Basic qualitative objectives

  In order for accounting information to be useful, it must have certain qualities or characteristic. Seven qualities are identified by the APB in statement No.4 as being basic if financial accounting is to fulfill its service objectives. These qualities are: 

1. Relevance 

  The accounting principles board identifies relevance as the primary qualitative objective. Information must be relevant to its intended use. If it is not relevant, it is useless regardless of how well it meets the other objectives. The objective of relevance is to select methods of measuring and reporting that will aid those individuals who rely upon financial statements to make decisions. Many critics of financial statements have argued that traditionally prepared statements are irrelevant to many desicions that must be made. An increasing amount of research is being conducted to evaluate this criticism. 

2. Understandability 

  In order for financial informationto be useful in a desicion process, it must be expressed in terminology that is understandable to the user. Business transactions and activities have become increasingly complex. It is not always possible to describe complex transactions in simple terms; therefore, the user of the statements must attain a minimum level of competence in understanding the terminology used in accounting statements. However, the accountant has a basic responsibility to describe business transactions clearly and concisely 

3. Verifiability 

  Accountants seek to base their findings on facts that are determined objectively and that can be verified by other trained accountants. The APB in listing verifiability as an objectives states, “ verifiable financial accounting information provides results that would be substantially duplicated by independent measures using the same measurement methods”. 

4. Neutrality 

  Financial statements should not be biased in favor of one group to the detriment of another. This objective may conflict with the basic objective of relevance ; however, the presumption of the accounting principles board is that external financial reports are general purpose statements that meet the common needs of a wide variety of users. Specialized needs must be met in other ways. The qualitative objective of neutrality is similar in concept to the American Accounting Association Standard “ freedom from bias” and to the all-encompassing principle of “ fairness” advocated by a national CPA firm. 

5. Timeliness 

The meaning of the qualitative objective of timeliness is almost self-evident. However, it is so vital to the concept of usefulness that it must be explicitly included. Information furnished after a desicion has been made is of no value. All accounting systems should be established to provide information to all users in a timely manner. In meeting this objective, financial statements must be prepared prior to the time an accountant can be absolutely certain as to the results of an entity’s operations. 

Source: 

Harry simons,MA,CPA.1972. Intermediate accounting. South-western publishing CO: United States Of America