Qualitative Characteristics Of Financial Information

Relevance

The financial statements prepared by the company help to provide financial information required by investors, creditors, management, and analyst to evaluate the performance of the company. There is proper format using which companies have to draft their financial statements so that financial information presented in the report fulfils the qualitative characteristics of the financial information. The report aims to evaluate the financial performance of company listed on KLSE Stock Exchange. For this purpose the company selected is Acme Holding which is listed on the KLSE Stock Exchange. There are two tasks that need to be completed in this report. First task will examine the qualitative characteristics of the financial information and second task will evaluate the financial information provided by the selected company in their annual report.

Qualitative Characteristics of Financial Information

The major qualitative characteristics of financial information as per the SFAC 2 with elaborative application are as follows:

Relevance

It is the primary qualitative characteristics of useful financial information as per which the information must be able to guide the decision-making process of end-users. As such, the financial information must have an influence on the economic decision taken by its general users such as investors, lenders, creditors, borrowers and others. The information in order to be relevant must possess the following features:

Predictive Value

The financial information in order to be relevant must have a predictive value as per which it must be able to depict an accurate prediction regarding its earning potential and financial outcomes in future context. For example, the financial information reflecting the present status of economic resources or past performance of an entity is usually take as a base by financial analysts to predict its future financial position.

Feedback Value

The financial information should also have predictive value for improving its relevancy. This refers that it must be able to improve the capabilities of end-users to correct their expectations made on the basis of knowledge gained by interpretation of financial statements of an entity (FASB, 2010). The financial information must be able to cause a reduction in the uncertainty of decision-making of end-users. For example, business entities tend to disclose the result by segment reporting that provides information related to its past performance and also the future expected trend of earnings (Kaminski and Jon, 2011).

Timeliness

The financial information to be capable for providing assistance to the end-users should be of recent time for disclosing its current financial position. For example, business entities as per FASB rules are required to develop and disclose the financial reports on an annual basis to provide latest financial information to the end-users (Statement of Financial Accounting Concepts No. 2. 2008).

Predictive Value

Reliability

The reliability also refers to the primary characteristics of financial information by having credibility in the eyes of end-users. Reliability depends on faithful presentation of information to ensure that it is complete and error-free so that users can take accurate decisions. The reliable financial information need to have the following characteristics:

Verifiability

The financial information presented to the end-users should be disclosed in a format by business entities so that it can easily be verified or re-checked by the application of accounting methods. This means that financial information need to be completely verifiable so that end-users can assess whether it is error-free before utilizing it to take pertinent economic decisions. This refers that business entities need to select an appropriate measurement method for determination of the financial value of key financial items such as assets, liabilities, debt and equity. This is important so that measurement method is relatively easy to be implemented by the end-users for analysing the verifiability of the result. Fr example, business entities tend to adopt the use of mainly historical cost accounting that is a simple and easy accounting method to be adopted for assessing the value of key financial items (Kaminski and Jon, 2011).

Accurate Representation

This refers that financial information should be true and fair in all aspects without any chance of manipulating the public opinions or view regarding the financial position of an entity. The faithful presentation in a direct form indicates that the financial information should be able to provide a reasonably informed sues the exact measure, including all the estimates, classifications, judgment and allocations, the financial performance of an entity. For example, in situation such as lack of accurate market prices for assets the accountants need to determine the fair value of assets by deduction of estimated depreciation from fair value of similar new assets. This is essential o faithfully present the financial information to the end-users (Statement of Financial Accounting Concepts No. 2. 2008).

Comparability and Consistency

The comparability feature refers to the ability of financial information to be able to make a comparison of the financial performance of the entities from one financial period to another. This is required to provide a comparative disclosure regarding the increase or decrease in the financial performance of an entity for facilitating the decision-making process of users. For example business entities as per this feature often adopts the consistent accounting policies so that financial information can be easily compared. Also, the financial statement developed shows comparative results of the key financial items if an entity in the current year relative to that of its previous year. This is done mainly so that users can easily interpret the percentage growth or decline occurred in the key financial items of a business entity (Elen, 2016).

Feedback Value

The consistency also helps in improving the comparability of financial formation across the world. For example, of one account adopt a specific accounting policy which is different from others then there will be problems faced by the end-users such as investors to easily analyze and compare the financial results of them. As such, FASB has directed all the business entities’ to adopt similar type of accounting policies. Also, businesses are directed to adopt the same type of accounting policies and methods over time to improve the comparability and consistency in the financial results (Christensen, 2010).

