Moreover, whether the financial information is beneficial for the investors and lenders or not, depends on how much relevant the financial information is and how much it represents, which it claims to represent to the users of the financial statements (Frank, 1979). Basically, faithful representation and relevance are the two most basic qualitative features of the financial information. Financial statements of an entity provide the users of the financial statements information regarding:
• An entity’s financial position, that is, the entity’s total assets and its total liabilities.
• The changes in an entity’s total assets and its total liabilities. An entity always reports discretely on the changes in the following components:
(i) Income and expenses of the entity, which are reported by the entity in the statement of profit or loss and in the statement of other comprehensive income as well.
(ii) Changes in the equity of the entity, which is reported by the entity in its statement of changes in equity;
(iii) Cash flows of the entity, which are reported by the entity in its statement of cash flows;
(iv)The necessary changes, in the total assets and the total liabilities of the entity, which are reported by the entity in its notes to the financial statements. An illustration of such a necessary change in the total assets and the liabilities of the entity would be purchase of machinery by the entity against consideration, other than in cash.
Through its financial statements, an entity depicts the financial outcome of the transactions, which are carried out by it, and also of the other events as well, simply by putting them into extensive groups, which are also known as the elements of financial statements (Cooper and Owen ,2007). Basically, the elements of the financial statements of an entity are the key components of the financial statements. For the purpose of making a piece of information clear and explicable for the users of the financial statements, an entity must ensure that it categorizes, typifies and presents the information in its financial statement, evidently and succinctly. Not only financial statements guide its relevant stakeholders to have an idea of the company’s financial position but give an idea of how the company can improve in the future.