There are two important Qualitative Characteristics Of Financial Information such as Relevance and Faithful Representation. Beside these, the Conceptual Framework identifies four additional enhancing qualitative characteristics of financial information as under:
These characteristics are complementary to the fundamental characteristics. The enhancing qualitative characteristics of financial information distinguish more useful information from less useful information. In relation to these enhancing qualities, note:
- Comparability is the quality of information that enables users to identify similarities in and differences between two sets of economic phenomena. Making decisions about one entity may be enhanced if comparable information is available about similar entities; for example, if profit per share is calculated using the same accounting policies.
- Verifiability is a quality of information that helps assure users that information faithfully represents the economic phenomena that it purports to represent. Verifiability is achieved if different independent observers could reach the same general conclusions that the information represents the economic phenomena or that a particular recognition or measurement model has been appropriately applied.
- Timeliness means having information available to decision makers before it loses its capacity to influence decisions. If such capacity is lost, then the information loses its relevance. Information may continue to be timely after it has been initially provided, for example, in trend analysis.
- Understandability is the quality of information that enables users to comprehend its meaning. Information may be more understandable if it is classified, characterized and presented clearly and concisely. Users of financial statements are assumed to have a reasonable knowledge of business and economic activities and to be able to read a financial report.
Enhancing qualitative characteristics of Financial Statements should be maximized by the entity to the extent necessary. However, Para[F QC33] of Conceptual Framework says, enhancing qualitative characteristics, either individually or in group, render information decision useful if that information is irrelevant or not represented faithfully.