Question

What are the characteristics of an ideal financial statement?(need 300-400 words)

Answer 1

Below are the some of the charectersitcis that depicts an ideal financial statement

• It should depict true financial position of a company.

The information contained in the financial statement( income statement, Balance sheet or cashflow) should be able to represent the true state of the company.

• Effectiveness in presenting the data:

The financial statements should be simple and easy to understand. The terminologies used should not be too much technical.

• Relevance:

The statements should be relevant to the current business scenario and should match with the objectives of the company. Irrelevant informations should be avoided.

• Attractive:

The financial statements should be made in a way where important information is underlined so that it attracts the eye of the reader.

• Easiness:

The financial statements should be easy to prepare even if the person who made the statements changes. The calculation should be well defined and minimalistic. The size of the statements should not be very large etc,

• Comparability:

The results should be comparable with the historical results and the datas should be able to compare with the peers. There should be a standardization for this process.

• Analytical Representation:

Rather than only following verbal communication, the inferences has to be obtained through proper analyses of the data.

• As Brief as possible:

If possible, the financial statements should be presented in brief and to the point. The reader will be able to form an idea about the figures.

• Promptness:

The times constraints for presenting the financial statements should be mainteained and it should be presented at the correct time where the statements are considered most relevant. For example there is no benefit in presenting a financial statement of the company's performance 2 years before rather than presenting this years performance.