Qualitative Factors of Financial Statements

Qualitative Factors of Financial Statements

The quality of financial statement information is determined by the four factor i.e. understandability, relevance, comparability and reliability of information is being furnished by the financial statement.

1.    Understandability 

The financial statement should be presented in a way that it can be readily understandable by the user. In this context user are assumed to have necessary business and economic knowledge. The information shall not be excluded from the financial statement on the ground that it is difficult to understand.

2.    Reliability

Financial statement should present reliable and information that can be entrusted. Therefore Financial statements information must free from error, accurate, complete, and neutral.  Financial statement meets the decision making requirement of many user, therefore, reliability a fundamental qualitative requirement of financial statement.

3.    Comparability 

The information of financial statement must be comparable with other period information and financial statement of the industry .Comparability is important aspect because it helps in determining the trend over the period of time and evaluating the performance of the entity.

Comparability in financial statement can be achieved by consistent presentation of financial information and presenting the corresponding figures i.e. last year figures.