Essay: Requirement of Financial Framework

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Essay: Requirement of Financial Framework

Sample Essay

The framework requires the financial statements to have the qualitative characteristics of understandability and relevance. These two are very important for the accounts to be useful for decision makers. The accounts need to be presented in a manner that anyone with a basic knowledge of accounting can understand them.

This makes sure that the accountants don’t use advanced techniques to prepare too complicated statements that most would not be able to comprehend (Morton 1974). If they are understandable, users can gain help from them in terms of decision making. This however presents a problem of some things being excluded from the statements, being deemed too difficult for most to understand. However, they may be economically relevant for investors. That’s where the need for relevance comes into the framework. It ensures that information that is economically relevant for users of the financial statements is disclosed, no matter how complex it is (Morton 1974). This includes the mention of past performance and predictions of future financial position.

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