One of the fundamental qualitative characteristics of useful financial information in the Conceptual Framework for Financial Reporting is ‘faithful representation’
Required:
Explain what is meant by ‘faithful representation’. (5 marks)
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The information gives full details of its effect on the financial statements and is only recognised if its financial effects are certain.
Financial reports represents economic phenomena in words and numbers. To be useful, financial information must not only represent only relevant phenomena but must faithfully represent the phenomena that it purports to represent.
To be faithful financial information must be complete, neutral and free from error. A complete reports must include all information necessary for the user to understand, neutral is without bias and finally free from error means there should be no errors or omissions in the report.