The qualitative characteristics of accounting information are essential attributes that make financial information useful and relevant for users.
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There are four primary qualitative characteristics:
- Relevance: Information is relevant if it helps users make informed decisions. Relevant information is timely, has predictive or feedback value, and is capable of influencing decisions.
- Reliability: Information should be reliable and free from material error or bias. It should faithfully represent the economic substance of transactions and events, providing users with a true and fair view.
- Comparability: Financial information should be comparable over time within the same entity and across different entities. Consistency in accounting policies enhances comparability, allowing users to identify trends and make meaningful comparisons.
- Understandability: The information should be presented in a clear and concise manner, making it understandable to users with a reasonable knowledge of business and economic activities. Clarity in presentation enhances the utility of the information.
Additionally, the International Financial Reporting Standards (IFRS) framework includes two enhancing qualitative characteristics:
- Verifiability: Different knowledgeable and independent observers should arrive at similar conclusions when they verify the reported information. This enhances the reliability of financial reporting.
- Timeliness: Information should be provided in a timely manner to be relevant. Delayed information might lose its capacity to influence decisions, reducing its relevance.
These qualitative characteristics collectively contribute to the usefulness and reliability of accounting information, enabling stakeholders to make informed economic decisions.