Continuing to use the annual reports of companies which you obtained for Chapters 1 and 4, find the financial statements and the notes to the accounts.

1. Compare the financial statements with the formats and presentations shown in this chapter, and note any differences which you observe. Look at the notes to the accounts for items which are required by the regulations but are included in the notes rather than the main financial statements.

2. Find the strategic report and compare the cash flow discussion there with the FRS 1 presentation. Form a view on how readily the discussion may be related to the financial statement.

3. In your group, take the list of qualitative characteristics listed at section 4.2 and use the financial statements as a means of illustrating how the company has met those characteristics. If you have a set of different annual reports, each member of the group should take the role of a finance director pointing out the qualitative characteristics of their own company’s financial statements. The group together should then decide on a ranking with a view to nominating one of the annual reports for an award of ‘Communicator of the Year’.

Section 4.2:

The IASB Conceptual Framework sets out qualitative characteristics that make the information provided in financial statements useful to users. The two fundamental qualitative characteristics are:

• relevance
• faithful representation

The fundamental qualitative characteristics of relevance and faithful representation have further component characteristics:

• relevance

– predictive value
– confirmatory value

• faithful representation

– neutrality
– freedom from error
– completeness

A general quality of materiality applies across these fundamental characteristics.

There are four further characteristics which are described as ‘enhancing qualitative characteristics’. These are:

• comparability
• verifiability
• timeliness
• understandability.

Each of these characteristics is now described

Continuous to Chapters 1 & 4:

Obtain the annual report of a listed company. Each member of the group should choose a different company. Most large companies will provide a copy of the annual report at no charge in response to a polite request – or you may know someone who is a shareholder and receives a copy automatically. Many companies have websites with a section for ‘Investor Relations’ where you will find a document file containing the annual report.