constraints on relevant and reliable information
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The document discusses the constraints on the relevance and reliability of accounting information, focusing on attributes such as timeliness, cost-benefit analysis, materiality, and verifiability. It highlights the importance of balancing these qualities to ensure that information provided is useful for decision-making while also weighing the costs involved in maintaining reliability. Additionally, it addresses user-specific constraints and the challenges external users face in verifying financial statements.
constraints on relevant and reliable information
- 1. CONSTRAINTS ON RELEVANCE AND RELIABILITY OF ACCOUNTING INFORMATION
- 2. Definition of relevant and reliable information Discussions on: Timeliness Cost and benefit Materiality Balance between qualities characteristic Verifiability FASB and IASB constraints Conclusion
- 3. if is capable of making a difference in a decision has predictive value has feedback value is timely
- 4. The degree of correspondence between what that information conveys to users and the underlying transactions Is verifiable; independent users can arrive at the same conclusion Is a faithful representation of what actually happened Is neutral; free from bias
- 5. having information available to decision makers before it loses its capacity Lose its relevance if there is undue delay in it being reported weigh the relative merits of timely reporting and the provision of relevant and reliable financial information
- 6. how much will it cost to uphold the qualities of relevant and reliability , what benefit will they get. The cost of providing information should not outweigh the benefit derived Costs and benefits are not always obvious or quantifiable Different point of incidence of benefit and cost Sound judgement must be used in providing information E.g. hiring of external auditor, valuation of asset
- 7. Information that can influence the decisions that users make on the basis of an entity’s financial information. it is not possible to specify a uniform quantitative threshold cross road over qualitative and quantitative materiality concept misstatements will result in information that is incomplete, biased or not free from error
- 8. appropriate balance among the characteristics in order to meet the objective of financial statements Information may be relevant but so unreliable in nature or representation
- 9. User specific constraint implies a consensus among different measurer impossible for every user to verify the information provided Consider how a shareholder can verified the all figures in income statement with its underlying transaction. This limits external users’ reliability on financial information.
- 10. ITEM FASB IASB Timeliness attribute constraint Cost/benefit constraint constraint Verifiability constraint attribute materiality constraint attribute
- 11. As accounting theory is like cloud seen differently by everyone so as its constituents thus, these constraints can also be classified as attributes depending on its application.
- 12. Eldon S. Hendriksen, Accounting Theory Ahrmed Riahi-Belkaoui Accounting Theory Jawahar Lal, Accounting Theory and Practice, Himalaya Publishing House, 2008 Institute of Chartered Accountants, Australia Qualitative Characteristic of Financial Information I (SAC 3). Financial Accounting Standard Board Qualitative Characteristic of Accounting Information I (CON 2 2008). International Accounting Standard Board Qualitative Characteristic of Financial Information I (Issue paper 2009).