CHARACTERISTICS OF FINANCIAL INFORMATION

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The financial information presented in financial statements needs to have some key qualities which make it useful for the users. Generally accepted accounting standards normally outline such standards in their frameworks. IASB Conceptual Framework categorizes these into fundamental qualitative characteristics and enhancing qualitative characteristics. These include

The fundamental qualitative characteristics:

The relevance of financial information is regarded as relevant if it is capable of influencing the decisions of users.

Materiality - accountants and auditors should focus on financial information which is expected to affect the decisions of the users.

Faithful representation - this means that financial information must be complete, neutral, and free from error.

The enhancing qualitative characteristics:

Comparability - it should be possible to compare an entity over time and with similar information about other entities.

Verifiability - if information can be verified (e.g. through an audit) this provides assurance to the users that it is both credible and reliable.
Timeliness - information should be provided to users within a timescale suitable for their decision-making purposes.

Understandability - information should be understandable to those that might want to review and use it. This can be facilitated through appropriate classification, characterization, and presentation of information.

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