Qualitative Characteristics

Question 1

Relevance

Answer 1

Relevant information is capable of making a difference to the decisions made by users. Relevance requires financial information to be related to an economic decision.

Question 2

What makes information relevant?

Answer 2

Information is relevant to a decision if it helps users to form predictions about the outcomes of past, present or future events, and/or confirms or changes their previous evaluations by providing suitable feedback.

Question 3

Faithful representation

Answer 3

The information reported must be a faithful representation of the real-world economic event it represents. The user is assured that the information presented is complete, free from material error and neutral (without bias).

Question 4

Comparability

Answer 4

Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items. Information about an entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date.

Question 5

Verifiability

Answer 5

Verifiability mean the ability to ensure different independent and knowledgeable observers can reach a consensus whether a particular depiction of events is faithfully represented. Verifiability is maintained through the retention of source documents used to record the transaction and is checked through auditing.

Question 6

What is the purpose of the qualitative characteristic of verifiability?

Answer 6

The purpose of verifiability is to hold the accounting professional accountable for their work

Question 7

Timeliness

Answer 7

Timeliness means having information available to decision-makers in time to be capable of influencing their decisions. Having information available sooner, rather than later, can enhance its capacity to influence decisions, and a lack of timeliness can rob information of its potential usefulness.

Question 8

Understandability

Answer 8

Understandability requires financial information to be comprehensible to users with reasonable knowledge of business and economic activities. To be understandable, information should be presented clearly and concisely.