These must be explained with proper disclosure notes along with the basis for their calculations. In order to be understandable, information should be presented using the following guidelines: Complete. For example, the concepts related to pensions and derivatives are not easy to understand. Understandability in accounting information implies clarity. The text presented should not be missing any key information. It is the responsibility of directors to prepare financial statements and shareholders can assess the performance of their directors by reviewing these statements. Understandability of the information contained in financial statements is essential for its relevance to the users.

Any company primarily runs on the funds of shareholders and directors are the people who manage those funds with the intention to generate profits. Understandability is the concept that financial information should be presented so that a reader can easily comprehend it. This concept requires that the transactions and events should be presented in financial statements in such a way that users of it can easily read and understand it. The preceding concepts do not mean that complex information should be excluded from the financial statements. They must be presented in such a way that the users do not get confused or deluded. Understandability concept is one of the qualitative accounting principles. This does not mean that complex data must be excluded from these statements, but this data must be explained enough, so that even the users possessing considerably less accounting or business knowledge could understand and interpret it easily. If the information provided in financial statements including financial data, non-financial measures, disclosures, presentations etc. Accountants' Guidebook Bookkeeper Education Bundle Bookkeeping Guidebook, Accounting BestsellersAccountants' GuidebookAccounting Controls Guidebook Accounting for Casinos & Gaming Accounting for InventoryAccounting for ManagersAccounting Information Systems Accounting Procedures Guidebook Agricultural Accounting Bookkeeping GuidebookBudgetingCFO GuidebookClosing the Books Construction AccountingCost Accounting FundamentalsCost Accounting TextbookCredit & Collection GuidebookFixed Asset AccountingFraud ExaminationGAAP GuidebookGovernmental Accounting Health Care Accounting Hospitality Accounting IFRS GuidebookLean Accounting Guidebook New Controller GuidebookNonprofit Accounting Oil & Gas Accounting Payables ManagementPayroll ManagementPublic Company Accounting Real Estate Accounting, Finance BestsellersBusiness Ratios GuidebookCorporate Cash ManagementCorporate FinanceCost ManagementEnterprise Risk ManagementFinancial AnalysisInterpretation of FinancialsInvestor Relations GuidebookMBA GuidebookMergers & AcquisitionsTreasurer's Guidebook, Operations BestsellersConstraint ManagementHuman Resources GuidebookInventory Management New Manager Guidebook Project ManagementPurchasing Guidebook. The understandability concept of accounting states that the information provided in the financial statements must be easily understandable by the end users of those financial statements.

It promotes attributes like comparability and consistency within financial statements that raise their relevance. an understandable meaning thank you for your support, Copyright 2012 - 2020. Concise. can also make the statements more legible. (2). There are many areas of financial statements that mention accounting related terminologies like EBITDA, amortization, free cash flows etc. Which of the following may improve the understandability and quality of financial statements? and other areas that make use of complex calculations and presentations e.g.

Any company primarily runs on the funds of shareholders and directors are the people who manage those funds with the intention to generate profits. For example, a table of future lease payments should include all future periods for which lease payments will be made, so that a reader can understand the entire scope of future obligations. Transactions and events must be accounted for and presented in the financial statements in a manner that is easily understandable by a user who possesses a reasonable level of knowledge of the business, economic activities and accounting in general provided that such a user is willing to study the information with reasonable diligence.