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Chapter
2
IlASB
Framework
9
recei ved or paid), and they are recorded in the accounting records and reported in the financial
statements of the periods to which they relate.
3.1.2 The accrua l bas is assumption is also addressed in lAS I,
Presentation of Financial Sta te–
ments,
which clarifies that when the accrua l basis of accounting is used, items are recognized as
assets, liabilities, equ ity, income, and expenses (the elements of financial statements) when they
satisfy the definitions and recog nition criteria for those elemen ts in the
Framework .
3.2 Going Concern
3.2.1 When financial statements are prepared on a
going conce rn
basis, it is ass umed that the en–
tity has neither the intention nor the need to liquidate or curt ail materially the sca le of its opera–
tions, but will continue in operation for the foreseeable future. If this ass umption is not valid, the
financia l statemen ts may need to be prepared on a different basis and, if so, the basis used is dis–
closed.
3.2.2 The going concern assumption is also addressed in lAS I, which requires management to
make an assess ment of an entity's ability to continue as a goi ng conc ern when preparing financial
statements.
4. QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS
Qualitative charac teristics are the attributes that make the information provided in financi al state–
ment s useful to users. According to the
Framewo rk,
the four principal qualitative characteristics are
(I)
Understandabi lity
(2) Relevance
(3) Reliability
(4) Comparability
4.1 Understandability
"Understandabi lity" refers to information being readi ly understandable by users who have a rea–
so nable knowledge of business and economic activities and acco unting and a willingness to study
the information with reasonable diligence.
4.2 Relevance
4.2.1 "Relevance" refers to information being relevant to the decision-making needs of users.
Information has the quality of relevance when it influences the economic decisions of users by
helping them evaluate past, present, or future eve nts or confirmi ng, or correcting, their past evalua–
tions. The concept of relevance is closely related to the concept of
materiality.
The
Framework
describes materiality as a threshold or cut-off point for info rmation whose omiss ion or misstate–
ment could influence the economic decisions of users taken on the basis of the financial statements.
4.2.2 The concept of materiality is further addressed in lAS I, whi ch spec ifies that each material
class of similar items shall be presented separa tely in the financi al statements and that items of a
diss imilar nature or function shall be presented separately unless they are immaterial. Under the
co ncep t of materiality, a specific disclosure requiremen t in a Standard or an Interpretation need not
be met if the information is not material.
4.3 Reliability
4.3.1 "Re liability" refers to information being free from materi al error and bias and can be de–
pended on by users to represe nt faithfu lly that which it eit her purports to represe nt or could rea–
sonably be expec ted to represent. According to the
Framework,
to be reliab le, information must
• Be free from materi al error
• Be neutral, that is, free from bias
• Represent faith fully the transactions and other eve nts it either purpor ts to represent or cou ld
reaso nably be expected to represe nt
(representational fai thfulness) .
If information is to repre–
sent faithfully the transactions and other eve nts that it purports to represent, the
Framework
specifies that they need to be acco unted for and presented in accordance with the ir substance
and economic real ity even if their legal form is different
(substance ove r fo rm).