Primary Qualitative Characteristics
Relevance
Accounting
information is relevant if it makes a difference in a decision. Relevant
information has either predictive or feedback value or both. In addition, to be
relevant accounting information must be timely.
ü Predictive value: That helps users
forecasting/predicting future events.
ü Feedback value: That confirms/corrects prior
expectations/predictions.
ü Timeliness: Accounting information must be
available to its users/decision makers before it loses its capacity to
influence decisions.
Reliability
Reliability of
accounting information means that the information is free from error and bias.
To be reliable, accounting information must be verifiable, faithfully
represented and neutral.
o
Verifiable: Accounting information is verifiable if we able to prove that the
information is free from error and bias.
o
Faithfull representation: Accounting information must be factual.
o
Neutral: Accounting information must not to favor one set of users over
another.
Secondary
Qualitative Characteristics
Comparability
Comparability
means accounting information of an enterprise can be compared with the
accounting information of other different, but similar, enterprises. This
characteristic of accounting information enables users to identify and
understand similarities in, and differences among, items. Comparability results
when different enterprises use the same accounting principles.
Consistency
Consistency
means that a company uses the same accounting principles and methods, to
similar events, from year to year or period to period. Consistency helps companies to present their accounting information
in a consistent manner. It does not mean that an enterprise can't switch from
one accounting method to another. If a new method is acceptable and is
preferable, the company can switch. Hence, the enterprise should disclose the
reasons and the effect of such type of change.
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