Qualitative Characteristics of Accounting Information - ACC00712

This essay delves into the qualitative characteristics of accounting information, with a focus on faithful representation, comparability, understandability, reliability, and relevance, referencing the Australian Accounting Standards Board (AASB). The essay examines how these characteristics are reflected in the annual reports of Virgin Holdings Limited. It analyzes the company's application of prudence, understandability, comparability, faithful representation, and relevance within its financial reporting, including revaluation practices and disclosure of key figures like sales revenue, expenses, and share information. The report also discusses the reactions of investors and the security market to the presented financial information, including how dividend declarations and earnings influence investment decisions and stock prices, ultimately emphasizing the importance of reliable and transparent accounting statements for decision-making.

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EXECUTIVE SUMMARY
The purpose of this essay is to discuss the qualitative characteristics of a good accounting
information with reference to an Australian accounting standards (AASB).it deals with features
like faithful representation, comparability, understandability, reliability and relevance. The report
also shows how this features are shown in the annual reports of virgin holdings limited and how
investors and the security market react to this information.

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Table of Contents
1.0 PART 1...................................................................................................................................................4
1.1 INTRODUCTION.................................................................................................................................4
1.2 REVALUATION....................................................................................................................................4
2.0 PART 2...................................................................................................................................................5
2.1 AUSTRALIAN CONCEPTUAL FRAMEWORK.........................................................................................5
2.2 FUNCTIONS OF AUSTRALIAN CONCEPTUAL FRAMEWORK................................................................5
2.3 QUALITATIVE FEATURES OF ACCOUNTING INFORMATION...............................................................5
2.4 COMPAREABLITY...............................................................................................................................6
2.5 RELIABILITY........................................................................................................................................6
2.6 FAITHFUL REPRESENTATION..............................................................................................................6
3.0 PART 3...................................................................................................................................................6
3.1.0 VIRGIN HOLDINGS LIMITED 2018 ANNUAL REPORTS.........................................................................6
3.1.1 PRUDENCE CONCEPT..................................................................................................................6
3.1.2 UNDERSTANDABILITY.................................................................................................................7
3.1.3 COMPAREABILTY........................................................................................................................7
3.1.4 FAITHFUL REPRESENTATION.......................................................................................................7
3.1.5 RELEVANCE.................................................................................................................................8
4.0 PART 4...................................................................................................................................................8
4.1 REACTION OF INVESTORS AND SECURITY MARKET...........................................................................8
5.0 CONCLUSION.........................................................................................................................................9
6.0 REFERENCES........................................................................................................................................10
7.0 APPENDICES:........................................................................................................................................12
7.1 APPENDIX I:SALES REVENUES..........................................................................................................12

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1.0 PART 1.
1.1 INTRODUCTION.
Virgin holding limited is an Australian ASX listed company and provides airline services to the
clients across the globe.it has arising profitability trajectory as shown in the following chart.
2011 2012 2013 2014 2015 2016 2017 2018
0
1000
2000
3000
4000
5000
6000
TOTAL REVENUE AND INCOME IN $MILLION
TOTAL REVENUE AND INCOME
1.2 REVALUATION
The Market value for other fixed assets like land changes from one period to another due to their
market value which keeps on increasing. Therefore, at the end of a financial period, the valuation
of such assets should be conducted so that their real market value is determined. The valuation of
assets will help the company present its financial statements in true and fair principles regarding
its assets. Truthfulness in financial statements is a key factor decision making by the users of
accounting information. A company will know its actual value of assets by conducting regular
revaluations. revaluing land therefore is a correct exercise done by the company and is in line
with the provision of Australian accounting standards of faithful representation of accounting
data.

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2.0 PART 2.
2.1 AUSTRALIAN CONCEPTUAL FRAMEWORK
The Australian conceptual framework shows important characteristics of a best presentation of
accounting information including assets in financial statements. (Wagenhofer, 2009, pg. 76) this
Australian Conceptual framework has information on fundamentals of financial statements
which include techniques on features and recognition (Christensen, 2010, pg. 291).
2.2 FUNCTIONS OF AUSTRALIAN CONCEPTUAL FRAMEWORK.
a) It sets out harmonized rules and guidelines on good presentation of accounting
information.
b) The standards on proper preparation and presentation of accounting information as
highlighted in The Australian accounting standards helps accountants on utilization of
certain standards
c) It enhances quality of accounting information in that, the Australian Accounting
Standards Board (AASB) uses the conceptual framework to amend various accounting
standards
d) The uniform standards of financial statements preparation and presentation make it easy
to interpret accounting information.
e) It helps auditors arrive at a judgment on whether the preparation and presentation of
financial statements is in accordance of the required standards.
2.3 QUALITATIVE FEATURES OF ACCOUNTING INFORMATION.
Accounting information should be relevant to its users. this means that the presented information
is helpful the users as far as decision making are concerned (Karğın, 2013, pg.73).it should also
help the company or other users predict their future plans by analyzing previous performances.
therefore, key fundamentals like salaries, share price and dividends should be indicated clearly
so that to be relevant to investors decision making (Nobes&Stadler, 2015, Pg. 591).
The accounting information should be easy to understand. Ambiguous and complex figures
should not be used in presentation of information because users may find it difficult to

