Conceptual Framework for Financial Reporting

Qualitative characteristics of useful financial information
If financial information is to be useful, it must be relevant and faithfully
represent what it purports to represent. The usefulness of financial
information is enhanced if it is comparable, verifiable, timely and
understandable.
Fundamental qualitative characteristics
The fundamental qualitative characteristics are relevance and faithful
representation.
Relevance
Relevant financial information is capable of making a difference in the
decisions made by users. Information may be capable of making a difference
in a decision even if some users choose not to take advantage of it or are
already aware of it from other sources.
Financial information is capable of making a difference in decisions if it has
predictive value, confirmatory value or both.
2.1
2.2
2.3
2.4
2.5
2.6
2.7
5
Throughout the Conceptual Framework, the terms ‘qualitative characteristics’ and ‘cost constraint’
refer to the qualitative characteristics of, and the cost constraint on, useful financial
information.
Conceptual Framework
© IFRS Foundation
A25

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Financial information has predictive value if it can be used as an input to
processes employed by users to predict future outcomes. Financial
information need not be a prediction or forecast to have predictive value.
Financial information with predictive value is employed by users in making
their own predictions.
Financial information has confirmatory value if it provides feedback about
(confirms or changes) previous evaluations.
The predictive value and confirmatory value of financial information are
interrelated. Information that has predictive value often also has confirmatory
value. For example, revenue information for the current year, which can be
used as the basis for predicting revenues in future years, can also be compared
with revenue predictions for the current year that were made in past years.
The results of those comparisons can help a user to correct and improve the
processes that were used to make those previous predictions.
Materiality
Information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of
general purpose financial reports (see paragraph 1.5) make on the basis of
those reports, which provide financial information about a specific reporting
entity. In other words, materiality is an entity-specific aspect of relevance
based on the nature or magnitude, or both, of the items to which the
information relates in the context of an individual entity’s financial report.
Consequently, the Board cannot specify a uniform quantitative threshold for
materiality or predetermine what could be material in a particular situation.