Assessing financial reporting relates to the honest perspective that an organization uses towards the realization of its objectives and quality of information disclosed in their financial reports. Qualitative features promote ways of facilitating the desired level of quality in financial reports ( Iskandar & Setiyawati, 2015). The process requires transparency since it helps the business to avoid misleading financial reports to its users. By providing honest information through financial indicators, the firm will be able to achieve predictable and precise signs of their financial capability. The qualitative features in financial reporting are viewed as fundamental in different frameworks associated with trading activities. As such, the paper will discuss features such as relevance, reliability, understandability, faithful representation and comparability as essential measures of assessing financial reporting quality. Relevance is linked with materiality and effectiveness, and thus, it illustrates the ability of decision-making by users of financial reports. Financial reports influence organizations in making relevant resolutions concerning the economic situation. As such, the information should be relevant to allow the user to make an evaluation, correction, and confirm both current and past events. Relevance, as outlined by Abbott et al., (2016), provides the desired continuity with the needed conceptual model, whereas the crucial indicator of relevance is fair value. The indicator is used in annual reports to obtain crucial information on the level of relevance concerning issues such as risks and opportunities of an entity. Besides, it provides feedback on significant market events which influences business transactions. Reliability is also essential in the assessment of financial reporting quality. In carrying out financial reporting, the information provided should be reliable for it to be useful. Therefore, organizations should provide their users with information free from errors and biasness. Reliability is achieved through the provision of neutral and verifiable information. Understandability is also key in financial reports. The quality is achieved through effective communication. High-quality financial reports are those that are well understood by the users through precise classification and presentation. Business entities can achieve the understandability of their financial reports by presenting them in an organized manner. The mechanism will enable users to comprehend the information provided with their needs. Use of tables and graphs can help an entity to present their financial reports. Faithful representation is a concept in the financial report that deals with reflection and representation of the real economic position of a business. The concept explains how financial reports represent the economic resources and obligations of a company. Faithful representation of financial reports includes the organization's balance and objectivity ( Abbott et al., 2016) . The auditors are thus required to provide reasonable assurance about economic phenomena during their annual financial reporting. Information also relating how enterprises are directed and controlled should also be represented exclusively. Those above can be realized through the utilization of accounting principles. The comparability element allows users of financial reports to make the comparison in the financial statement to determine cash flow, financial position and performance of a business. The comparison entails the usage of identical situations, which will be reflected by identical accounting figures and facts based on financial reports of different organizations ( Iskandar & Setiyawati, 2015). The use of identical figures and facts of accounting is to allow for easy interpretation of financial reports. Therefore, financial reports should reveal and explain changes in accounting policies and their implications. Similarly, the comparability perspective should also cover information about the necessity of consistency in the utilization of accounting principles and policies.
In conclusion, the assessment of financial reporting quality performs a crucial function in determining the value of information that an organization and user of financial obtains. The characteristics used in the assessment of financial reports provide relevant facts that can be used by a business to make decisions concerning its actual economic representation.
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References
Abbott, L. J., Daugherty, B., Parker, S., & Peters, G. F. (2016). Internal audit quality and financial reporting quality: The joint importance of independence and competence. Journal of Accounting Research, 54 (1), 3-40. Retrieved from; https://doi.org/10.1111/1475-679X.12099
Iskandar, D., & Setiyawati, H. (2015). The effect of internal accountants’ competence on the quality of financial reporting and the impact on financial accountability. International Journal of Managerial Studies and Research, 3 (5), 55-64.Retrieved from; https://pdfs.semanticscholar.org/6120/72e3fdc08bc73d80053128bfa05456ece106.pdf
