Qualitative Characteristics Flashcards
What are two qualitative characteristics in accounting?
Relevance and faithful representation
What makes information relevant?
It will provide predictive values and or have confirmatory values
What is the characteristic of confirmatory value?
Will provide feedback on past performance or trends.
What is the characteristic of predictive value?
can be used to make predictions about the future e.g., plan budgets. etc.
What is materiality?
Information that will influence decisions due to its amount or nature, must be disclosed.
What is needed for faithful representation?
accounting information should reflect accurately the event that is represents. Complete, free from error, and neutral.
What does complete mean?
all the necessary explanations are provided so the information can be understood.
What does free from error mean?
It means there are no errors or omissions from the description of the information, not that it is necessarily 100% accurate.
What does neutral mean?
the information is free from biased and it does not present a favourable or unfavourable slant to influence users. “An arms length transaction”
What are the enhancing characteristics?
understandibility, comparibility, timeliness, verifiability
What is the definition of enhancing qualitative characteristics?
Any information that can improve the relevance or faithful representation of the financial statements.
What is understandability?
Accounting information should be presented in a way that is easily comprehended by those making use of the information.
What is comparability?
It must be possible to use accounting information to compare accounting periods to measure performance/ make trend analyses/ show similarities and differences. It should be possible to use the information to make comparisons with similar business’.
What is timeliness?
Information needs to be available in time to influence users’ decisions.
What is verifiability?
When information is verifiable, it assures users’ that the information faithfully represents the account, event or transaction it represents. Different users’ will reach a consensus that the information is accurate.
