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Fundamental Qualitative Characteristics

The document discusses the qualitative characteristics of financial accounting information that make it useful to users. It outlines the fundamental qualitative characteristics of relevance, faithful representation, verifiability, and timeliness. It also discusses enhancing qualitative characteristics of comparability and understandability. Finally, it notes that cost is a constraint on the information that can be provided through financial reporting.

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Jonathan Navallo
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77 views2 pages

Fundamental Qualitative Characteristics

The document discusses the qualitative characteristics of financial accounting information that make it useful to users. It outlines the fundamental qualitative characteristics of relevance, faithful representation, verifiability, and timeliness. It also discusses enhancing qualitative characteristics of comparability and understandability. Finally, it notes that cost is a constraint on the information that can be provided through financial reporting.

Uploaded by

Jonathan Navallo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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3.

Verifiability - financial information is


CHAPTER 3: supported by an evidence; help arrive at the
QUALITATIVE CHARACTERISTICS same economic decision or conclusion.
Qualities or attributes that make financial  Direct – through direct observation (ex.
accounting information useful to the users counting cash)
 Indirect – checking the inputs to a
FUNDAMENTAL QUALITATIVE model, formula or other technique and
CHARACTERISTICS: recalculating the inputs in the same
1. Relevance – capacity of the information to technology.
influence a decision 4. Timeliness - the financial information must
a) Predicative value – used to predict be available or communicated early enough
future outcome. when a decision is to be made to be useful
b) Confirmatory value – provides
feedback about previous evaluations. COST
 Constraint on the information that can be
*Materiality – determines if items are not provided by financial reporting.
significant enough to affect the evaluation,  Cost Constraint on useful
decision and fairness of financial statements; information – a consideration of cost
Factors of materiality: incurred in generating financial.
a) Size
b) Nature

*Standard of adequate disclosure – disclosure


of any financial facts significant enough to
influence the judgment of informed users.

2. Faithful Representation – the actual effects of


transactions shall be properly accounted for
and reported in financial statements.
a) Completeness – relevant information
facilitates understanding and avoids
erroneous implication.
b) Neutrality – “without bias”
c) Free from error – no omissions in the
description of phenomenon or
transaction.

*Substance over form – events are accounted in


accordance with their substance and reality and
not merely their legal form.
*Conservatism – “In case of doubt, record any
loss and do not record any gain”; synonymous
to prudence.

ENHANCING QUALITATIVE
CHARACTERISTICS
1. Comparability - ability to bring together the
purpose of noting points of likeness and
difference.
 Consistency – use of same method for
the same item, either from period to
period within and entity or in a single
period across entities.

2. Understandability – readily understandable


by users.

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