Financial Accounting

The Qualitative Characteristics of Financial Information

In order for the financial statements to be relevant to the stakeholders of a corporation, they must reflect specific qualitative qualities.

These features are divided into two sections i.e. essential qualitative characteristics and increasing qualitative attributes.

They are explained as follows:

qualitative characteristics of financial information

The Fundamental Qualitative Characteristics

Relevance

The information should be relevant to the demand of the users. The appropriate financial information assists the readers of the financial statements to take a different economic choice. For financial decision making, financial information needs to be predictive or informative, or both. Predictive Values aid users in forecasting future results. On the other hand, confirmatory values assist users to examine and validating predictions and judgments.

Materiality is also included as an element of relevance.

Faithful Representation

one of the fundamental qualitative characteristics is a faithful representation.  The information of the financial statement must be reliable, i.e. the information should be free of material errors and biases (Nobes & Stadler, 2015). The data should not be misstated. The source of information should be authentic, and the transactions should be represented faithfully. The same should not be misled

Enhancing Qualitative Characteristics

Enhancing Qualitative Characteristics

Comparability

Accounting information should be such that it should be able to compare an entity across time and with similar information about other entities.

Comparability allows decision-makers to grasp numerous controllable and non-controllable variables behind the success or failure of the performance of the firm. Accordingly, they can make future choices.

Verifiability

If information can be verified (e.g. through an audit) this provides assurance to the users that it is both credible and reliable.

Timeliness

information should be provided to users within a timescale suitable for their decision-making purposes. Delays in the publication of financial information reduce the usefulness of the information.

Understandability

Information presented in the financial statements should be understandable to those that might want to review and use it. This can be facilitated through appropriate classification, characterisation and presentation of information.

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