Qualitative Characteristics of Financial Reports (2024)

FAQs

What are the 6 qualitative characteristics of financial information? ›

What makes a financial statement useful? FASB (Financial Accounting Standards Board) lists six qualitative characteristics that determine the quality of financial information: Relevance, Faithful Representation, Comparability, Verifiability, Timeliness, and Understandability.

The qualitative characteristics of financial statements include understandability, relevance, reliability, and comparability. We expand on these concepts below.

They are relevance, reliability, objectivity, ability to be understood, comparability, realism, consistency, timeliness, economy of presentation, and completeness. The qualitative characteristics of financial reporting are very much important to the external users in making their economic decisions.

As figure 1 shows, the four principal qualitative characteristics are understandability, relevance, reliability and comparability (IASB, 2006).

Quantitative Characteristics of Financial Statements

Quantitative financial data include numbers you can measure, such as revenue, expenses, profit margins and taxes.

The fundamental qualitative characteristics are relevance and faithful representation. Relevant financial information is capable of making a difference in the decisions made by users.

The chapter explains the fundamental qualitative characteristics (relevance and faithful representation) and the enhancing qualitative characteristics (comparability, verifiability, timeliness, and understandability) of useful financial information and notes the cost constraint.

Comparability, verifiability, timeliness and understandability are identified as enhancing qualitative characteristics. They increase the usefulness of information that is relevant and faithfully represented.

Financial reporting quality can be thought of as spanning a continuum from the highest (containing information that is relevant, correct, complete, and unbiased) to the lowest (containing information that is not just biased or incomplete but possibly pure fabrication).

Qualitative characteristics of accounting information that impact how useful the information is: Verifiability. Timeliness. Understandability. Comparability.

What is reliability as a qualitative characteristic of financial statements? ›

Reliability: This pertains to the information being free from material error and bias, thus can be depended upon by users to fairly represent what it purports to represent. Comparability: This characteristic allows users to identify and understand similarities and differences between financial items.

The major elements of the financial statements (i.e., assets, liabilities, fund balance/net assets, revenues, expenditures, and expenses) are discussed below, including the proper accounting treatments and disclosure requirements.

9. Prudence:- Prudence means degree of caution in exercise of judgments requires to estimate condition of uncertainty so that assets and income are not overstated and liabilities and expenses are not understated.

The two fundamental qualitative characteristics of financial reports are relevance and faithful representation. The four enhancing qualitative characteristics are comparability, verifiability, timeliness and understandability.

The selected qualitative characteristics were predictive value, feedback value, timeliness, verifiability, representational faithfulness, neutrality and comparability. An opinion survey was conducted on one hundred ninety external users specifically shareholders, stockbrokers, bankers, academicians and tax officers.

Qualitative financial statement analyses involve examining financial statement information and related disclosures to improve their usefulness in assessing organizations' financial circ*mstances and performance.

These characteristics are comparability, verifiability, timeliness, and understandability. Comparability is the quality that allows readers to compare either results from one entity with another entity or results from the same entity from one year with another year.

If financial information is to be useful then it must be relevant and must also faithfully represent what is being reported. The usefulness of this information is enhanced if it is comparable, verifiable, timely and understandable. Each of these qualitative characteristics will be considered below.

Qualitative Characteristics of Financial Statements

Qualitative characteristics are the attributes that make the information provided in financial statements useful to users. The four principal qualitative characteristics are understandability, relevance, reliability and comparability.

So we have two cats — Relevance and Faithful representation — and they are the primary qualitative characteristics of useful financial information. Relevance means that information has predictive or confirmatory value.