1.

5 Qualitative Characteristics
Relevance:
States that financial must be capable of making a difference to the decision made by the
users of the report.

 Help user form predictions about the outcomes of events

 Confirm (or change) their evaluations, or both

Materiality:
If items are too small or insignificant to make a difference to decision-making may be
considered to be immaterial

Faithful Representation:
States that financial information must be faithfully represented

 Complete
 Free from material error
 Without bias (not subjective or based on guesses)

Verifiability
States that financial should allow different knowledgeable and independent observers to
agree is faithfully represented

Comparability
States that financial information should be able to be compared with similar information
about other entities and with similar information about the same entity for another period
or another date

Timeliness
States that financial information should be available to decision makers in time to be
capable of influencing their decisions

Understandability
States that financial information should be understandable or comprehensible to users with
a reasonable knowledge of business and economic activities and presented clearly and
concisely
 Review questions 1.5

2.) Accounting entity and period assumptions ensures relevance by making sure statements
include appropriate revenue and expenses as well as being during the correct time period
3.) By making sure the original purchase price is verifiable by the source document and thus
without error and neutral
4.) Verifiability ensures faithful presentation by showing proof of an event occurring
5.) If the recording system is the same allows that reports are comparable to other reports
of the same entity at different periods or dates
6.) Timeliness allows a financial statement to be given at the correct time and ensures the
date is relevant to current decision making
7.) Categorising the financial information as well as graphs and charts to further aid
understandability