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Enhancing qualitative characteristics

Enhancing qualitative characteristics should be maximized to the extent possible. However, the enhancing qualitative characteristics, either individually or as a group, cannot make information useful if that information is irrelevant or not faithfully represented.

Understandability (this word does not pass spell checkers!) and the existence of accounting phenomena

Classifying, characterizing and presenting information clearly and concisely makes it understandable.

Some phenomena are inherently complex and cannot be made easy to understand. Excluding information about those phenomena from financial reports might make the information in those financial reports easier to understand. However, those reports would be incomplete and therefore potentially misleading.

Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyse the information diligently. At times, even well-informed and diligent users may need to seek the aid of an adviser to understand information about complex economic phenomena.

The standard setters seem to have no embarrassment (or should it be shame?) in writing this. True, some financial instruments, for example derivative contracts, are so complex that bankers admit to not understanding them. Is it not time that we accountants stood back and considered that if our magic and the 'phenomena' we deal with are so obscure, should we be dabbling with such things?

The probability of future economic benefit

The concept of probability is used in the recognition criteria to refer to the degree of uncertainty that the future economic benefits associated with the item will flow to or from the entity. The concept is in keeping with the uncertainty that characterizes the environment in which an entity operates. Assessments of the degree of uncertainty attaching to the flow of future economic benefits are made on the basis of the evidence available when the financial statements are prepared.

We have shifting sands of accounting jargon. Many readers may be very happy with this sort of language, but it washes over many business people. That said, all those in business and interfacing with finance and financial statements today need to know it exists.

I may go on about, and maybe seem critical of, the 'economist's' mindset and how economists affect current standard setting and views on financial statements, but strategies may be revealed or hidden by the rules and maybe it is worthwhile reflecting on your own mindset. This book is about financial strategy and every chapter has references to financial statements or accounting reports of one type or another.

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