Component 2

• Relevance


  Relevant financial information is capable of making a difference in the decisions made by the users if it has:

  Predictive Value (It can be used as an input to predict future outcomes)

  Confirmatory value (It provides feedback about (outcome or changes) of previous evaluations)
• Materiality


  Information is material if omitting it or misstating it could influence decisions that the primary users of general purpose financial reports
• Faithful representation


  • Financial information must be:

  COMPLETE - Includes all information that are necessary for users to understand the phenomenon illustrated

  NEUTRAL - Information are not bias in terms of selection/presentation of financial information

  FREE FROM ERRORS - No errors or omissions in the description of the phenomenon and the process
• Applying the fundamental qualitative characteristics

  STEP 1: Identify an economic phenomenon that has the potential to be useful to user of the reporting entity's financial information

  STEP 2: Identify the type of information about that phenomenon

  STEP 3: Determine whether that information is available and can be faithfully represented
• Comparability


  Involves choosing between alternatives

  More useful if it can be compared

  Enables users to identify and understand similarities and differences
• Verifiability


  It means that different knowledgeable and independent observes could reach consensus

  Two types: direct- direct observations and Indirect-checking the inputs through methods
• Timeliness


  It means having information available to decision-makers in the time to be capable of influencing their decisions

  The older the information, the less useful it is
• Understandability


  Classifying, characterizing and presenting information clearly and concisely

  Even well-informed and diligent users may have trouble to understand information about complex economic phenomenon
• Enhancing qualitative characteristics should be maximised to the extent necessary. However, enhancing qualitative characteristics (either individually or collectively) cannot render information useful if that information is irrelevant or not represented faithfully
• Cost constraint on useful financial reporting

  Reporting financial information imposes costs. Costs are justified by the benefits of reporting information

  The Board assesses whether the benefits justify the costs incurred to provide and use that information

  The Board seeks information about the expected nature & quantity of the benefits and costs

  Because of inherent subjectivity, different individuals' assessments of the costs and benefits will vary

  Therefore, the Board seeks to consider costs and benefits in relation to financial reporting generally, and not just in relation to individual reporting entities