In order to accomplish this task company known as Acme Holding Berhad has been selected and this company is manufactures household goods such as plastic products, wood products and sound system. Acme Holding has published its lasted annual report 2018 which is available on investor’s relations section of the company.

Below table will show the chart of accounts as described by the Generally Accepted Accounting Principles (GAAP). This chart of accounts is prepared for showing the accounting information presented in the balance sheet of Acme Holding Company. Each account shown in balance sheet of the company will be classified as current and fixed assets, current and long term liabilities and equity account.

Chart of Accounts
Account	Amount in RM	Account type	Description of each account
	2018	2017	(Current Asset, Fixed Assets, Current Liability, Long term liability or Equity)
Inventories	18885886	5199250	Current Asset	Inventories referred to the stock of goods that company kept with them to make future sales. It is shown under current asset section of the balance sheet as it was predicted that inventories shown in balance sheet will turn into cost of goods sold in next 12 months. Any asset that has capability to turn into cash and cash equivalent in one year time period is shown under the current asset section of balance sheet. The inventory amount has been increased more than 3 times in year 2018 as compared to previous year.
Trade Receivable	12045244	7431651	Current Asset	Trade Receivable also known as account receivable (US Government, 2014). It refers to amount to receivable from the customer to whom goods and services are given on credit. It is shown in current asset section because generally recovered the year end receivables in one accounting year.
Current tax assets	87529	42000	Current Asset	Tax assets represents advance tax amount paid to the government authorities (US Government, 2014). Tax advance that can be used to pay the current tax liabilities will be presented in this section
Cash and Cash Equivalents	6041583	1902387	Current Asset	It is refers to bank balance of company at the year end and any form of cash & cash equivalents hold by the company at the end of year (Davies and Crawford, 2011). The value of cash and cash equivalents has been increased by 218% in year 2018 as compared to 2017. Overall it has been seen that current assets position of company has been improved.
Other receivables, deposits and advance payments	10605203	1102148	Current Asset	Receivable other than from customers in form of deposits, payment paid in advance are shown in this section as it is believed that it will used in next year or it will recovered in next year.
Property development cost	4045208	20545149	Current Asset	It represents the cost incurred for development of property. The main reason it is shown under current assets is due to its limited use or there will no existence of such property after one year.
Property, plant and Equipment	14049840	14896596	Fixed Assets	It is the major part of fixed assets as it helps the company to produce goods and services required. Property, plant and equipment generally have long life (more than one year) which makes them to be recognised under fixed assets section of balance sheet (US Government, 2014). Property, plant and equipment are tangible assets and they are depreciated over the useful life of assets. There was 6 % decrease in value of this assets that indicates that company has not make investment in new property, plant and equipment
Investment Properties	8962825	9275020	Fixed Assets	The properties held for business use are shown under this section. The amount invested in properties is very high and requires revaluing every year so that it can presented at fair value. There was 3% decrease in this asset.
Land held for development purpose	14678951	14453991	Fixed Assets	Land held by the company for developing them as building or any other suitable assets are shown in fixed assets. Land has infinite life and it is not depreciated.
Long term borrowings	536283	0	Long term liabilities	Loans that have to pay after one year are shown under this heading.
Deferred tax liabilities	2032528	1716528	Long term liabilities	Tax liabilities are due but not paid by company is shown under deferred tax liabilities. Generally these tax liabilities take time to settle so it is shown under long term liabilities.
Accounts Payable	10363876	20718375	Current Liabilities	Amount due to the suppliers and other creditors. Accounts payables have been decreased about 50% in year 2018 as compared to previous year (Davies and Crawford, 2011).
Other payables and accruals	5403057	5293367	Current Liabilities	Amount due to other creditors and amount received but not earned is shown under this heading
Entitlements due to board of directors	571300	1884946	Current Liabilities	Employee benefits that are due to directors
Tax Liabilities (Current)	590523	824063	Current Liabilities	Tax payable in next year shown under this heading
Short Term Borrowings	341387	0	Current Liabilities	Amount brought from banks or overdraft. It is payable in next year.
Share Capital (Total)	226050958	219969958	Equity	It refers to value of equity capital held by the owners of the company (US Government, 2014).
Treasury shares	13873523	13873523	Equity
Reverse acquisition reserve	193196309	193196309	Equity	Amount reserved from the profits of the company to the acquisition purpose
Currency translation reserve	2929	2929	Equity	This reserve is created to bear the risk arises from the current translation
Retained profits or Retained earnings	51026240	47656823	Equity	Profits retained by the company after paying dividends, reserves and other requirements (Brigham and Michael, 2013).
Non Controlling Interest	441122	438588	Equity	This represents the holding of company in other companies but not subsidiaries

