QUALITATIVE

CHARACTERISTICS OF
ACCOUNTING INFORMATION
BY-: DIVYANSH UMMAT
ROLL NO.- 2021UBA9031
 QUALITATIVE CHARACTERISTICS

• Qualitative Characteristics are the Attributes (or features) that makes the Accounting
Information given in the Financial Statement more Useful. The Four Qualitative
Characteristics are -:

• Understandability
• Relevance
• Reliability
• comparability
 UNDERSTANDABILITY

• An Essential Quality of the Accounting Information is that it

must be readily Understandable by Users. The Accounting
Information must be presented in a manner that the users
such as Investors, Creditors employees, etc. understand the
same. For this purpose, the Users should have a reasonable
knowledge of Economic and Business Activity.
 RELEVANCE

• Accounting Information has the Quality of relevance when it influences the Economic
Decision of the users by Helping them to Evaluate Past, Present and Future Events.
For Example- Information in respect of Dividend for the previous Years is Useful for
the Investors as it will Help them to Estimate Dividend for the future Years.
• Materiality-: The Qualitative Characteristics of Relevance requires that no Material
Information is Omitted. Information is Material. If it’s a Misstatement that is when
there is a omission in the statement it could influence the Economic decision of the
Users as decisions are taken on the basis of the Financial Information.
 RELIABILITY

• The Accounting Information provided should be Reliable. Accounting Information

provided is Reliable when its free from Personal Bias so that it can be Independently
Verified. The information provided should be Factual. Reliability has Following
Characteristics -: Faithful Representation, substance over from, Neutrality, Prudence,
Completeness, Timeliness and Verifiability.
• Faithful Representation-: It means that accounting Information provided is based on
Actual Events. For Example – Transaction of Purchase of Building in the books of
account is a proper Transaction. Furthermore the Balance sheet should faithfully
represent the Assets liability and owners Capital of the enterprise.
SUBSTANCE OVER FROM -:

• The Transactions and other Events in the Books of Account must be presented in
Accordance to their Substance and Economic reality and not merely with not merely
their Legal Form.
• Neutrality -: Financial Accounting Information should be Neutral in the sense that it
should not frame one group of Users over Another. It should not be designed for the
benefit of the Single user or Give on User Advantage over other Users. It is Significant
for the External Users of the Accounting Information. It is less important for the internal
Users as they have Access to the Information. The Financial statement must Disclose the
Actual position in report of operating results and Financial position.
PRUDENCE -:

• Prudence means playing safe and with Caution is the Exercise of Judgements needed in
making the Estimates required under condition of Uncertainties. The prepares have to make
Estimates in respect of Certain Events and Transactions such as probable life of the Fixed
Assets like Plant and Machinery for the purpose of Depreciation. While making estimates
about Uncertain Events the Accountant must be Prudent in making the Financial Statement.
• Completeness -: An omission may make Information to be False or misleading and Hence
Unreliable and short of Relevance. Full Disclosure must be made of all significant
Information in a manner that is Understandable and does not Mislead Creditors and
Investors irrespective of Cost Involved.
TIMELINESS - :

• The utility of Accounting Information decreases with Time. The more quickly the
Information is communicated to the Users, the more likely they are able to Influence
their Decisions. So the Accounting Information must be Available to the Decision
maker before it losses its Capacity to influence decision.
• Verifiability- : It Ensures Truthfulness of the recorded Transactions which can be
Independently checked by Other persons other than the Accountant Himself. For
Example – information contained in the Purchase Invoice.
 COMPARIBILITY

• Users must be able to Compare the Financial Statement of an enterprise over a period
of time so they are able to study the Financial Position, Operating Results and Cash
Flow. The Users must be able to compare the Financial Statement with different
Enterprise to evaluate their Financial position. Comparability is possible when the
different Enterprise also uses the same Accounting principle and Methods from year to
year.