Qualitative Characteristics of FS

Attributes that make information provided in financial statements useful to users

Principal qualitative characteristics relate to:

Understand ability Relevance
Comparability Reliability


Users must be able to understand the financial statements

  • For this users are assumed to have reasonable knowledge of business and economic activities and accounting and a willingness to study information with reasonable diligence.

Information about complex matters should not be excluded on the grounds that it may be too difficult for certain users to understand.


The predictive and conformity role of information is interrelated. The information has the quality of relevance when it influences the economic decision making of the users by helping them:

  • Evaluate past, present or future events; or
  • Confirming or correcting their past evaluations

The manner of showing information will enhance the ability to make predictions, e.g. by highlighting the un-usual items.

The relevance of information is affected by its nature and materiality



Nature alone may be sufficient to determine relevance (e.g. remuneration of management, segmental information)

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of financial statements.

Nature and materiality both can be relevant e.g. the amounts of inventories held in each of the main category.

Depends upon size of item or error judged in particular circumstances of its omission or misstatement

Materiality is not a primary qualitative characteristic itself (like reliability or relevance) because it is merely a threshold or cult-off point


Users must be able to depend on it being faithful representation.

The information has the quality of reliability when: –

  1. F. S are free from material error and bias
  2. Can be depended by the users
  3. Reliability comprises
  • Faithful representation
  • Substance over form: Substance and economic reality, not merely the legal form
  • Neutrality – free from biasness
  • Prudence :Including a degree of caution in making estimates under conditions of un-certainty such that assets or income are not overstated and liabilities or expenses are not understated


User need to able to compare

  1. Fs of an enterprise through time – to identify trends in financial position and performance
  2. Fs of different enterprise- to evaluate financial position, performance and change in financial position.
    1. Consistent measurement and display of financial affect of like transactions and other events
    2. Implementation – users must be informed of accounting policies employed, any changes in those policies an defects of such changes
    3. Annual statements must show corresponding information for preceding periods.