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Qualitative Characteristics of Financial Info

Qualitative characteristics are attributes that enhance the usefulness of financial accounting information, categorized into fundamental and enhancing characteristics. Fundamental characteristics include Relevance, which influences decision-making, and Faithful Representation, which ensures accurate depiction of economic phenomena. Enhancing characteristics, such as Verifiability, Comparability, Understandability, and Timeliness, improve the presentation and usability of the information.

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99 views2 pages

Qualitative Characteristics of Financial Info

Qualitative characteristics are attributes that enhance the usefulness of financial accounting information, categorized into fundamental and enhancing characteristics. Fundamental characteristics include Relevance, which influences decision-making, and Faithful Representation, which ensures accurate depiction of economic phenomena. Enhancing characteristics, such as Verifiability, Comparability, Understandability, and Timeliness, improve the presentation and usability of the information.

Uploaded by

dumeleanor
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as TXT, PDF, TXT or read online on Scribd

Qualitative characteristics are the qualities or attributes that make financial

accounting information useful to the users

Under the conceptual framework, the two groupings of qualitative characteristics


are fundamental qualitative characteristics and enhancing qualitative
characteristics

Fundamental Qualitative Characteristics


- Represent the qualities of a useful information in users' decision making
- The characteristics that address the content or substance of information
- The fundamental qualitative characteristics are Relevance and Faithful
Representation
○ Relevance - the ability of the information to influence a decision
made by users
§ Relevant Information has the following ingredients:
□ Predictive Value - the information can help users
increase the likelihood of correctly predicting or forecasting outcome of events
□ Confirmatory Value - the information enables users
confirm or correct earlier expectations
□ NOTE: Materiality is NOT an ingredient of relevance but a
specific aspect of it
□ Materiality - information is material if omitting,
misstating, or obscuring it could reasonably be expected to influence the economic
decisions made by the users. There is no specific threshold provided for
materiality. Materiality is purely based on judgment. The following factors may be
considered:
® Relative size of the item in relation to the total
of the group to which the item belongs
® Nature of the item
○ Faithful Representation - means that the information provides a true,
correct and complete depiction of the economic phenomena that it purports to
represent
§ To be a perfectly faithful representation, a depiction should
have 3 ingredients, namely:
□ Completeness - all information necessary for users to
understand the phenomena depicted is provided, whether in words or in numbers
□ Neutrality (free from bias) - means that the financial
statements should not be prepared so as to favor one party to the detriment of
another party
□ Free from error
□ Note: Neutrality is supported by the exercise of
prudence. Prudence or conservatism is the exercise of caution when making judgments
under conditions of uncertainty.

Enhancing Qualitative Characteristics


- Characteristics that enhance the usefulness of information
- The characteristics that address the form or presentation of information
- The enhancing qualitative characteristics are (VCUT): Verifiability,
Comparability, Understandability and Timeliness.
○ Verifiability - means that different knowledgeable and independent
observers could reach consensus, although not necessarily complete agreement, that
a particular depiction is a faithful representation
○ Comparability - the qualitative characteristic that enables users to
identify and understand similarities in, and differences among, items. Although
related, Consistency and Comparability are not the same. Comparability is the goal
while consistency is the means of achieving the goal.
○ Understandability - requires that financial information must be
comprehensible or intelligible if it is to be useful but complex matters cannot be
eliminated
○ Timeliness - means having information available to decision makers in
time to influence their decisions

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