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understand. therefore, accounting information should be presented in a way that the user will
easily understand.
2.4 COMPAREABLITY
Good Accounting information should be comparable. this means that the presented information
of various periods should be easy to compare. The results of an item from previous, actual and
future information (Yip &Young, 2012, pg.1770) can be referred easily if comparable
information is prepared. For instance, firms within the similar industry should prepare and
present information in a format that is comparable for the users to make comparison with ease.
2.5 RELIABILITY
Good accounting information should be Reliable. reliability means the information presented
should not mislead and errors free. A time, relevant information would not automatically mean it
is reliable in that a recognized method that is used can actually present false facts. The damage
for a pending case in a company is the best example. The worth should not be indicated in full
because it will affect the position of the company’s earnings.
2.6 FAITHFUL REPRESENTATION
Faithfull and truth presentation of information means that the financial statements should be
prepared using true information .it should clearly disclose the accounting estimates and
assumptions. Presentation of fundamentals like assets, liabilities and equities should be in a true
manner and based on acceptable and understandable recognition format. Wrong measurement
methods and recognitions leads to presentation of untruthful information.in such a case, relevant
measures on how to disclose errors should be provided (Macintosh, 2009, pg. 150).
3.0 PART 3.
3.1.0 VIRGIN HOLDINGS LIMITED 2018 ANNUAL REPORTS.
3.1.1 PRUDENCE CONCEPT
Prudence concept states that Company’s revenues should not be overvalued as well as
undervaluing its expenses. The requirement of this concept is that, Revenues be recognized once
its inflows are known and certain (Barker, 2015, pg. 515). Virgin Australian Group annual report
on sales and revenues in pg.48 indicates clearly how the accountants are practicing prudence’s
concept. the company’s revenues and income the year 2018 is $ 5420.7 million and 5047.0

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million the year 2017.the difference in sales revenue of 2018 and 2017 is $373.7 million which is
a fair figure. The report on expenses is clearly listed and it has slight difference too
(Kirschenheiter &Ramakrishna, 2010). The net operating expenditure for the year 2018 is $
5473.0 million while for the year 2017 is 5169.4 million. Prudence is useful when determining
unforeseen economic situations like life of assets and debt collection probability.
3.1.2 UNDERSTANDABILITY
The feature of understandability in Virgin Australian Holdings’ annual report is shown in the
statements. the basic assumptions and relevant workings have been supported with some few
notes to help in understanding the information. For example, in pg.22 regarding equities and
liabilities, the company’s equity decreased at the current year while the liability exceeded the
assets by 544.4 million the year 2019 and 5608 in 2017.these notes brings aspect of
understandability into play.
3.1.3 COMPAREABILTY
Comparability feature is shown in the annual financial report pg. 58 when the company is
comparing general sales revenue from domestic sales of tickets as shown in appendix I.
The report clearly shows that the revenue on ticket sales in Australia increased by 7.9% from $
4,273.8 million to $4,610.5 million. These shows that Virgin Australian group portray the
comparability feature.in pg. 18 of the 2018 annual report, the company clearly compares its
revenues and expenditure for 2018 and 2017.it clearly shows the net loss after tax of $653.3m
and $185.8m.this indicates the comparability nature of this statements since the user can easily
compare the losses made by the company each year an whether there is any improvement.it is
further disclosed that revenues and income rose from $5047.30M to $5420.70M indicating an
increase of $ 373.4M,this further confirms the comparability nature of the statements(Cascino &
Gassen, 2010)
3.1.4 FAITHFUL REPRESENTATION
faithful representation has been portrayed in Virgin Australian group’s annual financial report
where the company was able to show how it arrived at certain judgments. the report has been
prepared in historical cost method as seen in pg.52 of the annual report for the year 2018.the
users of this information are able to make important decisions using such disclosures regarding

