QUESTION2 QUALITATIVE CHARACTERISTIC Total 2 marks The auditor checking Company
ID: 2335355 • Letter: Q
Question
QUESTION2 QUALITATIVE CHARACTERISTIC Total 2 marks The auditor checking Company A's financial statements thinks that a sale of $1 million has not been included in the company's accounts. He found out this information 3 months after the financial statements had been finalised. The company's total sales is $10 million. There are conflicting reports from within the company as to The exact amount of the sale Whether the sale actually happened The details of the sale REQUIRED Explain how the auditor's discovery affects the quality of the company's financial information. Base your answer on the Qualitative Characteristics of Financial Statements as per the NZ Framework. Specifically, focus on the two fundamental qualitative characteristics of relevance and faithful representation (previously called reliability) and the two enhancing qualitative characteristics of understandability, and comparability.Explanation / Answer
Qualitative characteristics are the attributes that make financial information useful to users. After detecting the quality of the company's financial statements will affect from the perspective of this fundamental qualitative characteristics.
Two fundamental qualitative characteristics are:
1. Relevance - Relevance information is capable of making a difference in the decision made by users. It is capable of making a difference in decisions if it has a predictive value, or both.
2. Faithful representation - The financial information in the financial reports should represent what it purports to represent. Meaning, it should show what is actually present. Financial reports should be complete in all aspects, Neutral and should be free from error.
Two enhancing qualitative characteristics are:
1. Comparability - It is that qualiitative characteristics which enables users to indentify and understand similarities in and differences among items.Information about a reporting entity is more useful if it can be compared with similar information about other entities.
2. Understandability - Classifying, characterising presenting information clearly and concisely makes it understandable.