), and 3. Free from mistake (no errors and oversights).

Enhancing Qualitative Characteristics

1. Comparability

Tantamount information empowers correlations inside the element and crosswise over elements. At the point when correlations are made inside the element, information is contrasted from one accounting period with another. For instance: pay is analyzed for the years 2015, 2016, and 2017. Comparability of information crosswise over substances empowers investigation of likenesses and contrasts between various organizations.

2. Verifiability

Verifiability guarantees clients that information speaks to reliably what it implies to speak to. Financial information is upheld by proof and autonomous people can check them to see whether such information is dependably spoken to. At the end of the day, information is unquestionable in the event that it tends to be inspected.

3. Timeliness

Timeliness implies giving information to leaders so as to be fit for impacting their choices. It shouldn't be fundamentally postponed or else it will be of almost no esteem.

4. Understandability

Understandability requires financial information to be justifiable or conceivable to clients with sensible learning of business and monetary exercises. To be justifiable, information ought to be introduced obviously and briefly. Be that as it may, it is ill-advised to reject complex things just to make the reports straightforward and reasonable.

b)

The essential clients of universally useful financial reporting are available and potential speculators, moneylenders and different leasers, who utilize that data to settle on choices about purchasing, moving or holding value or obligation instruments, giving or settling advances or different types of credit, or practicing rights to cast a ballot on, or generally impact, the board's activities that influence the utilization of the element's monetary assets. [1.2]

The essential clients require data about the assets of the element not exclusively to evaluate an element's prospects for future net money inflows yet in addition how successfully and effectively the board has released their duties to utilize the element's current assets (i.e., stewardship). [1.3-1.4]

The IFRS Framework takes note of that universally useful financial reports can't give all the data that clients may need to settle on monetary choices. They should think about relevant data from different sources too. [1.6]

The IFRS Framework noticed that different gatherings, including prudential and advertise controllers, may discover broadly useful financial reports valuable. Be that as it may, these are not viewed as an essential client and broadly useful financial reports are not principally coordinated to controllers or different gatherings. [1.10]

Data about a reporting element's financial assets, claims, and changes in assets and cases

Financial assets and cases

Data about the nature and measures of a reporting substance's monetary assets and cases helps clients to survey that element's financial qualities and shortcomings; to evaluate liquidity and dissolvability, and its need and capacity to get financing. Data about the cases and installment necessities helps clients to anticipate how future money streams will be disseminated among those with a case on the reporting substance. [1.13]

A reporting element's monetary assets and cases are accounted for in the announcement of financial position. [See IAS 1.54-80A]

Changes in financial assets and cases

Changes in a reporting element's monetary assets and cases result from that element's execution and from different occasions or exchanges, for example, issuing obligation or value instruments. Clients should have the capacity to recognize both of these changes. [1.15]

Financial execution reflected by gathering accounting

Data about a reporting substance's financial execution amid a period, speaking to changes in monetary assets and claims other than those got specifically from speculators and banks, is helpful in evaluating the element's past and future capacity to create net money inflows. Such data may likewise show the degree to which general monetary occasions have changed the substance's capacity to produce future money inflows. [1.18-1.19]

The adjustments in a substance's monetary assets and cases are exhibited in the announcement of complete pay. [See IAS 1.81-105]

Financial execution reflected by past money streams

Data about a reporting substance's money streams amid the reporting time frame additionally helps clients to evaluate the element's capacity to produce future net money inflows and to survey the executives' stewardship of the element's monetary assets. This data shows how the element acquires and spends money, including data about its getting and reimbursement of obligation, money profits to investors, and so on [1.20]

The adjustments in the substance's money streams are exhibited in the announcement of money streams. [See IAS 7]

Changes in monetary assets and cases not coming about because of financial execution

Data about changes in an element's monetary assets and cases coming about because of occasions and exchanges other than financial execution, for example, the issue of value instruments or circulations of money or different advantages for investors is important to finish the image of the aggregate change in the element's monetary assets and cases. [1.21]

The adjustments in an element's monetary assets and cases not coming about because of financial execution is displayed in the announcement of changes in value. [See IAS 1.106-110]

Data about utilization of the substance's financial assets

Data about the utilization of the substance's financial assets likewise shows how proficiently and successfully the reporting element's administration has utilized these assets in its stewardship of those assets. Such data is likewise valuable for foreseeing how productively and viably the board will utilize the substance's monetary assets in future periods and, thus, what the prospects for future net money inflows are.