3.

Verifiability - financial information is

CHAPTER 3:
QUALITATIVE CHARACTERISTICS
Qualities or attributes that make financial
accounting information useful to the users
FUNDAMENTAL QUALITATIVE
CHARACTERISTICS:
1. Relevance – capacity of the information to
influence a decision
a) Predicative value – used to predict
future outcome.
b) Confirmatory value – provides
feedback about previous evaluations.
*Materiality – determines if items are not
significant enough to affect the evaluation,
decision and fairness of financial statements;
Factors of materiality:
a) Size
b) Nature
supported by an evidence; help arrive at the
same economic decision or conclusion.
 Direct – through direct observation (ex.
counting cash)
 Indirect – checking the inputs to a
model, formula or other technique and
recalculating the inputs in the same
technology.
4. Timeliness - the financial information must
be available or communicated early enough
when a decision is to be made to be useful
COST
 Constraint on the information that can be
provided by financial reporting.
 Cost Constraint on useful
information – a consideration of cost
incurred in generating financial.

*Standard of adequate disclosure – disclosure

of any financial facts significant enough to
influence the judgment of informed users.

2. Faithful Representation – the actual effects of

transactions shall be properly accounted for
and reported in financial statements.
a) Completeness – relevant information
facilitates understanding and avoids
erroneous implication.
b) Neutrality – “without bias”
c) Free from error – no omissions in the
description of phenomenon or
transaction.

*Substance over form – events are accounted in

accordance with their substance and reality and
not merely their legal form.
*Conservatism – “In case of doubt, record any
loss and do not record any gain”; synonymous
to prudence.

ENHANCING QUALITATIVE
CHARACTERISTICS
1. Comparability - ability to bring together the
purpose of noting points of likeness and
difference.
 Consistency – use of same method for
the same item, either from period to
period within and entity or in a single
period across entities.

2. Understandability – readily understandable

by users.