1.1. Qualities of accounting information is determined

Qualities of Accounting Information

For accounting information to be useful to users, it must possess certain qualitative characteristics. These qualities ensure that financial information is accurate, reliable, and helpful in decision-making.

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1. Relevance

Information must be useful for decision-making.
It should influence economic decisions by helping users evaluate past, present, or future events.

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2. Reliability (Faithful Representation)

Information must be accurate, complete, and free from error or bias.
It should represent the real financial position of the business.

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3. Understandability

Information must be easy to understand by users who have basic accounting knowledge.
Complex information should be clearly explained.

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4. Comparability

Users should be able to compare financial statements over time or with other businesses.
This requires using consistent accounting methods.

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5. Consistency

The business must use the same accounting methods from period to period unless a change is justified.
This allows meaningful comparison.

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6. Timeliness

Information must be provided on time to support decision-making.
Delayed information loses value.

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7. Materiality

Only information that is significant enough to influence decisions should be included.
Minor errors that do not affect decisions may be ignored.

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8. Verifiability

Different knowledgeable individuals should be able to confirm the information using the same evidence.

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9. Neutrality

Accounting information must be free from bias and should not favor any particular group.