Here are the key points about neutrality on faithful representation characteristic from SFAC No. 8:
- Neutrality means that the financial information is free from bias. It is prepared without undue influence from parties that may have a stake in the financial reporting outcomes.
- If the neutrality characteristic of faithful representation is not fulfilled, the financial information may be biased or slanted in a way that is misleading to users. It would not provide an unbiased representation of the underlying economic phenomena.
- Lack of neutrality could occur if there are omissions or distortions in the selection or presentation of financial information that sway the primary users' judgment or decision in a particular direction.
So in summary, neutrality is
Here are the key points about neutrality on faithful representation characteristic from SFAC No. 8:
- Neutrality means that the financial information is free from bias. It is prepared without undue influence from parties that may have a stake in the financial reporting outcomes.
- If the neutrality characteristic of faithful representation is not fulfilled, the financial information may be biased or slanted in a way that is misleading to users. It would not provide an unbiased representation of the underlying economic phenomena.
- Lack of neutrality could occur if there are omissions or distortions in the selection or presentation of financial information that sway the primary users' judgment or decision in a particular direction.
So in summary, neutrality is
Here are the key points about neutrality on faithful representation characteristic from SFAC No. 8:
- Neutrality means that the financial information is free from bias. It is prepared without undue influence from parties that may have a stake in the financial reporting outcomes.
- If the neutrality characteristic of faithful representation is not fulfilled, the financial information may be biased or slanted in a way that is misleading to users. It would not provide an unbiased representation of the underlying economic phenomena.
- Lack of neutrality could occur if there are omissions or distortions in the selection or presentation of financial information that sway the primary users' judgment or decision in a particular direction.
So in summary, neutrality is
SFAC No. 8 SFAC No. 8 this was basically created by the FASB to accommodate convergenceaccounting standards with the International Financial Reporting Standard (IFRS) issued by International Accounting Standard Boards (IASB). More details in the Concept of Financial Accounting Statements (SFAC) no. 8 consists of 2 sub topics, namely: A. The Purpose of Financial Reporting Based on SFAC No. 8 the main purpose of financial reporting in general is to provide financial information regarding Entity Reporting from a company that is useful for investors & creditors in decision making. B. Qualitative characteristics of useful financial information Fundamental qualitative characteristics Relevance, Relevance financial information is capable of making a difference in the decisions made by users. Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both. Financial information has predictive value if it can be used as an input to processes employed by users to predict future outcomes. Financial information has confirmatory value if it provides feedback (confirms or changes) about previous evaluations. Faithful representation, General purpose financial reports represent economic phenomena in words and numbers. To be useful, financial information must not only be relevance, it must also represent faithfully the phenomena it purports to represent. Faithful representation means representation of the substance of an economic phenomenon instead of representation of its legal form only. A faithful representation seeks to maximize the underlying characteristics of completeness, neutrality and freedom from error.
Enhancing qualitative characteristics
Comparability, Information about a reporting entity is more useful if it can be compared with a similar information about other entities and with similar information about the same entity for another period or another date. Comparability enables users to identify and understand similarities in, and differences among, items. Verifiability,Verifiability helps to assure users that information represents faithfully the economic phenomena it purports to represent. Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation. Timeliness,Timeliness means that information is available to decision-makers in time to be capable of influencing their decisions. Understandability,Classifying, characteristic and presenting information clearly and concisely makes it understandable. While some phenomena are inherently complex and cannot be made easy to understand, to exclude such information would make financial reports incomplete and potentially misleading. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analysis the information with diligence. Question : Related to qualitative characteristics, what is meant by neutralon faithful representation characteristic and what happens if the characteristics are not fulfilled?
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