VCE 3/4 Accounting Characteristics

QUALITATIVE CHARACTERISTICS (TURFCV):

• Timeliness: Timeliness means providing information to stakeholders promptly enough to influence their decisions. Sooner information is more impactful, while delays reduce its usefulness. Generally, older information is less valuable.

• Understandability: Understandability requires financial information to be clear and concise for stakeholders with basic business and economic knowledge.

• Relevance: Relevant information impacts stakeholders' decisions by relating to a financial choice. It helps predict outcomes and provides feedback to confirm or change previous evaluations.

• Faithful representation: The reported information must be a faithful representation that accurately reflect the real-world economic event, ensuring it is complete, error-free, and unbiased.

• Verifiability: Verifiability ensures that knowledgeable, independent observers can agree on an event's faithful representation. It relies on source documents and auditing, holding accounting professionals accountable.

• Comparability: Comparability allows users to identify similarities and differences among items. Information is more useful when it can be compared with other entities or different periods of the same entity.

ACCOUNTING ASSUMPTIONS (PAGE):

• Reporting Period: Reports are prepared for specific periods, like a month or year, to ensure comparability. Profit is calculated by recognizing period revenue and deducting expenses. Assets benefit future periods, while expenses are consumed within one period.

• Accrual assumptions: Under accrual accounting, revenue is recognised when economic benefits can be measured in a faithful and verifiable manner, indicating it's earned. Expenses are recognised when goods or services are consumed, signifying they're incurred. Accrual basis profit is calculated by deducting expenses from revenue within the accounting period.

• Entity: The entity's records for assets, liabilities, and activities are distinct from those of the owner and other entities. Each entity maintains its own accounting records and financial statements that reflect only its operations.

• Going-concern: Financial reports assume the entity will continue operating into the future without imminent closure.