With information that facilitates interpretation, users are able to compare and assess the results of similar transactions and other events among enterprises. These are the attributes that make the information … Failure of an audit may lead to disbelief in the company’s financial data. Neutrality neither means ‘without purpose’ nor does it mean that accounting should be without influence on human behaviour. Generally, the decision-makers (investor, accountant and manager) see materiality in relation to actual assets or income. Qualitative characteristics are the attributes that make financial information useful to users. Characteristic # 11. If the cost is more, this principle should be modified. The primary qualitative characteristics are relevance and faithful representation. To say that information should be free from bias is not to say that standards setters or providers of information should not have a purpose in mind for financial reporting. Consistent use of accounting principles from one accounting period to another enhances the utility of financial statements to users by facilitating analysis and understanding of comparative accounting data. The primary one is the relevance to the particular decision at hand of the attribute selected for measurement. Some environmental factors such as difficulty in measuring business events, limitations of available data, users’ diverse requirements, affect accounting and thus put constraint on achieving objectives. Since company financial reporting aims at general purpose external financial reporting, all relevant users’ needs should be considered in deciding the understandability of the information, and no decision should be based on specific circumstances of individual decision-makers. Comparability, verifiability, timeliness and understandability are directed to enhance both relevant and faithfully represented financial information. Relevance and reliability are the two primary characteristics that make accounting information useful for decision-making. It can be noted that the most reliable information may not be the most significant for users in making economic decisions and assessment of an enterprise’s earning power. This quite significant as it makes the question of prefer-ability difficult and puts unanimity about preferences among accounting alternatives out of reach Although there is a considerable agreement about qualitative characteristics that accounting information should possess, no consensus is found about their relative importance in a specific situation because different users have or perceive themselves to have different needs, and therefore, have different preferences. For example, Stanga concludes in his study that financial accounting concepts of relevance and reliability are complementary rather than conflicting in nature. What is the Difference Between Bookkeeping and Accounting. Although consistency in the use of accounting principles from one accounting period to another is a desirable quality, but it, if pushed too far, will prove a bottleneck for bringing about improvements in accounting policies, practices, and procedures. In making decisions, the decision-maker will make comparisons among alternatives, which is facilitated by financial information. all information provided must be traceable and verifiable with proper source documents. Efforts, therefore, should be directed towards developing accounting standards to be applied in appropriate circumstances to facilitate comparisons and interpretation of data: areas of differences in accounting practices, which are not justified by differences in circumstances, should be narrowed; selection of an accounting practice should be based on the economic substance of an event or a transaction being measured and reported; and a desire to produce a particular financial statement result should not influence choice between accounting alternatives. Terms of Service 7. However, there are three constraints on full achievement of the qualitative characteristics: (iii) Lack of complete understanding of the objectives. An error in inventory valuation may be material in a small enterprise for which it cut earnings in half, but immaterial in an enterprise for which it might make barely perceptible ripple in the earnings. The ability to do intra-firm comparison (within the same company), inter-firm comparison (with other companies), and market sector comparison (comparison within the same market sector) makes accounting information easy to work with. The characteristics are: 1. It is difficult to prepare a general purpose report which may provide optimal information for all possible users and which may command universal relevance. What is the Difference Between Cost and Management Accounting? What are Qualitative Characteristics of Accounting Information? b) Neutrality: Information … To conclude, relevance is the dominant criterion in taking decisions regarding information disclosure. Some reports need to be prepared quickly, say in case of takeover bid or strike. Practices, policies, and procedures characteristics of accounting here be useful, information have... Made to examine the relative significance of ( or possible conflict among ) these qualitative characteristics understandable! 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