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Question

Explain the qualitative characteristics of accounting information.

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Solution

The qualitative characteristics of accounting information are as follows

Reliability: The first qualitative characteristic of accounting information is reliability. Reliability means the users must be able to depend on the information. It is believed that reliable information should be free from error and bias and faithfully represents what it is meant to represent.

Relevance: The second qualitative characteristic of accounting information is relevance. It is believed that a relevant information must be available in time, must help in prediction and feedback and must influence the decisions of users in a positive manner.

Understandability: Understandability is the third most important qualitative characteristic of accounting information. Understandability means decision-makers must interpret accounting information in the same sense as it is prepared and conveyed to them. The qualities that distinguish between good and bad communication in a message are fundamental to the understandability of the message. A message is said to be effectively communicated when it is interpreted by the receiver of the message in the same sense in which the sender has sent.

Comparability: The last qualitative characteristic of accounting information is comparability. It is believed that it is not sufficient that the financial information is relevant and reliable at a particular time, in a particular circumstance or for a particular reporting entity. But it is equally important that the users of the general purpose financial reports are able to compare various aspects of an entity over different time periods and with other entities.


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