PART 2: QUALITATIVE CHARACTERISTICS OF FINANCIAL

INFORMATION
[B127MA] Conceptual Framework and Accounting Standards | 2nd Semester A.Y 2024-2025

QUALITATIVE CHARATERISTICS  The relevance of information is affected by

MATERIALITY
The qualities (or attributes) that make
financial information USEFUL to the users in  Materiality is material if omitting or
making economic decisions. misstating it could influence the decision of
primary users
Qualitative Characteristics are classified
as follows:  Materiality is determined by the following
 Fundamental  Relative Size or Value
Qualitative Materiality is entity-specific, in other
Characteristics word what may be material to an
 Enhancing Qualitative Characteristics entity may be immaterial to another

FUNDAMENTAL QUALITATIVE CHARATERISTICS

 Nature
If the nature of the transaction is
 These characteristics relate to the material because of the specific
content (or substance) of financial information
information
FAITHFUL REPRESENTATION
 These are the characteristics that
make financial information useful to  The descriptions and figures presented
users in the financial reports should match
what really existed (or happened)
The fundamental characteristics are:
Characteristics of Faithful Representation
 Relevance
are as follows:
 Faithful Representation
 Completeness
RELEVANCE  Neutrality
 Refers to the capacity of the  Free from Error
information to affect a decision
 Completeness
 Relevant information can make - All information necessary for user to
a difference in decisions if it has understand the phenomenon being
the following ingredient: depicted must be included and clearly
 Predictive Value stated in the reports
Information can be used as an input
to predict future outcomes
 Confirmatory Value
If it provides feedback about previous
evaluations

JOEY ANNE M. DE VILLA

 PART 2: QUALITATIVE CHARACTERISTICS OF FINANCIAL
INFORMATION
[B127MA] Conceptual Framework and Accounting Standards | 2nd Semester A.Y 2024-2025

 Neutrality  Direct Verification

- The information contained in the - Verifying information through direct
financial reports should be free from observation, such as counting cash
bias
- Prudence or Conservatisms should be  Indirect Verification
observed during measuring process
- Checking the inputs to a model,
formula or other technique and
 Free from Error
recalculating the outputs using the
- No errors or omissions in the same methodology
description of the phenomenon or
transactions COMPARABILITY
- This is not absolute since financial  Enables users to identify and
statements are bound by estimates understand similarities and
and judgments differences among different sets of
information that are provided by:
- In some cases where the legal form
is different from the substance, the  Intra-comparability – single entity but
substance should take precedence different time periods
over the legal form  Inter-comparability – different
entities in a single period
ENHANCING QUALITATIVE CHARATERISTICS
 It is not synonymous with uniformity
 These characteristics are intended  Related to consistency but it is not
to increase the usefulness of synonymous to it, Consistency
financial information refers to the same method for the
same items, either from period to
 The enhancing characteristics are: period within a company or in a
single period across companies
 Verifiability
 Comparability UNDERSTANDABILITY
 Understandability
 Timeliness  Information should be presented in
a form that users understand, if
VERIFIABILITY information is not understood by
the users, it is rendered useless
 A piece of information is verifiable if it
is supported by evidence that different  Financial reports are intended for users
users would look into and arrive at the
same conclusion

JOEY ANNE M. DE VILLA

 PART 2: QUALITATIVE CHARACTERISTICS OF FINANCIAL
INFORMATION
[B127MA] Conceptual Framework and Accounting Standards | 2nd Semester A.Y 2024-2025

o Who have reasonable knowledge

of the entity’s business activities
o Who are willing to analyze
the information diligently

TIMELINESS
 This means having the information
available to users in time to be capable
of influencing their decisions
 The older the information the less useful
it is

COST CONSTRAINT
 Cost is a pervasive constraint on the
information that can be provided by
financial reporting
 Reporting financial information imposes
costs, and it is important that those costs
are justified by the benefits if reporting
that information
 This concept is known as cost-
benefit approach

 The benefit derived from the

information should exceed the cost of
obtaining the information

JOEY ANNE M. DE VILLA