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Qualitative Characteristics of Financial Information

Financial information has several qualities that make it useful.

These qualities are outlined in Chapter 3 of the Conceptual Framework for Financial Reporting, approved
by the International Accounting Standards Board (IASB).
Financial information is useful when it is relevant and represents faithfully what it purports to represent.
The usefulness of financial information is enhanced if it is comparable, verifiable, timely
and understandable.

Fundamental Qualitative Characteristics

Relevant information is capable of making a difference in the decisions made by users. Relevance
requires financial information to be related to an economic decision. Otherwise, the information is
Financial information is useful if it has predictive value and confirmatory value. Predictive value helps
users in predicting or anticipating future outcomes. Confirmatory value enables users to check and
confirm earlier predictions or evaluations.
Materiality is an aspect of relevance which is entity-specific. It means that what is material to one entity
may not be material to another. It is relative. Information is material if it is significant enough to influence
the decision of users. Materiality is affected by the nature and magnitude (or size) of the item.

Faithful Representation
The financial information in the financial reports should represent what it purports to represent. Meaning,
it should show what really are present and what really happened, as the case may be.
There are three characteristics of faithful representation: 1. Completeness (adequate or full disclosure of
all necessary information), 2. Neutrality (fairness and freedom from bias), and 3. Free from error (no
inaccuracies and omissions).

Enhancing Qualitative Characteristics

Comparable information enables comparisons within the entity and across entities. When comparisons
are made within the entity, information is compared from one accounting period to another. For example:

income is compared for the years 2012, 2013, and 2014. Comparability of information across
entities enables analysis of similarities and differences between different companies.

Verifiability helps to assure users that information represents faithfully what it purports to represent.
Financial information is supported by evidence and independent individuals can check them to see
whether such information is faithfully represented. In other words, information is verifiable if it can be

Timeliness means providing information to decision-makers in time to be capable of influencing their
decisions. It shouldn't be significantly delayed or else it will be of little or no value.

Understandability requires financial information to be understandable or comprehensible to users with
reasonable knowledge of business and economic activities. To be understandable, information should be
presented clearly and concisely. However, it is improper to exclude complex items just to make the
reports simple and understandable.