Qualitative Characteristics of Accounting Information
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Transcript of Qualitative Characteristics of Accounting Information
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By: Shachie Garcia, Angeline Bigornia, Aubrey Aba,
Carlo Vitug, Thomas Diaz, and Kirk Chu
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1989FRAMEWORK
Relevance
Reliability
Comparability
Understandability
2010 FRAMEWORK
FUNDAMENTALCHARACTERISTICS
Relevance
FaithfulRepresentation
ENHANCING CHARACTERISTICS
Comparability
Verifiability
Timeliness
Understandability
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Fundamental Qualitative Characteristics
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Relevance -means the capacity ofthe information toinfluence a decision. Itrequires that the financialinformation should berelated or pertinent to theeconomic decision.
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Major Ingredients:a) Predictive Value:
- If the information can be used as an input for users making predictions.
b) Confirmatory Value:
- Provides feedback about the previous evaluations
Materiality-It is a sub quality of relevance based on magnitude or nature, or both.-Information is material if it’s omission and misstatement could influence decision.
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-means that financial reports represent economic phenomena or transactions in words and numbers.
3 characteristics for perfect faithful representation:
1. Completeness
2.Neutrality
3.Free from error
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COMPLETENESS- Requires that relevant information should be presented in a way that facilitates understanding and avoids erroneous implication.
NEUTRALITY-means that the financial statements should not be prepared so as to favor one party to the detriment of another party.
FREE FROM ERROR- Means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process.
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Enhancing Qualitative Characteristics
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COMPARABILITY
Information is more useful if it
can be compared with similar
information about:
-Other entities
-Same entity for another
date
*Not same as Consistency
*Not Uniformity
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VERIFIABILI
TY-Different knowledgeable
and independent observers
could reach consensus.
-Maybe not possible to
verify some information
until a future period.
-Verification can be direct
or indirect:Direct verification-
means verifying an
amount or other
representation through
direct observation.
Indirect verification-
means checking the
inputs to a model,
formula or other
technique and
recalculating the inputs
using the same
methodology.
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UNDERSTANDABI
LITY
requires that financial
information must be
comprehensible or intelligible
if it is to be useful.
Accordingly, the information
should be presented in a form
and expressed in terminology
that a user understands.
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COST CONSTRAINT
It is a consideration of the cost
incurred in generating financial
information against the benefit
to be obtained from having the
information.
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