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Note 3 (Version 2)

The document discusses the qualitative characteristics of useful financial information which are relevance, faithful representation, comparability, verifiability, timeliness, and understandability. It provides details on each characteristic and notes that the objective is to maximize these qualities to the extent possible while also considering the cost constraint on useful financial reporting.

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Eric Etienne Laize Sarmiento
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36 views5 pages

Note 3 (Version 2)

The document discusses the qualitative characteristics of useful financial information which are relevance, faithful representation, comparability, verifiability, timeliness, and understandability. It provides details on each characteristic and notes that the objective is to maximize these qualities to the extent possible while also considering the cost constraint on useful financial reporting.

Uploaded by

Eric Etienne Laize Sarmiento
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Conceptual Framework and

Accounting Standards

Note 3

Prof. Joseph Allan de Leon Jarabejo Jr., CPA


Qualitative Characteristics of
Useful Financial Information

Relevance Faithful Representation

Predictive Confirmatory
Value Value Complete

Materiality Neutral

Prudence

Enhancing
Free from
Qualitative Error
Characteristics

Comparability

Verifiability

Timeliness

Understandability
Qualitative Characteristics of
Useful Financial Information
Fundamental characteristics (2)

Relevance
Relevant financial information is capable of making a difference in
the decisions made by users.

• Predictive value
• Confirmatory value

Materiality is an entity-specific aspect of relevant information.


An information is material if omitting, misstating, or obscuring
it could reasonably be expected to influence decisions.

Faithful Representation
Information must faithfully represent the “substance” of the
economic phenomena that it purports to represent.

• Complete
All necessary information, descriptions and explanations for
a user to understand the phenomenon
• Neutral
Without bias in the selection or presentation of financial
information (no emphasized nor de-emphasized information)
Prudence is the exercise of caution when making
judgments under conditions of uncertainty
• Free from error
Does not mean perfectly accurate information in all respects.
It means that no errors have been made in selecting and
applying the process to produce the information.
Enhancing Qualitative Characteristics (4)

Comparability
Information is more useful if it can be compared with similar
information about other entities and with similar information
about the same entity for another period or another date.

Verifiability
Different knowledgeable and independent observers could reach
consensus that a particular depiction is a faithful representation

Timeliness
Having information available to decision makers in time to be
capable of influencing their decisions

Understandability
The information is classified, characterized, and presented clearly
and concisely to make them understandable

Points to remember:

• Of course, perfection is seldom. The board's objective is to


maximize those qualities to the extent possible.
• Equally, the exercise of prudence does not allow for
understatement.
• An estimate can still be faithful if the amount is described
clearly and accurately as being estimate.
• Financial reports are prepared for users who have a
reasonable knowledge of business and economic activities
and who review and analyse the information diligently.
The Cost Constraint on Useful
Financial Reporting

Reporting financial information imposes cost and it is important


that those costs are justified by the benefits of reporting that
information.

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