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CFAS Chapter 3 Summary

The document discusses the qualitative characteristics of financial accounting information according to the Conceptual Framework for Financial Reporting. There are two types of qualitative characteristics: fundamental and enhancing. The fundamental qualitative characteristics that make information useful are relevance and faithful representation. Relevance means the information can influence decisions by having predictive value about the future or confirmatory value by providing feedback on past evaluations. Materiality is a rule that requires strict adherence to accounting principles only for significant items that could affect the evaluation of financial statements.

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245 views

CFAS Chapter 3 Summary

The document discusses the qualitative characteristics of financial accounting information according to the Conceptual Framework for Financial Reporting. There are two types of qualitative characteristics: fundamental and enhancing. The fundamental qualitative characteristics that make information useful are relevance and faithful representation. Relevance means the information can influence decisions by having predictive value about the future or confirmatory value by providing feedback on past evaluations. Materiality is a rule that requires strict adherence to accounting principles only for significant items that could affect the evaluation of financial statements.

Uploaded by

CINDY BALANON
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 3: Conceptual Framework

Qualitative characteristics are the qualities or attributes that make financial accounting information
useful to the users.
Under the Conceptual Framework for Financial Reporting qualitative characteristics are calssified into
fundamaental qualitatve cahracteristics and enhancing qulaitative characteristics.

The fundamental qualitative characteristics relate to the content or substance of financila


information. The funadamental qualitative characteristics are relevance and faithful representation.

RELEVANCE - it is the capacity of the information to influence a decision.


Ingridients of relevance: Financial information is capable of making a difference in a decision if it has
predictive value and confirmatory value.
Financial inforamtion has predictive balue if it can be used as an input to processes employed by users
to predict future outcome. In other words, financial inforamtion has predictive value when it can help
users increase the likelihood of correctly or accurately predicting or forecasting outcome of events.
Financial information has confirmatory value if it provides feedback about previous evaluations.
Often, information has both predictive and confirmatory value. The predictive and confirmatory roles
of information are interrelated.
MATERIALITY - it is a practical rule in accounting which dictates that strict adherences to GAAP is not
required when the items are not significant enough to affect the evaluation, decision and fairness of
the financial statements.
The materialy concept also known as the doctrine of convenience.
In other words, materiality is a “subsquality” of relevance based on the nature or magnitude or both
of the items to which the information relates.
Materiality is relativity. Mateirlaity of an item depends on relative size rahter than absolute size.
When is an item material? Very often, this dependent on good judgement, professional expertise, and
common sense.
However, a general guide may be given, to wit: “An tiem is material if knowledge of it would affect or
influence the decision of the informed users of the financial statements”

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