Understandability

Transactions and events must be accounted for and presented in the

financial statements in a manner that is easily understandable by a user
who possesses a reasonable level of knowledge of the business, economic
activities and accounting in general provided that such a user is willing to
study the information with reasonable diligence.
Understandability of the information contained in financial statements is
essential for its relevance to the users. If the accounting treatments
involved and the associated disclosures and presentational aspects are
too complex for a user to understand despite having adequate knowledge
of the entity and accountancy in general, then this would undermine the
reliability of the whole financial statements because users will be forced to
base their economic decisions on undependable information.
Example:
One of the main problems with the financial statements of ENRON was
that it contained a very complicated structure of special purpose entities
that were presented in a manner that concealed the financial risk
exposure of the company. The accounting treatments of ENRON were not
comprehensible by the capital market participants who consistently
overvalued its worth until the inevitable collapse of its share price in 2001
upon the news of its bankruptcy.

Faithful Representation
Information presented in the financial statements should faithfully
represent the transaction and events that occur during a period.
Faithfull representation requires that transactions and events should be
accounted for in a manner that represent their true economic substance
rather than the mere legal form. This concept is known as Substance Over
Form.
Substance over form requires that if substance of transaction differs
from its legal form than such transaction should be accounted for in
accordance with its substance and economic reality.
The rationale behind this is that financial information contained in the
financial statements should represent the business essence of
transactions and events not merely their legal aspects in order to present
a true and fair view.

Timeliness of Accounting Information

Timeliness principle in accounting refers to the need for accounting
information to be presented to the users in time to fulfill their decision
making needs.
Timeliness of accounting information is highly desirable since information
that is presented timely is generally more relevant to users while
conversely, delay in provision of information tends to render it less
relevant to the decision making needs of the users.