Qualitative Characteristics

(a) Comparability – Financial information is comparable when users are able

to identify and evaluate similarities in, and differences between, the nature
and effects of transactions or other events, at one time or over time, either
when assessing aspects of a single reporting government agency or of a
number of reporting government agencies. To enable users to compare the
performance of a government agency over time, financial statements
should show comparable information for preceding period.
(b) Relevance – Financial information is relevant when users can use such
information in making and evaluating decisions about the allocation of
scarce resources, in making predictions about future situations and in
forming expectations, or in confirming or correcting past evaluations.

(i) Materiality – The relevance of information is affected by its nature

and materiality. Information is material if its omission or
misstatement could influence the decisions or assessments of users
made on the basis of the financial statements. Materiality depends
on the nature or size of the item or error in the particular
circumstances of omission or misstatement.

(ii) Timeliness – In order to be relevant, financial information must be

timely. The usefulness of financial statements is impaired if they
are not made available to users within a reasonable period after the
reporting date. A government agency should be in a position to
issue its financial statements on or before the set deadline.

(c) Reliability – Financial information is reliable when the quality of

information assures users that such is free from bias and error and
faithfully represents what it purports to represent.

(i) Completeness – Information in financial statements should be

complete within the bounds of materiality and cost.

(ii) Faithful Representation – The actual effects of the transactions

should be properly accounted and reported in the financial
statements.

(iii) Substance Over Form – Transactions and other events should be

accounted for and presented in accordance with their substance and
economic reality and not merely with their legal form.

(iv) Neutrality – Information is neutral if it is free from bias. Financial

statements are not neutral if the information they contain has been
selected or presented in a manner designed to influence the making
of a decision or judgment in order to achieve a predetermined
result or outcome.

(v) Prudence – It is the inclusion of a degree of caution in the exercise

of judgment necessary in making the estimates required under
conditions of uncertainty, such that assets or revenues are not
overstated or liabilities or expenses are not understated. Prudence
does not, however, justify the creation of secret or hidden reserves
or excessive provisions, the deliberate understatement of assets or
revenues, or the deliberate overstatement of liabilities or expenses.
(d) Understandability – Financial information is understandable when users
comprehend its meaning. It is assumed that users have a reasonable knowledge
of the government agency’s activities and the environment in which it operates
and possess the proficiency necessary to comprehend the significance of
contemporary financial reporting practices.