If given these questions in the exam tomorrow (for 3 marks each), how would you answer them?
Explain the meaning of the term understandability.
AND
Explain the meaning of the term comparability.
Understandability :
Financial statements must be capable of being understood by the users of those statements, by ensuring that the statements are prepared in a standard, non-confusing format, and are easy to read. Information should not be omitted from these statements because it is believed that it is too complex for people to understand.
Comparability:
The information provided by the financial statements must be comparable with previous financial statements and statements of other similar businesses. This is ensured by following a certain format of presentation of these results. Hence, the users of the financial information must be made aware of the policies used in the preparation of these financial statements, any change in those policies and the effects of those changes.
