In order for the financial statements to be useful to the stakeholders of a business they must embody certain qualitative characteristics. They are defined as follows:
The fundamental qualitative characteristics:
Relevance – financial information is regarded as relevant if it is capable of influencing the decisions of users.
Faithful representation – this means that financial information must be complete, neutral and free from error.
The enhancing qualitative characteristics:
Comparability – it should be possible to compare an entity over time and with similar information about other entities.
Verifiability – if information can be verified (e.g. through an audit) this provides assurance to the users that it is both credible and reliable.
Timeliness – information should be provided to users within a timescale suitable for their decision making purposes.
Understandability – information should be understandable to those that might want to review and use it. This can be facilitated through appropriate classification, characterisation and presentation of information.