Three Main Features of Information for Users of Financial Statements

This article discusses the three main features of financial information for users of financial statements, which are relevance, faithful presentation, and comparability. It also explains the importance of financial information for different users of financial statements such as management, shareholders, creditors, employees, government, and other users.

Three of Six Main Features of Information for Users of Financial Statements
The major features of information for users of financial statements can be described as
follows:
 Relevance: It can be described as the capability of financial information in making a
difference in the decision-making process of end-users. This means that the information
must be able to provide an estimation of the future results of the investments made by a
business organization. The accounting information should be capable of giving an
estimate of the overall worth of an organization to the end-users for guiding them in their
investment decisions. As such, it need to possess both predictive and confirmatory value
for helping the investors to make quality decisions on the basis of right predictions and
existing information provided through the financial statements. The predictive value is
useful to provide an estimate of the future financial outcomes. It is assessed on the basis
of forecast made by the financial analysts with the use of present and past financial
information of an organization. The confirmatory value is the value that is assessed on
the basis of present and past evaluations and states the present financial condition of an
organization. In this context, it is highly essential that the estimates used in measuring the
value of financial items such as assets and liabilities must not be uncertain. The estimates
used should not undermine the relevance of the financial information. Also, the
information extracted from the financial statements must be materially correct and
therefore the financial accountants must prepare them with the use of accurate accounting
methods and processes (Christian and Lüdenbach, 2013).
 Faithful Presentation: The financial information need to faithfully present the relevant
phenomena for the purpose of which it was prepared. Financial information is regarded to
be faithfully presented if it is stated to be complete, neutral and error-free. It has been
stated by the IASB (International Accounting Standards Board) that the financial
information needs to meet all these features for meeting the standard of being faithfully
presented. The complete depiction of the financial information means that it should be
able to provide a complete understanding of the phenomena that includes all the required
description. For example, assets would be completely depicted by providing an
explanation of its nature, its numerical value and a description regarding the presentation
of its numerical value. The neutral depiction of the financial information means that it
should be free from any type of biasness used in its preparation. The financial
information also needs to be completely accurate that is the process used in its
development need to be error-free (Mackenzie, 2014).
 Comparability: It can be stated as the enhancing feature of financial information. This is
also an important qualitative characteristic of financial information which means that the
financial information must be able to identify and understand the similarities and
difference among the financial items. In this context, it is essential that the financial
information must be prepared with the use of consistent accounting processes over time
of a business organization. This is essential to provide a solid base for evaluating the

financial statement over a time-period in an accurate manner and provide consistent
results. The consistency of results is highly important for making a judgment by carrying
out comparison of the financial figures for identifying the similarities and differences
between the two sets of economic phenomena. Thus, the business organizations need to
prepare the financial statements by the application of same accounting policies and
procedures form one accounting period to another. Comparability does not only refer to
using consistent set of accounting procedures by a single entity but also refers to
comparing the financial results of different companies. As such, the annual reports
prepared by different companies must be able to carry out comparison of the accounting
transaction or events. The ratios and index numbers can also be used for carrying out
comparison of the financial statements between different companies (Macve, 2015).
Importance of financial information presented in the financial statements to the users of
them and benefits that financial information will bring to the users of the financial
statements
Importance of financial information is linked with the utility to satisfy the needs of
different users of financial statements such as management, shareholder, government, etc. Some
of major importance of financial information is provided below:
 Importance for the management: Financial information presented in financial
statement help the management with accurate business results that enable them to draft
the business policies and decide the further course of action. Through use of financial
statement management can communicate their performance to various other parties in
order to justify their activities. Through use of financial information management can
understand the position, prospects and progress of business as compare to the industry in
which it lies. With the help of comparative analysis of financial information management
can detect the trends that help them to make suitable changes in the policies in order to
avert the unfavorable conditions (Brigham and Michael, 2013).
 Importance to shareholders: As shareholders are the real owners of company but they
cannot directly involve in day to day activities of the company so they appointed
management that consist of board of director and other important management personnel.
Shareholders have the right to review the financial performance of the company and
financial statements plays an important role in fulfilling the requirement of the
shareholders through providing all the relevant information to them. The financial
statement provides shareholder information that helps to know the effectiveness and
efficiency of the management and also provide with financial strength of the
organization. Through evaluating the financial statements the shareholders can ascertain
the current position, future prospects and profit earning capacity of the company that
helps shareholders to make decision regarding their investment. Also the financial
statement provided sufficient information to the prospective investors.

 Importance to creditors: The financial information provides with required information
to the present and future suppliers and lenders. The creditors requires the critical
information such as liquidity position, profitability and solvency position of the company
before making decision regarding the debt lending to the company. So it can be said that
financial information act as the important substance in deciding the further course of
action by the creditors.
 Importance to the employees: Employees are the major part of the company as all
operations are dependent upon the employees and it is essential that they must be aware
about the financial position of company in which they are working. One more important
reason why financial statements are important for the employees is that their bonus is
completely dependent upon the financial profit of the company in the respective year
(Damodaran, 2011).
 Importance to the government: The financial statements act as the source for
government to ascertain the tax liabilities of the company and collect them. So it can be
said that financial statements is very important for the government as tax revenue
collected decides the economic position of the country.
 Importance to the other users: Financial information presents the current position as
well as helps in calculating the future position of the company. So it can be said that
financial statement helps remaining users that are directly connected or not connected to
the company in knowing the position, progress and prospects of the business enterprise
(Davies and Crawford, 2011).

References
Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage
Learning.
Christian, D. and Lüdenbach, N. 2013. IFRS Essentials. John Wiley & Sons.
Damodaran, A, 2011. Applied corporate finance. John Wiley & sons.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Mackenzie, B. 2014 .Wiley IFRS 2014: Interpretation and Application of International Financial
Reporting Standards. John Wiley & Sons.
Macve, R. 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, or Threat? Routledge.