Qualitative Characteristics of Financial Information

The aim of financial statement is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. In order to ensure that financial accounting will be useful to users, the conceptual framework outlines four qualitative characteristics that financial information should be able to relevant, reliable, comparable and understandable. The usefulness of financial information is enhanced if it meets the four characteristics.

(i) Relevant

To be useful for decision making, financial information should be relevant. In order to achieve relevance, financial information should have predictive value and feedback value and timeliness. Information has predictive value when it influences the economic decisions of users by helping them evaluate past, present and future events. It also allows the users to confirming or correcting their past evaluations when information has feedback value. Information of financial position and past performance can be used to predict future financial position and performance or other matters in which users are directly interest such as dividend. Judgment is required in deciding whether an information item is relevant to users. Materiality and nature are the assumptions used in financial reporting that contributes to relevance. The financial statements should disclose all items that are material enough to affect evaluations or decisions. Information is considered material if its omission or misstatement could influence the economic decisions of users. Whereas, a non- material transaction cannot influence a business decision thus it isn’t relevant.

(ii) Reliability

The Framework explains that information is reliable when it is faithful representation, substances over form, free from material error, complete and free from bias. To be reliable,

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