The IASB Conceptual Framework describes the fundamental qualitative characteristics of useful financial information.
Required:
State and explain the TWO (2) fundamental qualitative characteristics. (10 marks)
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Relevance:
Information must be relevant to the decision-making needs of users. Information is relevant if it can be used for predictive and/or confirmatory purposes.
- It has predictive value if it helps users to predict what might happen in the future.
- It has confirmatory value if it helps users to confirm the assessments and predictions they have made in the past. Only information that is material can be relevant.
Faithful representation
To be useful, financial information must not only represent relevant phenomena, but it must also faithfully represent the phenomena that it purports to represent in both words and numbers.
A perfectly faithful representation would have three characteristics. It would be:
- complete;
- neutral; and
- free from error.