What is the quality of information that gives assurance that it is reasonably free from error and bias?

The two fundamental qualitative characteristics of financial reports are relevance and faithful representation. The four enhancing qualitative characteristics are comparability, verifiability, timeliness and understandability.

Fundamental qualitative characteristics:

1. Relevance
   The characteristic of relevance implies that the information should have predictive and confirmatory value for users in making and evaluating economic decisions. The relevance of information is affected by its nature and materiality. Information is material if omitting it or misstating it could influence decision making. A financial report should include all information which is material to a particular entity.

1. Faithful representation
   The characteristic of faithful representation implies that financial information faithfully represents the phenomena it purports to represent. This depiction implies that the financial information is complete, neutral and free from error.

Enhancing qualitative characteristics:

1. Comparability
   The characteristic of comparability implies that users of financial statements must be able to compare aspects of an entity at one time and over time, and between entities at one time and over time. Therefore, the measurement and display of transactions and events should be carried out in a consistent manner throughout an entity, or fully explained if they are measured or displayed differently.

1. Verifiability
   The characteristic of verifiability provides assurance that the information faithfully represents what it purports to be representing.

1. Timeliness
   The characteristic of timeliness means that the accounting information is available to all stakeholders in time for decision-making purposes.

1. Understandability
   The characteristic of understandability implies that preparers of information have classified, characterised and presented the information clearly and concisely. The financial reports are prepared with the assumption that its users have a ‘reasonable knowledge’ of the business and its economic activities.

References:

• Birt J., et al. (2020). Accounting: Business Reporting for Decision Making 7th John Wiley & Sons Australia, Ltd.
• Google Image. (2021)

Tommy Andrian, S.E., M.Ak, Cert.DA.