Qualitative Characteristics Of Useful Financial Information |

Limitations to financial reporting

Limitations to financial reporting are many times presented with two clear limitations to the information provided by a general purpose financial report that are materiality and cost.

  1. Materiality. Information is material if its omission or misstatement could influence the decisions that users make on the basis of an entity’s financial information. Because materiality depends on the nature and amount of the item judged in the particular circumstances of its omission or misstatement, it is not possible to specify a uniform quantitative threshold at which a particular type of information becomes material. When considering whether financial information is a faithful representation of what it purports to represent, it is important to take into account materiality because material omissions or misstatements will

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In compliance with International Financial Reporting Standards

Any entity asserting that a set of financial statements is in compliance with IFRS complies with all applicable standards and related interpretations, and makes an explicit and unreserved statement of compliance in the notes to the financial statements. Compliance with IFRS encompasses disclosure as well as recognition and measurement requirements. [IAS 1 16]

A few examples of such a compliance statement are provided here:

Source: Unilever Annual Report and Accounts 2018

Source BP Annual report and Form 20-F 2018 In compliance with International Financial Reporting

The IASB does not carry out any inquiry or enforcement role regarding the application of its standards. However, this is often undertaken by local regulators and/or stock exchanges, which includes the SEC for … Read more

More details to present Useful Financial Information

What are more qualitative characteristics that enhance the usefulness of information that already qualifies as relevant and providing a faithful representation?

The enhancing qualitative characteristics may also help determine which of two ways should be used to depict a phenomenon if both are considered to provide equally relevant information and an equally faithful representation of the substance of the financial outcome of transactions in a business model.

The enhanced qualitative characteristics are:

  1. Comparability,
  2. Verifiability,
  3. Timeliness, and
  4. Understandability.

Comparability More details to present Useful Financial Information

From Merriam-Webster: A definition of Comparability is the quality or state of being comparable. An example in a sentence explains it all:

 “there’s little comparability between the two vehicles: one’s basic transportation and the … Read more

What is Useful Financial Information?

Or more formally: Qualitative Characteristics of Useful Financial Information What is Useful Financial Information?

What types of information are useful to users for making decisions about the reporting entity using the general purpose financial report compiled by the reporting entity. And equally important what are the cost constraints on the reporting entity’s ability to provide useful financial information.

Some information will be more important than other information and some more important information will be easily maintained, collected and reported and other more important information will be expensive to maintain, collect and report, the question being when it is too expensive to maintain, collect and report.

The first two fundamental qualitative characteristics…..

Financial information is considered to be useful if it … Read more