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Qualitative characteristics of financial statements

• Understandability
• Reliability
• Comparability
• Relevance
• True and Fair View/Fair Presentation

1. Understandibility
2. Relevance
1. Materiality
2. Timeliness
3. Reliability
1. Faithful representation
2. Substance over form
3. Neutrality
4. Prudence
5. Completeness

The primary decision-specific qualities that make accounting information useful are relevanceone of the primary decision-specific qualities that make accounting information useful; made up of predictive value and/or feedback value, and timeliness. and reliabilitythe extent to which information is verifiable, representationally faithful, and neutral.. Both are critical. No matter how reliable, if information is not relevant to the decision at hand, it is useless. Conversely, relevant information is of little value if it cannot be relied on. Let’s look closer at each of these two characteristics, including the components that make those qualities desirable. We also consider two secondary qualities—comparability and consistency.The FASB faces a difficult task in balancing neutrality and the consideration of economic consequences. A new accounting standard may favor one group of companies over others, but the FASB must convince the financial community that this was a consequence of the standard and not an objective used to set the standard. Donald Kirk, one of the members of the first group to serve on the FASB, stressed the importance of neutrality in the standard-setting process.

The qualities of relevance and reliability often clash. For example, a net income forecast provided by the management of a company may possess a high degree of relevance to investors and creditors trying to predict future cash flows. However, a forecast necessarily contains subjectivity in the estimation of future events. GAAP presently do not require companies to provide forecasts of any financial variables.

One of the main objectives of financial reporting is to satisfy the information needs of a range of users. In so doing, financial statements and reports must have a framework. Financial accounting is not just about getting your ledgers in order or creating financial statements, but involves a theoretical aspect that governs the production of information for economic users. In the same way that good accounting information has certain characteristics, financial statements are bound to possess certain qualitative characteristics.
1. Understandability
2. Relevance
3. Reliability

Hi

Following are the qualitative characteristics of financial statements, as defined by the Framework of IAS/IFRS:

1. Understandibility
2. Relevance
1. Materiality
2. Timeliness
3. Reliability
1. Faithful representation
2. Substance over form
3. Neutrality
4. Prudence
5. Completeness
4. Comparability


Thanks