4. what types of information are provided by financial reporting?

5. explain each of the two fundamental qualitative characteristics of useful financial information

 Relevance refers to the ability of financial information to influence the decisions of users by
helping them assess past, present, or future events or confirm or correct their past evaluations.
For information to be relevant, it must have the ability to make a difference in decision-making.
1. Predictive Value: The information should help users predict future outcomes or trends.
2. Confirmatory Value: Relevant information also helps users confirm or correct their
previous expectations or assumptions.
3. Materiality: For information to be relevant, it must be significant enough to influence
decisions.
 Faithful representation refers to the requirement that financial information should accurately
reflect the economic phenomena it purports to represent. Information is considered faithfully
represented if it is complete which include all necessary data, neutral or free from bias without
favoring one group of users, and free from error which requires that information is accurate in
all material aspects.

6. Explain how the enhancing qualitative characteristics of comparability, verifiability, timeliness, and
understandability make financial information useful to the users of financial report.

 comparability, verifiability, timeliness, and understandability make financial reports more

useful by improving their relevance and reliability for users such as investors, creditors, and
regulators. These characteristics ensure that financial data can be analyzed effectively,
increasing confidence in decision-making.
1. Comparability enhances the usefulness of financial information by allowing users to
identify similarities and differences between financial statements or at least two
economic circumstances over different periods or across different entities. This
characteristic ensures that financial data is presented consistently, following uniform
accounting standards and policies, making it easier for investors, creditors, and other
stakeholders to assess performance, and financial position effectively.
2. Verifiability ensures that financial information is reliable and can be confirmed by
independent parties, such as auditors, through supporting evidence and documentation.
This characteristic increase trust in financial reports by assuring users that the figures
and disclosures accurately reflect a company’s financial position and performance.
When information is verifiable, users can confidently rely on it to make economic
decisions, knowing it is free from bias or manipulation.
3. Timeliness is the availability of information to users early enough to be used for the
economic decisions the information might influence. It makes financial information
more relevant by ensuring that it is provided to users promptly when it is still useful for
decision-making.
4. Understandability ensures that financial information is presented clearly and concisely
so that users with reasonable financial knowledge can interpret it effectively. Complex
accounting jargons might hinder in the understanding of users, using simple language
 and explanatory notes if necessary, makes financial reports accessible to a broad range
of users.

7.

 Financial statement provides information such as the business’ financial position that helps
users assess liquidity, stability, and flexibility. It also provides information about the financial
performance of the business which helps users to evaluate profitability and operational
efficiency. It also includes information about cash flow and the details of cash inflow and
outflow from operating, investing, and financing activities. Another information provided is the
changes in equity that explains movements in equity, including retained earnings, dividends, and
issuance of new shares. Lastly, are the notes to the financial statements that provide additional
details and explanations for figures in the main financial statement.

8. Enumerate and define the elements of financial position.

1. Assets- are defined as resources owned and controlled by an entity as a result of past events
that has the potential to produce economic benefit. Assets are fundamental to a company's
financial position, as they represent what the company owns and can use to generate revenue
or provide value to stakeholders
2. Liability- present obligation of an entity arising from past transactions or events, which is
expected to result in an outflow of economic resources. Liabilities represent claims against a
company’s assets and must be settled over time, typically through payment or the transfer of
other resources.
3. Equity- represents the residual interest in the assets after deducting all its liabilities. It reflects
the ownership stake of shareholders in a company and serves as an important measure of
financial health and value creation.

9. Enumerate and define the elements of financial performance.

1. Income- is the increase in assets during an accounting period that results in the increase of
equity aside from those generated through contributions from holders of equity claims. It
represents the earnings or gains generated by a business through its core operations,
investments, or other financial activities.
2. Expense- costs incurred by a business that decreases assets and increase liability which results
to a decrease of equity except those relating to distributions to owners. They represent the
outflows of economic benefits, such as cash payments or asset reductions

10. Identify the condition that must be met to recognize a financial statement element.

 The process of recognition is governed by the qualitative characteristics of relevance and faithful
representation. An is recognized in the financial statement if;
 1. It meets the definition of asset, liability, equity, income, and expense
2. It provides useful information that is relevant and faithfully represented
3. The benefits of the information provided to the users justify the costs of obtaining,
providing, and using the information
4. It is measurable

11. When is it proper to derecognize an asset or part of an asset? When is it appropriate to derecognize
a liability?

 Derecognition is defined as the removal of all or part of a recognized asset or liability from an
entity’s statement of financial position. An entity derecognizes an asset or a part of it when it
loses control over that asset or part of it. Meanwhile, an entity derecognizes a liability or a
portion of it when the entity has no more present obligation for all or part of that liability.

12. What measurement bases are used to depict financial statement information in the financial
statements? When is each basis appropriately used?

 Historical cost is based on a price of the transaction or event that gave rise to the financial
statement element. It is when assets and liabilities are recorder at their original purchase price.
Historical cost of an asset is the value of the costs incurred in acquiring or creating the asset
while historical cost of a liability is the value of the consideration received to incur.
 Historical cost is appropriately used when:
1. Used for assets like property, plant, and equipment (PPE) and inventories when
historical cost remains a faithful representation of value.
2. Suitable when assets are held for use rather than resale, as it provides reliability
and verifiability.
3. Commonly applied in long-term investments and liabilities (e.g., bonds payable)
unless significant changes in value occur.
 Current value is a measurement basis that uses information updated to reflect condition at the
measurement date. It provides a more relevant and timely information about the value of assets
and liabilities. It also includes fair value, current cost, and value in use and fulfillment value.
 Current value (fair value) is appropriately used
1. For assets like stocks, bonds, and derivatives that are traded in active markets
or have readily observable market prices.
2. For properties that are held for investment purposes, rather than for use in the
company's operations (e.g., rental properties).
3. For agricultural entities that hold biological assets like livestock or crops, where
the fair value reflects the price these assets can be sold for in an active market
or based on harvest value.
4. When acquiring another company or its assets, fair value is used to determine
the worth of acquired assets and liabilities.
 Current value (value in use) is appropriately used
1. For assessing whether non-financial assets (like goodwill, intangible assets, and
fixed assets) are impaired.
 Current value ( current cost) is appropriately used
 1. In environments of high inflation, current cost may be used to reflect how much
it would cost to replace an asset under current market conditions.

13. In what ways can the information presented and disclosed in the financial statements be
communicated effectively to the users?