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DipIFRS ACCA course - IAS1 Qualitative characteristics of useful financial information No.6

DipIFRS ACCA course - IAS1 Qualitative characteristics of useful financial information No.6


The qualitative characteristics of useful financial reports define the types of information that are likely to be most useful to users in making decisions about the reporting entity on the basis of the information contained in its financial report.


The qualitative characteristics apply equally to:
1. Financial information in general purpose financial reports.
2. As well as on the financial information provided in other ways.


Financial information is useful when it:
1. Related.
2. Represent faithfully what it purports to represent.


These are Fundamental Characteristics, which lack of availability means that the financial information is of no value


Enhanced usefulness of financial information if it:
1. Comparable.
2. Verifiable.
3. In a timely manner (timely).
4. Understandable.


These elements are Enhancing Qualitative Characteristics, and their lack of availability does not mean that the financial information is of no value


Fundamental qualitative characteristics:


The primary qualitative characteristics of useful financial information are Two :
1. Relevance.
2. A faithful representation.
and this is fundamental quality of useful accounting information


1. Relevance:


Relevant financial information can make a difference in the decisions made by users.
Financial information can make a difference in decisions if it has: 3 conditions of convenience
1. A predictive value. It gives a clear picture (whether positive or negative) to the user of the financial information.
2. A confirmatory value. Confirmation value enables users to verify and confirm previous forecasts or assessments Or both.
And notice that The predictive value and confirmatory value of financial information are interrelated.
3. Materiality is a specific aspect of relevance that depends on the nature or size (or both) of the elements to which the information relates in the context of the entity's financial report.
what is intrinsic to one entity may not be intrinsic to another entity since it is relative.
Where materiality is affected by:
1. The nature of the item.
2. The size of the item.
Note that relative importance is described as ingredient of relevance and the same is true for both :
1. The predictive value.
2. Confirmatory value.


2. Faithful representation:


General purpose financial reports represent economic phenomena with:
1. Words.
2. Numbers.
For financial information to be useful it must not only be relevant but also ...
represent faithfully the phenomena it purports to represent
Faithful representation means representing the essence of an economic phenomenon rather than just its legal form.
Faithful representation seeks to maximize the essential properties of each of: The 3 conditions for honest representation
1. Completeness. Adequate or complete disclosure of all necessary information
2. Neutral. Justice and freedom from bias .. Neutrality is described as a ingredient of faithful representation
3. Free from error. No errors and omissions
Neutral depiction supported by exercise of prudence.
and the Prudence is the exercise of caution when making judgments under conditions of uncertainty.


Hence, it can be said that faithful representation is achieved when the information:
1. Completeness.
2. Neutral.
3. Free from error.
A complete depiction includes all the information needed to understand phenomena.

Neutral depiction is without bias. Means freedom from error:
1. No errors.
2. No omissions.

In describing phenomena and in the applied process. For financial information to be useful it must not only represent the relevant phenomena (as defined above) but also faithfully represent the phenomena it claims to represent.


Note that If there is a continuing series of errors that tend to bias the results of financial statements in a certain direction, this can be considered a case of financial reporting fraud.



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