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the treatment of some assets, they have further disclosed that the depreciation is done using
straight line method. This are the necessary information to show clearly the assumptions and
accounting estimates used in preparation of accounting reports.
Prudence concept in accounting means the use of judgement in treatment of certain estimates in
accounting. Virgin company has followed the standards required by this concept by showing
how they arrived at the useful life of some its assets like aircraft and aeronautic related which is
between (10-40) years, computer equipment (3-5) years and landing gears at (4-22) years. It’s
outlined in pg.70 of the annual financial report of the year 2018.capitalization method is used to
arrive at these rates. This clearly indicate how prudence concept has been used by the
accountants (Yurisandi & Puspitasari, 2015, pg. 645).
Virgin company has clearly depicted key fundamentals concerning the various obligations like
Like total assets of the company which was $6355.8 million the year 2017 and $ 6188.4 million
in 2018.the company’s total assets were estimated at $4782.0 million in 2017 and $ 5093.4
million in 2018.the reliability in this information will enable investors and various users to make
relevant decisions on investments (Lim, Lee, Kausar &Walker, 2014, pg. 270).
3.1.5 RELEVANCE.
Relevance characteristic in Virgin’s annual financial report is portrayed in its uniform
preparation of their yearly financial report ending every 30th June of the year. This shows that the
concern of the user is considered when preparing this report, therefore helping the user to foresee
the declaration of a companies’ performance at a particular given period.it will also aid investors
in predicting dividends payable the following year. The declaration of the dividends by the
company in their annual report of 8.1 and 2.8 cents shows that the accounting information is very
relevant to the potential investors of the company.pg 34 of 2018 annual report.
4.0 PART 4.
4.1 REACTION OF INVESTORS AND SECURITY MARKET
The declaration of earnings by Virgin company will encourage potential investors to make
investment in the company (Lee & Masulis, 2009, pg. 450). the annual financial report for the
year 2018 and 2017 shows that the company paid shares at a rate of 8.1 and 2.8 cents in 2018 and
2017 consecutively. This particular information on share are very useful to the investors as they

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will use it make various investment decision. The information on securities will help the users to
predict anticipated fluctuations of share prices (Mlonzi, Kruger, & Nthoesane, 2011, pg.150).
According to Cready& Gurun (2010) they stated that low earnings results in increase in market
values and Hussin et al. (2010) also attributes negative market values to minimum earnings.
The disclosure of share prices and its share profitability has positive or negative impact on the
stock price (Hoggett et al, 2014).
5.0 CONCLUSION.
In conclusion, the above characteristics depicts a good accounting statement that is useful to the
users. The financial report prepared should present a true and reliable information to the users.the
disclosures regarding payment of shares will greatly influence the decisions of investors while
dividends declared will affect the stock prices in the security stock exchange.

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6.0 REFERENCES.
Barker, R., 2015. Conservatism, prudence and the IASB's conceptual framework. Accounting
and Business Research, 45(4), pp.514-538.
Cascino, S. and Gassen, J., 2010. Mandatory IFRS adoption and accounting comparability (No.
2010-046). SFB 649 discussion paper.
Christensen, J., 2010. Conceptual frameworks of accounting from an information
perspective. Accounting and Business Research, 40(3), pp.287-299.
Geoffrey Booth, G., Kallunki, J.P., Sahlström, P. and Tyynelä, J., 2011. Foreign vs domestic
investors and the post-announcement drift. International Journal of Managerial Finance, 7(3),
pp.220-237.
Hoggett, J., Edwards, L., Medlin, J., Chalmers, K., Hellmann, A., Beattie, C. and Maxfield, J.,
2014. Financial accounting. John Wiley & Sons.
Karğın, S., 2013. The impact of IFRS on the value relevance of accounting information:
Evidence from Turkish firms. International Journal of Economics and Finance, 5(4), pp.71-80.
Kirschenheiter, M. and Ramakrishnan, R.T., 2010, September. Prudence demands conservatism.
AAA.
Lee, G. and Masulis, R.W., 2009. Seasoned equity offerings: Quality of accounting information
and expected flotation costs. Journal of Financial Economics, 92(3), pp.443-469.
Lim, C.Y., Lee, E., Kausar, A. and Walker, M., 2014. Bank accounting conservatism and bank
loan pricing. Journal of Accounting and Public Policy, 33(3), pp.260-278.
Macintosh, N.B., 2009. Accounting and the truth of earnings reports: philosophical
considerations. European Accounting Review, 18(1), pp.141-175.
Mlonzi, V.F., Kruger, J. and Nthoesane, M.G., 2011. Share price reaction to earnings
announcement on the JSE-ALtX: A test for market efficiency. Southern African Business
Review, 15(3), pp.142-166.

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Nobes, C.W. and Stadler, C., 2015. The qualitative characteristics of financial information, and
managers’ accounting decisions: evidence from IFRS policy changes. Accounting and Business
Research, 45(5), pp.572-601.
Shortridge, R.T. and Smith, P.A., 2009. Understanding the changes in accounting
thought. Research in accounting regulation, 21(1), pp.11-18.
Virgin holdings annual report<
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/
fy18-annual-report.pdf>
Wagenhofer, A., 2009. Global accounting standards: reality and ambitions. Accounting Research
Journal, 22(1), pp.68-80.
Yip, R.W. and Young, D., 2012. Does mandatory IFRS adoption improve information
comparability? The Accounting Review, 87(5), pp.1767-1789.
Yurisandi, T. and Puspitasari, E., 2015. Financial Reporting Quality-Before and After IFRS
Adoption Using NiCE Qualitative Characteristics Measurement. Procedia-Social and Behavioral
Sciences, 211, pp.644-652

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7.0 APPENDICES:
7.1 APPENDIX I:SALES REVENUES
External
revenue &
income($m)
Australia New
Zealand
USA Europe Other Unallocated Consolidated
2018 4,610.5 162.9 247.8 132.3 190.4 73.4 5,417.3
2017 4,273.8 154.7 229.2 124.7 151.9 113.0 5,047.3