4 QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION

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Qualitative characteristics of accounting information are the qualities of accounting information that make it useful to the users.

The International Accounting Standards Boards (IASB) have identified four essential qualitative characteristics that all accounting information should possess. 

These are Understandability, Reliability, Relevance, and Comparability

Understandability

Understandability is a concept that financial information should be prepared and presented in a way that is easily comprehended by the reader.

It is the quality of financial information being understood. 

It entails that the preparation of accounting information in the most simplified manner so that the users can easily comprehend it.

However, simplicity does not mean important aspects and terms of a financial report should be omitted.

Rather, It means every aspect and term of a financial report should be expressed in a way that is easily understood by the users.

Reliability

For accounting information to be useful for decision-making, it must be reliable.

Reliability is the degree to which financial information is unbiased, free from serious errors, and represented faithfully.

It also means that accounting information should reflect what it claims to represent. 

That is, accounting information should not present a rosier financial picture of the company than is actually the case.

This ensures that users of accounting information do not make the wrong decisions while banking on this information.

Relevance

Relevance is the quality of being helpful to the economic decision to be taken. It requires that the financial reports be directly related to the economic decision to be made by the users.

The relevance characteristics of accounting information require distinguishing between "material" and ''non-material'' items in the financial information

An item is said to be material if its omission or misrepresentation will have serious consequences on the decision to be made by the user based on the financial statement. 

By contrast, an item is immaterial if its omission or misstatement will have little or no influence on the decision to be made. 

However, distinguishing between material and immaterial items required the exercise of considerable judgment as what is material in a small business may be immaterial in a large business.

Comparability

Users must be able to compare a company's financial statements over time. 

Users should also be able to compare financial information from similar businesses in the same industry.

Thus, the same accounting practices and procedures must be used by multiple organizations in the same industry and by a company over time.

And, if there be any changes, this should be disclosed, as well as the impact of the changes on the entity's income.

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