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This document discusses the qualitative characteristics that make financial statement information useful to users. There are two fundamental characteristics: relevance and faithful representation. Relevant information influences economic decisions and is provided in time. Faithful representation means transactions are accounted for and presented according to substance and economic reality rather than just legal form. It also involves completeness, neutrality, and freedom from error.
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Solution
The different attributes that are required for Financial Information are
1. Relevance: Financial information is considered relevant when it adds value to the decision
making process by providing the required pieces of information. Through relevant information
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3. Reliability:
Information is reliable when it is dependable and this is possible if it is:
Information must be reliable as well as relevant in order to be useful for decision making. Else it
would be of no use.
4. Comparability: Comparability of information means the ability to stand useful overtime. Users
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Introduction
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• the objective of financial reporting
• the qualitative characteristics of useful financial information
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• to assist all parties to understand and interpret Standards
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Priority
identified as a priority by stakeholders in the 2011 Agenda Consultation
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Approach
In revising the Conceptual Framework, the Board
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- 2. Qualitative characteristics are the attributes that make the information provided in financial statements useful to users. Fundamental characteristics: • Relevance • Faithful representation. Enhancing characteristics: • comparability • verifiability • timeliness • understandability Information can only be useful if it is material. Information is only material if its omission or misstatement could influence the decisions of users.
- 3. Relevance Information is relevant if: it has the ability to influence the economic decisions of users, and is provided in time to influence those decisions. Materiality has a direct impact on the relevance of information
- 4. Faithful representation If information is to represent faithfully the transactions and other events that it purports to represent, they must be accounted for and presented in accordance with their substance and economic reality and not merely their legal form. To be a perfectly faithful representation, financial information would possess the following characteristics: Completeness – To be understandable information must contain all the necessary descriptions and explanations. Neutrality – Information must be neutral, i.e. free from bias. Financial statements are not neutral if, by the selection or presentation of information, they deliberately influence the making of a decision or judgement in order to achieve a predetermined result or outcome. Free from error – Information must be free from error within the bounds of materiality. A material error or omission can cause the financial statements to be false or misleading, and thus unreliable and deficient in terms of their relevance. Free from error does not mean perfectly accurate in all respects. For example, where an estimate has been used the amount must be described clearly and accurately as being an estimate.