ACCT6003 Financial Accounting Process

 
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The concept of reporting entities

The concept reporting entities refers to all parties, economic and noneconomic, which have persons or entities that are reliably dependent on the functions of the financial reports. In essence, this are people or organization that are obliged to develop a general purpose financial reports. Consequently, they rely on these reports for information (GRÜBER, 2014, pp. 87-88). Therefore, all players in the financial sector who can generate and rely on financial reports qualify to be termed as reporting entities.

General purpose financial reports (GPFRs) refers to are statements that are issues across the year to give the creditors and investors the much needed information to help them in decision-making. The reports encompass income statements, information on cash flow, balance sheet, and statement on the owners’ equity.

The three main factors to be considered in deciding if a reporting entity exists are;

  1. It engages in some financial activities.

Reporting entities must have something to do with finances for them to be qualified as such.

  1. The entity must be dependent on general purpose financial reports.

All reporting entities make use of the general purpose financial statements, hence a factor to consider before qualifying once as a reporting entity.

  1. The entity should be in a position to generate the general purpose financial reports.

 

The fundamental characteristics of useful financial information include;

  1. Information provided should be authentic-the usefulness of information depends on its reliability, which is linked to how original it is. Distorted data mislead, thus not useful. The source of the information shared should be known and authorized. Falsified financial reports and statements lack authenticity, which makes that not useful (GRÜBER, 2014, pp. 48). Furthermore, authentic information is that which is not based of fiction, it ought to be derived from an existing issue or entity.
  2. Relevance-any financial information provided or gathered should be relevant for it to be useful.

The value of information to an organization or individual relies in its time, industry, and utility contexts. Consequently, when the data provided is incongruent with what is needed or expected it because valueless. When an entity needs current financial report and it is presented by an old report, it becomes irrelevant and unsuitable for use.

The Four enhancing characteristics of useful financial information

  1. Understand ability

Financial information is more useful if it can be decoded and understood by the user.  For example, the financial reports should be wrote in a language that is understandable. Financial information is turned into use when it can be correctly read and interpreted by the intended users.

  1. Comparability

Financial reports provided information that can be contrasted to similar information from elsewhere. In essence, any data that can’t be compared to information from some other places is less useful. The realm of finance is interdependent, hence no unique cases that can’t find comparable.

  1. verifiability

Verifiable information is more valued than what cannot be verified to establish it authenticity and accuracy. Provable content can be certified, thus useful. However, if one cannot verify a financial report or data, then it loses its value.

  1. Timeliness

Information use is generally dependent on the timeliness. For instance, financial reports for the past ten years may be of very little or no value to a manager who is looking at the current position of the company (Henderson & Pierson, 2013, pp. 48-49). Therefore, timelines of financial information enhances its value to the user.

 

 

 

Bibliography

Robinson, T. R. (2012). International financial statement analysis. Hoboken, N.J., John Wiley & Sons.

Henderson, S., & Pierson, G. (2013). Issues in Financial Accounting. Pearson Australia Pty Ltd.

GRÜBER, S. (2014). Intangible values in financial accounting and reporting: an analysis from the perspective of financial analysts. Wiesbaden : Springer Gabler.

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