Qualitative Characteristics of Financial Reports (2024)

FAQs

What are the 6 qualitative characteristics of financial information? ›

What makes a financial statement useful? FASB (Financial Accounting Standards Board) lists six qualitative characteristics that determine the quality of financial information: Relevance, Faithful Representation, Comparability, Verifiability, Timeliness, and Understandability.

The qualitative characteristics of financial statements include understandability, relevance, reliability, and comparability. We expand on these concepts below.

As figure 1 shows, the four principal qualitative characteristics are understandability, relevance, reliability and comparability (IASB, 2006).

The fundamental qualitative characteristics are relevance and faithful representation.

The chapter explains the fundamental qualitative characteristics (relevance and faithful representation) and the enhancing qualitative characteristics (comparability, verifiability, timeliness, and understandability) of useful financial information and notes the cost constraint.

In order to be useful, financial information must be both relevant and faithfully represented. Comparability, verifiability, timeliness and understandability are identified as enhancing qualitative characteristics.

relevance and faithful representation. To be relevant to investors, creditors, and other users, accounting information must be capable of making a difference in a decision. Financial information is capable of making a difference if it has predictive value, confirmatory value, or both.

They are relevance, reliability, objectivity, ability to be understood, comparability, realism, consistency, timeliness, economy of presentation, and completeness.

Financial reporting quality relates to the quality of the information that is contained in financial reports, including note disclosures. High-quality reporting provides relevant, decision-useful information, which objectively represents the economic reality of a company's activities during the reporting period.

Qualitative characteristics are the attributes that make financial information useful to users. For Analytical purposes, Qualitative characteristics can be differentiated into Fundamental and Enhancing qualitative characteristics.

How many qualitative characteristics are there in accounting? ›

There are six qualitative characteristics of accounting information. Two of the six qualitative characteristics are fundamental (must have), while the remaining four qualitative characteristics are enhancing (nice to have).

The primary financial statements of for-profit businesses include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar set of financial statements, though they have different names and communicate slightly different information.

9. Prudence:- Prudence means degree of caution in exercise of judgments requires to estimate condition of uncertainty so that assets and income are not overstated and liabilities and expenses are not understated.

Qualitative character- Characters or traits which cannot be measured such as, phenology, gender, the color of seed-coat. The character cannot be defined in number or an amount is a Qualitative character.

Primary Decision-Specific Qualities

Relevance and reliability are the two primary qualities that make accounting information useful for decision making.

The major elements of the financial statements (i.e., assets, liabilities, fund balance/net assets, revenues, expenditures, and expenses) are discussed below, including the proper accounting treatments and disclosure requirements.