According to the financial report of Abbott Laboratories

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Based on any listed company of your own choice discuss how the primary qualitative characteristics identified in the ASB's Statement of Principles relate to the content and presentation of financial statements.

The aim of the financial report is to give information about the individuals' financial performance and position that may be useful to a wide range of users for evaluating the performance of the individuals' management and for making economic decisions.

Primary Qualitative Characteristics


The information provided in the financial statement should be relevant to the prediction of future events or relevant in helping confirm past events. If the information is not relevant then there is no point in producing the information. The relevant information has the ability to influence the economic decisions provided in time. Relevant information has predictive value since it helps users to evaluate or assess past, present or future events. The confirmatory value of the relevant information makes the users to confirm or correct their past estimations and evaluations. Predictive and confirmatory values make the information more relevant if these values are taken accurately.

According to the financial report of Abbott Laboratories:

Revenue from license product is measured for the period earned.

Sales figures comparison of various products with previous period is relevant information as it can increase the information of stakeholders about profitable products and trend of change in market of these products.

Company has provided assets classification of short term and long term which create relevance to stakeholders. Separate disclosure of goodwill enable user to evaluate assets useful for business and yield to business.

Tax calculations given in the balance sheet highlight actual contribution to government, allows government to estimate its income.

Related party disclosure indicates shareholders various different companies and person on whom company is basically depend.


The accounting information should be reliable and free from significant error or bias. The information is reliable if the user can rely on the information completely while representing the information. The information provided should be neutral from any influence to achieve a predetermined result.

According to the financial report of Abbott Laboratories:

Historical data is available and company is able to keep it in reliable form.

Inventories are recorded on FIFO basis which make value of stock at more realizable amount.

Company has provided estimated life of property.

Company has provided basis of recognizing foreign currency earnings and assets.

Debtors' classification make statement reliable as users can find correct value of future cash inflows.

Debtors are verified by auditors which helps customers and suppliers to show their actual payment due to / from company.


Comparability helps the users to measure the changes with time on the performance of particular activity example sales. Comparisons of the performance of the business with the performance of its competitor can be done. Financial performance and financial position can also be compared.

According to the financial report of Abbott Laboratories:

There is change in method of accounting of securities in Boston, which earlier was recorded at cost. Company has shown the revenue recognized in financial statement attributed by change of policy to make financial statement comparable.

Separate disclosure of SFAB 158 allowed shareholders to ascertain actual income from operations.

Product segmentation has enabled users to compare performance of company for different products.

Amortization of goodwill in financial statement can distort the actual picture of current year operations; by presenting the value of amortization during the years can allow users to compare operating profits before extra-ordinary items.


The accounting information should be simple to be understood by the person who needs it. It should be presented in an understandable way considering the capabilities of the user.

According to the financial report of Abbott Laboratories:

Disclosure of Joint venture agreement and its effect on financial statement create understanding regarding effect of revenue recognized.

Company gave break - up of its debts which enhanced understandability of users regarding company and impact of change in portfolio of debts.

Company has provided broad vision of its future plans which give user understanding about company business and its future.


The materiality in the information makes the information relevant or irrelevant. If particular information is lost from the financial report it would alter the complete decision of the user. Materiality is therefore a threshold quality. If the information is not regarded as material, it should not be included in the financial report since it will just make the user more confused for taking any decision.

According to the financial report of Abbott Laboratories:

Significant effect of litigation expenses which can have large impact on reserves and profit of the company. Company has disclosed the information at appropriate place, as amount is material for making decisions by stakeholder.\

Cash and bank balance and its spit up in different banks give picture of dependencies on cash of the company and liquidity position.

(b) Critically assess the difficulty in preparing a set of useful financial statements, which exhibit all of the primary qualitative characteristics identified in (a) above. How well do you feel that your chosen company has achieved it?

Difficulties in preparation of useful financial statements

Company has recorded most of assets on quoted price of similar assets or liability, but for rest they have recorded value of rest of assets on the basis of discounted cash flow method or Black School model. However, company was able to estimate fair value of rest of assets on the basis of discounted value of asset at current price as this will also cover the obsolesce of the assets.

Company has not provided enough information regarding profit contribution from different countries, users of information was not able to find the profit of different countries and they can get better idea of future market and expected growth in company profit related to growth of company business in various countries.

Company has waited of investigation for recording environmental cost. All effects will be directly on one years' income only. Company could recognize cost on previous years on the basis of announcement of new rules. It reduces the usefulness of financial statement and there may be certain other costs which are yet to be booked in books of accounts.

In case of global organization, adoption of uniform accounting policies is difficult. In case of this situation, company can make reconciliation statement to make all statements in an order.

Companies having branches in different locations have various financial years. Company is required to make lot of reconciliations to put all statements in one financial year. Company can maintain quarterly statement of all countries despite not having statutory requirements, so that we can have comparable financial statements.

Information regarding its customer products and market share of them can make financial statement more useful as shareholders can have idea regarding company growth compare to its competitors as well.

There is huge change in interest rates and currency values in 2008, statement can have distorted picture in case of certain adverse combinations. Company financial statements are not very much useful in some cases as there is big impact of all these changes in the year. Presentation of figures after putting all these items fixed can create much better picture. It is little difficult exercise as it is difficult to account these changes as business cycle scenario or impact of extraordinary items outside the organization.

Company has not shown risk opportunity analysis as it is difficult in Pharma Company. But there is big risk in this nature of business. Small mistakes in the product can levy heavy penalty on the company and can make financial statements irrelevant for the future.

Different users are of financial statements like customers, shareholders, bankers and general public. Company is expected to provide information in a manner understandable to all of them. Company should provide statistical data for elite class and general information i.e future plans and director's reports for general public.

Disclosures are sometime useful to the competitors also who can misuse the information about the company and its costing as well as future products. Company can hide information by disclosing similar things in its AGM instead of publishing that in auditor statement.