Conceptual Framework and Accounting

• The fundamental qualitative characteristic of relevance and faithful representation is introduced in chapter 2.
• Enhancing qualitative characteristics include comparability, verifiability, timeliness, and understandability.
• Comparability in accounting is the ability to bring together for the purpose of noting points of likeness and differences.
• Consistency in accounting refers to the use of the same methods for same items either from period to period within the reporting entity or a single period across different entities to achieve the goal of comparability.
• Verifiability in accounting means different knowledgeable and independent observers could reach consensus that a particular depiction is a faithful representation.
• Timeliness in accounting means financial information must be available or communicated early enough when the decision is to be made.
• Understandability in accounting requires that financial information must be comprehensible or intelligible.
• The fundamental qualitative characteristics of financial information are relevance and faithful representation.
• The constraints of obtaining the qualitative characteristics of financial information are limitations or constraints on the cost of obtaining the information.
• The process of applying the enhancing qualitative characteristics to financial information is iterative, meaning it does not follow a prescribed order.
• The cost of obtaining the information can be reduced by using cost models or evaluation models for PPE, property plant and equipment.
• The cost of obtaining the information should be lesser than the benefit that is obtained from the information.
• The cost of obtaining the information can also be reduced by using revaluation models for land and biological assets.
• The benefit of generating information that is useful should exceed the cost of collecting this information.
• There are trade-offs between the qualitative characteristics, meaning one cannot be maximized without reducing another.
• The enhancing qualitative characteristics of financial information are comparability, verifiability, timeliness, and understandability.