(a) Understandability
Financial information is intended to assist users in making economic decisions. For this purpose, it is important that financial information is presented in a form that users can understand. However, this does not mean that complex matters which some users may find difficult to understand, and which some directors may like an excuse to exclude, should be left out of financial statements. Reports from which data has been excluded could be incomplete and misleading. The Conceptual Framework states that users can be assumed to have reasonable knowledge of business and economic activities and be prepared to review and analyze the information diligently.

Comparability
In understanding the financial performance of an entity, users will want to compare its results with those of other entities in the same sector and with its own results for previous periods. The concept of comparability is, therefore, very important. Comparison between entities is made more possible by IFRSs in which most allowed alternatives have been removed and by the requirement to disclose accounting policies. So, if two entities have applied different accounting policies, users can be aware of that and allow for it.

Comparing an entity’s results with its performance in prior years requires the application of consistency. An entity should treat financial items and transactions in a consistent manner from year to year, by applying the same accounting policies. Where there is a change of accounting policy from one year to the next, the comparative information must be restated to show what the results for the previous year would have been if the new accounting policy had been applied. The statement of changes in equity also shows the effect on the previous year’s equity balances of the change of accounting policy. The user is therefore able to adjust for the change of accounting policy and observe the changes in underlying performances.