How many qualitative characteristic of financial statements

How many qualitative characteristic of financial statements

There are four main qualitative aspect of financial statement that makes financial statement more useful for the user of financial statements. Theses qualitative aspects are relevance, understand ability, reliability and comparability.

What is relevant information for financial statements?

Financial statement should provide relevant information for economic information.  Relevant information helps in evaluating the present performance and financial position, it also facilitate the user for predicating the future.

Materiality is important factor in determine the relevance, a material item is normally is relevant for decision making. Nature also plays an important role for determining the relevance of information.

What is Understandability in Financial Statement

Financial statement should be easily understandable by the user. It means that financial statement does not use such words and format which are difficult to understand. The international accounting standards have defined many disclosures requirement to improve user understanding.

What is reliable information?

Information that can be trusted i.e. free from error is known as reliable information. Financial statement provides bases for much economic decision therefore it very crucial that financial statement should be reliable. Reliability is such an important aspect that independent audit is conducted to ensure the information presented by the management is reliable.

What is comparable information?

User must be able to compare the financial statement with previous year financial statement to determine the performance. The financial statement must also be comparable with other entity. Financial statement must be prepared with consistency to ensure comparability.