QUALITATIVE CHARACTERISTICS

Qualitative Characteristics of Financial Accounting



Executive Summary

The Financial Reporting Standard Board has issued a number of reports regarding the reporting and disclosure of accounting information. These reports are called the Statements of Financial Accounting Concepts (SFAC). In 1980, the Financial Reporting Standard Board issued a statement regarding the qualitative characteristics that are required in the accounting information. These qualitative characteristics helped to present the information in a way that it provided assistance and help to the various decision makers. These decision makers included investors, creditors, management and other stakeholders.

In 2010, a revised framework was formed by the joint effort of both Financial Reporting Standard Board (FRSB) and International Accounting Standard Board (IASB). This revised framework made some changes in the objectives as well as the qualitative characteristics that were presented in Statement of Financial Accounting Concepts No. 2. According to the revised framework, the primary users of the accounting information are the investors and creditors and not all the stakeholders.

In the revised framework, the qualitative characteristics were renamed and reorganized to present accounting information in a more structured and comprehensive manner. This development in the qualitative characteristics was an improvement to the qualitative characteristics presented in Statement of Financial Accounting Concepts No. 2.

Executive Summaryii

Introduction1

Discussion2

Statement of Financial Accounting Concepts No.2 (SFAC No. 2)2

Relevance3

Reliability4

Comparability and Consistency4

Materiality5

Qualitative Characteristics in the Joint Conceptual Framework i.e.: 2010 Chapter 35

Materiality6

Relevance6

Faithful Representation6

Enhancing Characteristics6

Comparison between SFAC No.2 and SFAC No. 8, Chapter 37

Conclusion8

References10

Appendices1

Qualitative Characteristics of Financial Accounting

Introduction

Financial accounting needs to have a conceptual framework underlying it to form standards that prescribe the limits, functions and nature of financial statements and financial accounting (Anonymous n.d., p. 4). Therefore, the Financial Accounting Standard Board has issued reports that focus on the basic concepts of reporting and disclosure (www.investopedia.com). These reports are called Statement of Financial Accounting Concept (SFAC) (www.answers.com). The Financial Accounting Standard Board has identified qualitative characteristics of accounting information that helps to differentiate between useful and less useful information for the decision makers. In 1980, the FASB provided its report on the qualitative characteristics of accounting information. After thirty years of development, the FASB and the International Accounting Standard Board made an effort to bring a revised framework that brought some changes in the qualitative characteristics of accounting information. These changes in the qualitative characteristics fall in chapter 3 of SFAC No. 8. This report focuses on comparing, contrasting and thus analyzing the qualitative characteristics that were present in 1980's framework and the qualitative characteristics that are present in the revised framework of 2010. This comparison between the two frameworks will provide an understanding of how the revised framework has improved the qualitative characteristics that were mentioned in the Standard Financial Concept No. 2 in 1980.

Discussion

In order to compare and contrast the Statement of Financial Accounting Concept No. 2 with chapter 3 of Statement of Financial Accounting Concept No. 8, both of them are discussed separately and then a comparison between them is made to identify the key differences between both of ...