Understandability concept is one of the qualitative accounting principles. This concept requires that the transactions and events should be presented in financial statements in such a way that users of it can easily read and understand it. A user here we mean any person who have some degree of business and economy and has the will to understand the information.
If information is presented in such a way that a user with business mind is finding it very difficult to understand, then we can say that the financial statements are not following the Understandability concept of accounting.
But this does not mean that an entity hide any information or piece of information altogether to make it simple for the readers. Sometimes, some accounting transactions are so complex that they cannot be expressed in an easy to read format. The common examples in this case are derivatives accountings and financial instruments accounting. So, an entity cannot hide the disclosure for these sorts of transactions just for the sake of understandability.
Examples
Name of the entity, the date covered by the financial statements must be written over the financial statements.
Understandability concept requires proper disclosure in notes to the accounts and these should be properly numbered over the face of income statements and balance sheet to make it easily understandable for the users of financial statements.