Analysis of the Operation and Financial Condition of the Enterprise

Analysis of the Operation and Financial Condition of the Enterprise Understandability One of the most characteristic features of the informationpresented in the financial statements is its understandability. Therefore it isassumed that the users of financial reports have a good business, economy andaccounting knowledge together with the willingness to study this informationwith due care. Relevance In order for the information to be useful it should correspond tothe needs of decision-taking by users. Information is relevant if it influences theadoption of business decisions as follows: provides the assessment of the past,present or future events, or either confirms or corrects the previous assessmentsmade of these events. In order for the information to have the forecasting value itshould not always be strongly expressed as a forecast. However, the layout ofproviding the information about past transactions and other events influences theusefulness of reports on issues of forecasting. Information is relevant ifavoidance or alteration of this information might affect the business decisionstaken by the users of financial statements which they have adopted based on thisstatement. Reliability Information must be reliable to be useful. Information is reliableif it is free from material error and bias. It must represent faithfully thetransactions and other events that it should or is reasonably expected to represent.Representation according to substance: transactions should be represented notonly according to its legal form, but also according to its substance and economicreality. Completeness – information must be complete to be reliable. Comparability Users must be provided with the possibility to compare anenterprise’s financial statements through time to identify the trends of itsfinancial status and performance results. This means that the evaluation andpresentation of the financial effects of like transactions and events should becarried out consistently within the enterprise.Constraints to information relevance and reliability are as follows: Timeliness Information may become irrelevant if there is a delay in reportingit. In order to report information on a timely basis it is often necessary to provideit before all aspects of the transaction or any other event are known, thuscompromising reliability of information. In order to find a balance betweenrelevance and the provision of reliable information, the overriding considerationis how best to satisfy the economic decision-making needs of the users. Balance between benefits and costs The benefits derived from anyinformation must exceed the costs of presenting this information.3.2. Description of the main balance sheet itemsBalance sheet is a report prepared on the basis of the books of accounting reflectingthe financial position of the business at a particular moment. Balance sheet has twocomponent parts: The figures disclosed under assets show the amounts and the types theresources possessed by an enterprise are classified;49