(Annual Report, 2018)

Account	Amount in RM	Increase / Decrease in year 2018 as compared to 2017
	2018	2017	Amount	In %
Inventories	RM   18,885,886.00	RM      5,199,250.00	RM  13,686,636.00	263%
Trade Receivable	RM   12,045,244.00	RM      7,431,651.00	RM     4,613,593.00	62%
Current tax assets	RM            87,529.00	RM            42,000.00	RM           45,529.00	108%
Cash and Cash Equivalents	RM      6,041,583.00	RM      1,902,387.00	RM     4,139,196.00	218%
Other receivables, deposits and advance payments	RM   10,605,203.00	RM      1,102,148.00	RM     9,503,055.00	862%
Property development cost	RM      4,045,208.00	RM   20,545,149.00	-RM  16,499,941.00	-80%
Property, plant and Equipment	RM   14,049,840.00	RM   14,896,596.00	-RM        846,756.00	-6%
Investment Properties	RM      8,962,825.00	RM      9,275,020.00	-RM        312,195.00	-3%
Land held for development purpose	RM   14,678,951.00	RM   14,453,991.00	RM        224,960.00	2%
Long term borrowings	RM         536,283.00	RM                           –	RM        536,283.00
Deferred tax liabilities	RM      2,032,528.00	RM      1,716,528.00	RM        316,000.00	18%
Accounts Payable	RM   10,363,876.00	RM   20,718,375.00	-RM  10,354,499.00	-50%
Other payables and accruals	RM      5,403,057.00	RM      5,293,367.00	RM        109,690.00	2%
Entitlements due to board of directors	RM         571,300.00	RM      1,884,946.00	-RM    1,313,646.00	-70%
Tax Liabilities (Current)	RM         590,523.00	RM         824,063.00	-RM        233,540.00	-28%
Short Term Borrowings	RM         341,387.00	RM                           –	RM        341,387.00
Share Capital (Total)	RM 226,050,958.00	RM 219,969,958.00	RM     6,081,000.00	3%
Treasury shares	RM   13,873,523.00	RM   13,873,523.00		0%
Reverse acquisition reserve	RM 193,196,309.00	RM 193,196,309.00		0%
Currency translation reserve	RM              2,929.00	RM              2,929.00		0%
Retained profits or Retained earnings	RM   51,026,240.00	RM   47,656,823.00	RM     3,369,417.00	7%
Non Controlling Interest	RM         441,122.00	RM         438,588.00	RM             2,534.00	1%

Conclusion

The overall report has helped to understand the qualitative characteristics of the financial information as described under SFAC -2. There are mainly two primary qualitative characteristics of financial information, they are relevance and reliability. Under this characteristics some other important characteristics has been defined to make the financial statement more meaningful to users of statements. Lastly chart of accounts has been prepared for Acme Holding Berhad to understand the accounting process under US GAAP.

References

Annual Report. 2018. Acme Holding Berhad. [Online]. Available at: https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=188194&name=EA_DS_ATTACHMENTS [Accessed on: 9 October, 2018].

Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage Learning.

Christensen, J. 2010. Conceptual Frameworks of Accounting from an Information Perspective. Accounting and Business Research 40 (3), pp. 287–299.

Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.

Elen, C. 2016. Hierarchy Of Accounting Information Qualitative Characteristics In Financial Reporting. The USV Annals of Economics and Public Administration 16 (1), pp. 183-190.

FASB. 2010. Statement of Financial Accounting Concepts No. 8: Conceptual Framework. [Online]. Available at: https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176157498129&acceptedDisclaimer=true [Accessed on: 9 October, 2018].

Kaminski, A. and Jon, R. 2011. Accounting Conceptual Frameworks: A Comparison of FASB and IASB Approaches. International Journal of Business, Accounting and Finance, pp.16–24.

Statement of Financial Accounting Concepts No. 2. 2008. Qualitative Characteristics of Accounting Information. [Online]. Available at: https://www.fasb.org/resources/ccurl/515/412/Concepts%20Statement%20No%208.pdf [Accessed on: 9 September 2018].

US Government. 2014. U.S. Government Standard General Ledger. [Online]. Available at: https://www.fiscal.treasury.gov/fsreports/ref/ussgl/tfm_archive/effective2012_aug12_bul_13-05/2014/sec1_chrtacct_2014.pdf [Accessed on: 9 October, 2018].