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Qualitative characteristics - Coggle Diagram
Qualitative characteristics
Fundamental
Relevant
Financial information is regarded as relevant if it is capable of influencing the decision of users
Preparers should consider whether information is material and the extent to which reliable information may be omitted
Information may be material or relavtn simply because of its magnitude or because its omission from the financial statements could affect decision making
Faithful representation
Completeness: all information that users need to understand the item is given
Neutral or unbiased: there is no bias in the selection or presentation of information
Free from error: there are no omissions errors or inaccuracies in the process to produce the information
The conceptual framework has reintroduced the concept of prudence. It clarifies that measure uncertainty might have an influence on the faithful representation of an item
Prudence is the exercise of caution when making judgements under conditions of uncertainty. It supports neutrality of information by ensuring that assets and income are not overstated and liabilities and expenses are not understated
Measurement uncertainty is a factor that can affect faithful representation.
Enhancing qualitative characteristics
Comparability
The accounting methods, including the presentation and classification of items in the financial statements must be applied consistently for similar situations
Facilitates comparison with similar information about other entities and with similar information about the same entity for another period
Verifiability
Accounting information presented in financial statements must be checked or demonstrated to be true, accurate or justified
If information can be verified, this provides assurance to the users that it is both credible and reliable
If something is not verifable, it is unlikely to be auditable; hence its reliability and usefulness is dimished
Timeliness
Local legislation and market regulations impose specific deadlines on certain entities
Timeliness is important to protect the users from outdated information or from delayed financial reporting
Understandability
Information should be understandable through appropriate classification, characterisation and presentation of information
Some financial transactions are complex and difficult to understand but to omit such information would not give a fair representation of the financial statements
The format and layout of the financial statements and the accounting policies applied, the terminology used and other statements made within the financial statements are clear and concise