What is the most important qualitative characteristics of accounting information according to the Financial Accounting Standards Board?

Financial reporting

The primary objective of financial reporting is to provide useful information for making business decisions.

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Financial reporting
Test your knowledge
What is the most important qualitative characteristic of accounting information?
What is the most important quality for accounting information?
What do you mean by qualitative characteristics of accounting information?
What are the quantitative characteristic of accounting information?

Useful accounting information should possess two fundamental qualitative characteristics:

Relevance
Relevance means that the information can influence the economic decisions made by users. For example, the information may help users to predict future events, such as future cash flows, and help determine alternative courses of action under consideration. Information is also relevant if it is able to help decision makers evaluate past decisions. Thus, information that is relevant is said to have a predictive role and a confirmatory or feedback role.
Reliability
Reliability means that the user is assured that the information presented represents faithfully, without bias, the transactions and events being reported. This is a major reason that accountants record assets at their original historical cost. For accountants to record current market values requires the use of estimates, appraisals or opinions, all of which are more unreliable.

Additionally, there are enhancing qualities.

Timeliness
For accounting information to be relevant, it must be timely, i.e. it must be available to the decision makers before it loses its capacity to appropriately inform decisions.
Comparability
Comparability results when different companies use the same accounting principles.
Materiality
It is important that users are not overwhelmed with so much detail that they cannot clearly understand the message. The concept of materiality relates to the extent to which information can be omitted, misstated or grouped with other information without misleading the statement users when they are making their economic decisions.
Verifiability
Information is verifiable if independent observers, using the same methods, obtain similar results.
Consistency
A company uses the same accounting principles and methods from year to year.
Understandability
When information is included in general purpose financial reports, there is an obvious need for the users of those reports to be able to comprehend their meaning.

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Qualitative Characteristics of Financial Reports

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

Fundamental qualitative characteristics:

Relevance
The characteristic of relevance implies that the information should have predictive and confirmatory value for users in making and evaluating economic decisions. The relevance of information is affected by its nature and materiality. Information is material if omitting it or misstating it could influence decision making. A financial report should include all information which is material to a particular entity.

Faithful representation
The characteristic of faithful representation implies that financial information faithfully represents the phenomena it purports to represent. This depiction implies that the financial information is complete, neutral and free from error.

Enhancing qualitative characteristics:

Comparability
The characteristic of comparability implies that users of financial statements must be able to compare aspects of an entity at one time and over time, and between entities at one time and over time. Therefore, the measurement and display of transactions and events should be carried out in a consistent manner throughout an entity, or fully explained if they are measured or displayed differently.

Verifiability
The characteristic of verifiability provides assurance that the information faithfully represents what it purports to be representing.

Timeliness
The characteristic of timeliness means that the accounting information is available to all stakeholders in time for decision-making purposes.

Understandability
The characteristic of understandability implies that preparers of information have classified, characterised and presented the information clearly and concisely. The financial reports are prepared with the assumption that its users have a ‘reasonable knowledge’ of the business and its economic activities.

References:

Birt J., et al. (2020). Accounting: Business Reporting for Decision Making 7th John Wiley & Sons Australia, Ltd.
Google Image. (2021)

What is the most important qualitative characteristic of accounting information?

Reliability. One of the most important among qualitative characteristics of accounting information is reliability of data, i.e. all information provided must be traceable and verifiable with proper source documents.

What is the most important quality for accounting information?

The fundamental qualities of accounting information are relevance and reliability, also known as representational faithfulness. If accounting data is to be relevant and useful to decision makers if must be timely.

What do you mean by qualitative characteristics of accounting information?

Qualitative characteristics are the tributes that make the information provided in financial statements useful to users. Accounting information that is reported to facilitate economic decisions should possess certain characteristics or normative standards.

What are the quantitative characteristic of accounting information?

1. Relevance- the information presented should be useful to the users of financial information. 2. Reliability- The information should be obtained from reliable source.

What is the most important qualitative characteristics of accounting information according to the Financial Accounting Standards Board?

Financial reporting

Test your knowledge

What is the most important qualitative characteristic of accounting information?

What is the most important quality for accounting information?

What do you mean by qualitative characteristics of accounting information?

What are the quantitative characteristic of accounting information?

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