ACCA Applied Knowledge · Financial Accounting · Qualitative characteristics of useful financial information
Lowen Co presents its financial statements using complex technical jargon, with no explanation of unusual transactions, although the figures are accurate. Users with reasonable knowledge of business and a willingness to study the information find it hard to follow. Which enhancing characteristic is most lacking?
Understandability is lacking. Information should be classified, characterised and presented clearly and concisely so that users with reasonable knowledge who review it diligently can follow it. Accurate figures wrapped in unexplained jargon fail this test, while comparability, timeliness and verifiability are not the problem described.
- AUnderstandabilityCorrect
- BComparability
- CTimeliness
- DVerifiability
Explanation
Understandability is achieved by classifying, characterising and presenting information clearly and concisely. The framework assumes users have reasonable knowledge and diligence, yet jargon-heavy presentation without explanation still defeats this. The figures are accurate, so verifiability is not the issue.
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