18 Accounting: Business Reporting for Decision Making
Faithful representation
The characteristic of faithful representation implies that financial information faithfully represents the
phenomena it purports to represent. This depiction implies that the financial information will be com-
plete, neutral and free from error.
The relevance of information is affected by its nature and materiality. Information is material if omit-
ting it or misstating it could influence decision making. A financial report should include all information
which is material to a particular entity.
Enhancing qualitative characteristics
Comparability
The characteristic of comparability implies that users of financial statements must be able to compare
aspects of an entity at one time and over time, and between entities at one time and over time. Therefore
the measurement and display of transactions and events should be carried out in a consistent manner
throughout an entity, or fully explained if they are measured or displayed differently.
Verifiability
The characteristic of verifiability provides assurance that the information faithfully represents what it
suggests that it is representing.
Timeliness
The characteristic of timeliness means that the accounting information is available to all stakeholders in
time for decision-making purposes.
Understandability
The characteristic of understandability implies that preparers should present information in the most
understandable manner to users, without sacrificing relevance or reliability. ‘Financial reports are pre-
pared for users who have a reasonable knowledge of business and economic activities and who review
and analyse information diligently’ (para. QC32).
The consolidated statement of profit or loss for the Qantas Group illustrates the qualitative character-
istics. It reports revenues less expenses in an easy-to-understand format to determine the profit for the
year (understandability).
The profit is relevant for determining the profitability of a company and can be used by a number
of different stakeholders — investors, consumers, employees and lenders. The financial statement will
show separately material items that are significant in nature. For example, the amounts in the Qantas
Group report (as shown in figure 1.3) are in millions of dollars, and the totals for expense groups
(e.g. manpower and staff related, fuel) are shown rather than the breakdowns of individual expenses
(relevance).
An entity’s statement of profit or loss reports profit for a prescribed period of time. Its format will
be similar to that of other companies in the same industry, and this feature allows for comparison and
analysis between companies. It also should not change significantly from period to period, thereby facil-
itating analysis within a company between the years (comparability).
An entity’s statement of profit or loss, which will have been independently audited (verifiability),
is a reliable representation of a company’s income less expenses. In the audit report contained within
the financial statements, the auditor will state whether the financial statements have been prepared in
accordance with accounting principles and standards, and whether they are an accurate representation of
performance for the period (faithful representation).
Finally, the financial statements of an entity will be made available to users within three months of the
end of the financial period. This is known as timeliness.
Cost constraint on financial information
The benefits of providing financial information, such as improved effectiveness and efficiency of
decision making by users, should outweigh the costs of providing it. Cost is the major constraint