1. Fundamental Qualitative Characteristics
Both frameworks agree that for financial information to be useful, it must possess two fundamental characteristics: Relevance and Faithful Representation.
                           ┌───────────────────────────┐
                           │ Useful Info Requirements  │
                           └─────────────┬─────────────┘
                                         │
                 ┌───────────────────────┴───────────────────────┐
                 ▼                                               ▼
     ┌───────────────────────┐                       ┌───────────────────────┐
     │       Relevance       │                       │Faithful Representation│
     └───────────┬───────────┘                       └───────────┬───────────┘
                 ├─ Predictive Value                             ├─ Completeness
                 ├─ Confirmatory Value                           ├─ Neutrality
                 └─ Materiality Threshold                        └─ Free from Error

  • Relevance: Information must be capable of making a difference in user decisions. It requires Predictive Value (helping forecast future outcomes), Confirmatory Value (validating past evaluations), and must cross the Materiality threshold (where omitting it would alter user choices).
  • Faithful Representation: Financial records must accurately depict the true economic status of the business. This requires Completeness (including all necessary data), Neutrality (unbiased selection and presentation), and being Free from Error within reasonable estimation bounds.

2. Enhancing Qualitative Characteristics
Four secondary characteristics improve the utility of relevant and faithfully represented data:
  • Comparability: Enables users to identify similarities and differences across companies and periods.
  • Verifiability: Assures independent observers that the chosen accounting methods faithfully represent economic events.
  • Timeliness: Providing information to decision-makers while it still holds the power to influence their choices.
  • Understandability: Classifying and presenting information clearly and concisely for knowledgeable users.

 
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