Qualitative Characteristics Flashcards
What are the two qualitative characteristics in Accounting
Relevance and Faithful Representation
What makes information relevant?
Predictive Value and Confirmatory Value
What is the characteristic of predictive value?
Can be used to make predictions about the future, plan budgets e.t.c
What is the characteristic of confirmatory value?
Provide feedback on past performance or trends
What is materiality?
Materiality states that information will influence decision due to its amount or nature must be disclosed.
What is is needed for faithful representation?
Accounting information should reflect accurately the event it represents. It must be complete, neutral, and free from error.
What is complete?
All the necessary explanations are provided so the information can be understood.
What does neutral mean?
The information is not biased - it does not present a favourable or unfavourable slant to influence users.
What does free from error mean?
Means there are no errors or omissions from the description of the information, not that it is necessarily 100% accurate.
What is the definition of qualitative enhancing characteristics?
Any information that can improve the relevance or faithful representation of information in the financial statements.
What are the four enhancing characteristics
Understandability, Comparability, Timeliness, Verifiability
Define Understandability
Accounting information should be presented in a way that is easily comprehended by those making use of the information.
Define 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 also be possible to use information to make comparisons with similar businesses.
Define Timeliness
Information needs to be available in time to influence users’ decisions
Define Verifiability
When information is verifiable, it assures users that the information is faithfully represents the account, event or transaction it represents. Different independent users will reach a consensus that the information is accurate.
