accounting
Financial information should possess a number of qualitative characteristics in order to meet the needs of users of financial statements. There are, however, a number of issues that surround the qualitative characteristics of financial information. The threshold quality of materiality is not easy to define and can be misunderstood. Similarly, the concept of prudence is not clear-cut and can conflict with neutrality. In addition, relevance and reliability can be conflicting targets and a trade-off needs to be made between the two.
Required:
Write an essay that draws on the above arguments in relation to the concepts of materiality, prudence and neutrality, and relevance and reliability
In this assignment, I shall discuss 3 main parts and they are:
Materiality and the difficulty in defining this concept
The concept of prudence and its conflict with neutrality
The conflict between relevance and reliability.
Most of the times, people find it difficult to understand the various accounting Concepts. In this coursework, I shall analyze these concepts and explain them. First of all I shall discuss the materiality concept. WHAT IS MATERIALITY? Authoritative accounting bodies in the USA such as Financial Accounting Standard Board (FASB), Securities and Exchange Commission (SEC), General Accounting Office (GAO), American Institute of Certified Public Accountants (AICPA) and in the international arena, The International Accounting Standards Committee (IASC) have contributed to clarify the materiality concept. FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information (1980) defines materiality as follows:
“The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission
Required:
Write an essay that draws on the above arguments in relation to the concepts of materiality, prudence and neutrality, and relevance and reliability
In this assignment, I shall discuss 3 main parts and they are:
Materiality and the difficulty in defining this concept
The concept of prudence and its conflict with neutrality
The conflict between relevance and reliability.
Most of the times, people find it difficult to understand the various accounting Concepts. In this coursework, I shall analyze these concepts and explain them. First of all I shall discuss the materiality concept. WHAT IS MATERIALITY? Authoritative accounting bodies in the USA such as Financial Accounting Standard Board (FASB), Securities and Exchange Commission (SEC), General Accounting Office (GAO), American Institute of Certified Public Accountants (AICPA) and in the international arena, The International Accounting Standards Committee (IASC) have contributed to clarify the materiality concept. FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information (1980) defines materiality as follows:
“The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission
References: Qualitative Characteristics of Accounting Information (1980) para 132.