Question

What are the fundamental qualitative characteristics and enhancing qualitative characteristic that financial accounting information should possess? what role do enhancing qualitative characteristics have relative to the role of fundamental qualitative characteristics?

Answer 1

Financial accounting information are those information which are useful to the internal as well as the external stakeholders of the company.The purpose of proving those information are it depicts the true and fair view of the financial position of the company. In order to get a good picture of that company, then the financial statement should posses some qualitative factors. These are

1-FUNDAMENTAL QUALITATIVE CHARACTERISTICS

a) Relevance

It means the financial information so provided should be relevant in nature,ie it should be capable of providing past data and should provide keys for predicting the future. past information can be termed as confirmatory value and future can be termed as predictive value

b)Representational Faithfulness

It means the information should be reliable.ie the financial statement so provided should reflect what the company is actually is. The data in the financial reports should be correct, free from errors, nuetral in sense of free from bias and the information should be complete. all the material facts should be disclosed in it

2-ENHANCING QUALITATIVE CHARACTERISTICS

a)Timeliness

simply refers to how quick the financial statement is available to the users of financial statements. The information which takes much time to disclose is less relevant than the information so available quickly.

b)Verifiability

it is the extend to which the information is reproducible with the same data and assumption

c)comparability

it means the information provided should be capable of comparison with financial statements of other companies and also it with past financial statements

d)Understandability

it means the information provided should be easy and understandable by everyone

Both fundamental and enhancing characteristics deals with production of financial statements as much as good. The stakeholders are always expected to get a good financial statements as it should give the true picture of the company. These fundamental and enhancing characteristics is fully deals with that.