QUALITATATIVE

CHARACTERISTICS
OBJECTIVES
 To identify the qualitative characteristics of accounting
information.
 To identify the fundamental qualitative characteristics.
 To identify the enhancing qualitative characteristics.
 To understand the cost constraint on useful information.
Qualitative Characteristics are the
qualities or attributes that make
financial accounting information useful
to the users.
Fundamental Qualitative Characteristics
1.Relevance is the capacity of the information to influence a
decision.
Ingredients of relevance
a. Predictive value
Financial information has predictive value when it can help
users increase the likelihood of correctly or accurately
predicting or forecasting outcome of events.
b. Confirmatory value
Financial Information has confirmatory value if it
provides feedback about previous evaluations.

Materiality is a practical rule in accounting which

dictates that strict adherence to GAAP is not
required when the items are not significant enough
to affect the evaluation,decision and fairness of
the financial statements.
2.Faithful Representation means that financial
reports represent economic phenomena or
transactions in words and numbers.
Ingredients of Faithful Representation
a. Completeness requires that relevant information
should be presented in a way that facilitates
understanding and avoids erroneous implication.
Completeness is the result of the adequate
disclosure standard or the principle of full
disclosure.
The standard of adequate disclosure means that all
significant and relevant information leading to the
preparation of financial statements shall be clearly
reported.
Notes to financial statements
The purpose of the notes is to provide the necessary
disclosures required by Philippine Financial
Reporting Standards.
Ingredients of Faithful Representation
b. Neutrality there is no bias in the preparation or
presentation of financial information.
Prudence is the exercise of care and caution when
dealing with the uncertainties in the measurement
process that assets or income are not overstated
and liabilities and expenses are not understated.
Ingredients of Faithful Representation
Conservatism is synonymous with prudence.
Conservatism means that when alternatives exist,
the alternative which has the least effect on equity
should be chosen.

c. Free from error there are no error in the

description of the phenomenon or transaction.
Ingredients of Faithful Representation
c. Free from error there are no error in the
description of the phenomenon or transaction.
Substance over form the economic substance of
transactions and events are usually emphasized
when economic substance differs from legal form.
Enhancing Qualitative Characteristics
1.Comparability means the ability to bring together
for the purpose of noting points of likeness and
difference.
 Isthe degree to which accounting standards and
policies are consistently applied from one period
to another.
 Isthe enhancing qualitative characteristic that
enables users to identify and understand
similarities and dissimilarities among items.
Enhancing Qualitative Characteristics
2.Understandability requires that financial
information must be comprehensible or intelligible
if it is to be most useful.
Enhancing Qualitative Characteristics
3.Verifiability means that different knowledgeable
and independent observers could reach consensus.

4.Timeliness means that financial information must

be available or communicated early when a decision
is to be made.
Cost Constraint on useful information

 Costshould not exceed the benefit derived from

the information!