Qualitative Characteristics of Financial Information

These flashcards cover the qualitative characteristics of financial information as discussed in the lecture.

What are the two fundamental qualitative characteristics of financial information?

Relevance and faithful representation.

What does relevance in financial information mean?

Relevant financial information is capable of making a difference in the decisions made by users.

What are the three characteristics of faithful representation?

Complete, neutral, and free from error.

Define materiality in the context of financial information.

Information is material if its omission or misstatement can influence decisions.

What is the concept of prudence in accounting?

Prudence suggests being cautious and not recording information until it is certain.

What does the term 'substance over form' refer to in financial reporting?

It refers to recognizing the true nature of an asset or liability, not just its legal form.

List the four enhancing qualitative characteristics of financial information.

Comparability, verifiability, timeliness, and understandability.

How do comparability and verifiability enhance financial information?

Comparability ensures consistency over time and between entities; verifiability confirms the accuracy of numbers presented.

Why is timeliness important in financial information?

Timeliness ensures that information is available when it is needed for decision-making.

What does understandability mean in the context of financial statements?

Financial statements should be easily understood by users with a basic financial knowledge.