The Conceptual Framework for Financial Reporting

The Conceptual Framework for Financial Reporting Student’s Name Institutional Affiliation The Conceptual Framework for Financial Reporting Question One Faith representation is an accounting concept that states that the information contained in the financial statements should represent the actual events and transactions that occur during a particular period (Van Beest, Braam & Boelens, 2009). This requires that all events and transactions be accounted for in a way that represents their true economic value instead of fabricating them to satisfy legal requirements. Faithful representation is one of the most crucial qualities in accounting because it makes the information useful as far as decision making is concerned. Information that is faithfully represented is relevant and it is capable of making a difference in a decision-making process (Van Beest, Braam & Boelens, 2009). Representing information faithfully is a necessity since most users do not have adequate time and expertise to assess the factual content of a given piece of information. Thus, it is important to provide descriptions and numbers that match what happened or existed, and for information to be considered faithfully represented, it must be neutral complete and free from material error. Question Two Completeness Faithful representation has three main elements, which include completeness, neutrality, and free from material errors. For completeness, any pertinent information should be a representation of complete and accurate evaluation of what is happening on the ground. Omitting any relevant information may lead to a misleading or false depiction of accounting phenomena and activities, thereby making the information futile to the person who would use or need it (Van Beest, Braam & Boelens, 2009). Thus, faithful representation should contain all information that the user of the financial statements requires to form an apparent picture of the actual results, cash flows, and financial position of a company. For instance, a business may report in its financial statement that it had a loan of $500,000 as of balance sheet date. However, this cannot be considered complete because it lacks additional details such as the maturity date of the loan and its interest rate, among other things which are important as far as decision-making is concerned (Van Beest, Braam & Boelens, 2009). Neutrality The neutrality of the information contained in financial statements is another important element of faithful representation. This implies that the information should be free from any form of bias and therefore, must not be altered in any way (Van Beest, Braam & Boelens, 2009). Under this element, the accounting department of the company should not present financial information in a way that is intended to influence the decision-making process. Accountants should represent details without the predetermined results in mind. The concept behind the neutrality component of faithful representation is to make the overall accounting guidelines and societal goals being adhered and tame any person or a group of people perpetuating their agenda (Van Beest, Braam & Boelens, 2009). Free...