Qualitative Characteristic Financial Statements

Qualitative Characteristic of Financial Statement
(Revised as of September 2010)
Relevance is an essential qualitative characteristic. To be relevant, information must be

capable of making a difference in the economic decisions of users by helping them
evaluate the effect of past and present events on future net cash inflows (predictive value)
or confirm or correct previous evaluations (confirmatory value), even if it is not now
being used. Being 'capable of making a difference', rather than now being used, is a
change from the present IASB framework; 'confirmatory' rather than 'feedback' value is a
change from the present FASB framework. Also, the information must be available when
the users need it (timeliness).
Accounting information has predictive value if users use it, or could use it, to make
predictions. Accounting information is not intended, in itself, as a prediction or as
synonymous with statistical predictability or persistence.
Faithful representation of real-world economic phenomena is an essential qualitative

characteristic, which includes capturing the substance of those economic phenomena.
Faithful representation also includes the quality of completeness. The common
conceptual framework will need to discuss thoroughly what faithful representation means
and what it does not mean.
Financial information needs to be neutral – free from bias intended to influence a

decision or outcome. To that end, the common conceptual framework should not include
conservatism or prudence among the desirable qualitative characteristics of accounting
information. However, the framework should note the continuing need to be careful in
the face of uncertainty.
Financial information needs to be verifiable to provide assurance to users that the

information faithfully represents what it purports to represent and that the information is
free from material error, complete, and neutral. Descriptions and measures that can be
directly verified through consensus among observers are preferable to descriptions or
measures that can only be indirectly verified.
Representations are faithful – there is correspondence or agreement between the

accounting measures or descriptions in financial reports and the economic phenomena
they purport to represent – when the measures and descriptions are verifiable, and the
measuring or describing is done in a neutral manner. Therefore, faithful representation
requires completeness, not subordinating substance to form, verifiability, and neutrality.
Consequently, the common framework should drop the widely misinterpreted term
reliability from the qualitative characteristics, replacing it with faithful representation.
That replacement is a change from the current IASB and FASB frameworks.
Although empirical research may provide evidence useful in standard-setting

decisions, for example, in assessing trade-offs between desirable qualities, the conceptual
framework project should not seek to develop empirical measures of faithful
representation or its component qualities.
Comparability is an important characteristic of decision-useful financial information and

should be included in the converged conceptual framework. Comparability, which
enables users to identify similarities in and differences between economic phenomena,
should be distinguished from consistency (the consistent use of accounting methods).
Concerns about comparability or consistency should not preclude reporting information
that is of greater relevance, or that more faithfully represents the economic phenomena it
purports to represent. If such concerns arise, disclosures can help to compensate for
lessened comparability or consistency.
Understandability also is an essential characteristic of decision-useful financial

information and should be included in the converged conceptual framework. Information
is made more understandable by aggregating, classifying, characterizing, and presenting
it clearly and concisely. Whether reported information is sufficiently understandable
depends on who is using it. The information in general-purpose external financial reports
should be understandable to financial statement users who have a reasonable knowledge
of business and economic activities and accounting and a willingness to study the
information with reasonable diligence. Relevant information should not be excluded
because it is too complex or difficult for some users to understand.
Materiality relates not only to relevance, but also to faithful representation. Materiality
should be included in the converged framework as a screen or filter to determine whether
information is sufficiently significant to influence the decisions of users in the context of
the entity, rather than as a qualitative characteristic of decision-useful financial
information.
Transparency, often cited recently as a desirable characteristic of financial information,

seems to be difficult to define. In current usage, it appears to encompass some of the
qualitative characteristics already included in the framework. Because it would be
redundant, transparency should not be added to the converged framework as a separate,
qualitative characteristic of decision-useful financial information.
Other possible characteristics considered, including credibility, high quality and

internal consistency, do not describe attributes of decision-useful financial information
that are distinct from other qualitative characteristics. Thus, they should not be added as
separate qualitative characteristics in the converged framework.
The converged framework should include information about the types of costs that
should be considered in deciding what financial information to provide, as well as criteria
to help standard setters decide how to take particular types of costs into account. The
converged framework should include presumptions not only about the capabilities of
financial statement users but also about the capabilities of financial statement preparers
and auditors.

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Qualitative Characteristic of Financial Statement

(Revised as of September 2010)

Relevance is an essential qualitative characteristic. To be relevant, information must be

Faithful representation of real-world economic phenomena is an essential qualitative

Financial information needs to be neutral – free from bias intended to influence a

Financial information needs to be verifiable to provide assurance to users that the

Representations are faithful – there is correspondence or agreement between the

Although empirical research may provide evidence useful in standard-setting

Comparability is an important characteristic of decision-useful financial information and

Understandability also is an essential characteristic of decision-useful financial

Transparency, often cited recently as a desirable characteristic of financial information,

Other possible characteristics considered, including credibility, high quality and

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