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What is understandability?

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Question added by Khaled Abdelrehim ACCA DipIFR CMA , Financial Analysis Assistant General Manager , Khalda Petroleum Company
Date Posted: 2014/10/08
VENKITARAMAN KRISHNA MOORTHY VRINDAVAN
by VENKITARAMAN KRISHNA MOORTHY VRINDAVAN , Project Execution Manager & Accounts Manager , ALI INTERNATIONAL TRADING EST.

Understandability is one of the four qualitative characteristics of financial accounting information. The other being relevance, reliability, timeliness, faithful representation, comparability and materiality. Understandability refers to the quality of financial information which makes it understandable by people with reasonable background knowledge of business and economic activities.

Understandability requires the information presented in financial reports to be concise, complete and clear in presentation. The information should be presented so as to facilitate the user of the information.

However, understandability never prescribes any complex information to be omitted altogether due to its underlying difficulty in understanding. It just requires us to disclose the information systematically instead of presenting it haphazardly.

PRITAM BANERJEE
by PRITAM BANERJEE , SENIOR INVESTMENT & FINANCIAL ANALYST , PRIME PMG

Understandibility is an accounting principal which explains that accounting should be clear and should be understood by a person who have a little knowledge of accounts and he should be able to comprehend it on his own

Understandability is a principle for present the financial information to make it easy to understand by all the financial information user . 

SREEDEVI SUNILKUMAR
by SREEDEVI SUNILKUMAR , Business finance officer , Emirates Airline

Transactions and events must be accounted for and presented in the financial statements in a manner that is easily understandable by a user who possesses a reasonable level of knowledge of the business, economic activities and accounting in general provided that such a user is willing to study the information with reasonable diligence.

Understandability of the information contained in financial statements is essential for its relevance to the users. If the accounting treatments involved and the associated disclosures and presentational aspects are too complex for a user to understand despite having adequate knowledge of the entity and accountancy in general, then this would undermine the reliability of the whole financial statements because users will be forced to base their economic decisions on undependable information.

 

Malik Khalid Mahmood
by Malik Khalid Mahmood , Regional Finance Manager , Leosons International FZ LLC

Understandability is to the adherence of policies and procedures internally and as per IAS, IFRS, GAAP are well known to employees, stakeholders and are implemented.

This a vast topic, the exlanation is too lengthy.

 

Ahmed Abd Alwahab Awad Ibrahim
by Ahmed Abd Alwahab Awad Ibrahim , Chief Accounting , ICCDP

It is the quality of financial information which it should be presented in such a way that a person with a reasonable knowledge of business and finance, and the willingness to study the information, should be able to comprehend it

Ayman Esa Mustafa Farrag
by Ayman Esa Mustafa Farrag , مدير مالي , شركة الصفوف

Understandability Transactions Must be the presentation of accounting information easy to understand by the user who owns a reasonable level of knowledge of business and economic activities and accounting in general terms and no complex

Naveed Naushad
by Naveed Naushad , Sales Officer , International Industries Limited

Understandability is the quality of information that consents practically conversant users to recognize its meaning. Relevance accountinginformation is the compilation of a company's financial dealings

Khaled Mohee Eldeen Abbas Mahmoud
by Khaled Mohee Eldeen Abbas Mahmoud , Chartered Accountant # 10465 , Self-employed

Understandability

A principle of accounting which states that a company's financial information should be presented in such a way that a person with a reasonable knowledge of business and finance, and the willingness to study the information, should be able to comprehend it. This principle is included in the Accounting Standards Board's Statement of Principles.

 

Ihab Merhi
by Ihab Merhi , Director of Finance and Administration , IBH Levant and Africa SAL

“Accounting data is meant to be completely convincing and clear to the users of the data either insider or outsider.”

This is why whenever you take an annual report you will notice that there are many graphs and charts to make the data better understood even to the commoners.

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