We explain what financial information is and what its objectives are. In addition, the main characteristics of this information.
What is financial information?
Financial information is the set of operational and strategic information that allows knowing and managing cash flows, organizing budgets , analyzing investments and making sound financial decisions.
Although they are sometimes taken as synonyms, there is a subtle difference between accounting information and financial information : the first uses the accumulation method, considers the account statement including assets , costs and profits; financial information focuses on the analysis of cash flows and tries to make decisions based on this, which more accurately reflects the state of a company .
Characteristics of financial information :
The financial information shows the most significant aspects of the company.
It is the quality of adapting to the purpose of the user , since the financial information must serve for the elaboration of projections and to show the most significant aspects of the organization or company. To be useful, financial information must have other attributes, which are the following.
The data to be included in a financial report must be carefully selected so that the user gets the message and based on that message can make sound decisions . Relevance implies that it can influence users’ decisions , either with predictive value, confirmatory value, or both. In this sense, it is important to consider the relative importance or materiality, from the quantitative and the qualitative.
Financial information must be prepared with clear criteria and following a systematic method , not based on the potential users of that information. Although shareholders, investors and creditors will be the most likely to use financial information, it must be able to respond to the needs of all types of entities linked to economic activity.
The financial information must be free of deliberate errors or omissions.
The financial information that is presented must be true and reliable, it must represent reality as faithfully and objectively as possible , free of distortions. And when we talk about “faithful representation” we are not saying that everything must be exact, because unintended errors often occur. What should not exist are deliberate and biased errors or omissions.
It means that the operating system can be confirmed by other people , applying tests to verify the information produced. are not “deliberately” distorted and that, as a result of this objectivity, the financial statements reasonably represent reality, in accordance with the rules on which it was based, and of course there should be no manipulation of the information.
The financial information must allow both horizontal comparison (with other companies) and vertical comparison (within the same company in different periods), in order to identify similarities and differences of interest , which allow valuable conclusions to be drawn.
Financial information must be prepared on a regular basis.
The financial information must be available when the user requires it ; this is very important because it is not always possible to foresee the moment when it is needed; for this reason, as a rule, it must be prepared with some regularity (monthly, quarterly, annual).
Given this need to have the financial information prepared, it acquires a provisional nature.
This is a fundamental characteristic of financial information, since cryptic , complicated information that can only be understood by those who have compiled it is useless; It must always be borne in mind that information is an instrument that must be useful for different users.
This characteristic means that the same criteria and general rules were always followed during the generation of all the financial information, so that the information presented is methodologically comparable compared to others .
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