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Contemporary Accounting

Notes process, regulators or others - and be indicative of the qualities that users can expect of the
financial information provided to them.
The financial reporting informations should contain the following qualitative characteristics:

1. Comparability: It is not sufficient that financial information is relevant and reliable at a
particular time, in a particular circumstance or for a particular reporting entity. The users
of general-purpose financial reports need to be able to compare aspects of an entity at one
time and over time, and between entities at one time and over time. This implies that the
measurement and display of transactions and events need to be carried out in a consistent
manner throughout an entity, and over time for that entity, and that there is consistency
between entities in these regards. An important implication of this concept of comparability
is that users need to be informed of the policies employed in the preparation of the
general-purpose financial reports, changes in those policies and the effects of those changes.
2. Materiality Test: Once it has decided that financial information is, in general terms, capable
of being classified as relevant and reliable, it is necessary to consider the information in
the context of the individual circumstances of the reporting entity in question. For example,
information may be relevant and reliable in general nature, but be immaterial in the
circumstances of the reporting entity. The inclusion of immaterial information in financial
reports may well impair their understandability.

The materiality test is concerned with assessing whether omission, misstatement or non-
disclosure of an item of relevant and reliable information could affect decision-making
about the allocation of scarce resources by the users of a general-purpose financial report
of an entity. For example, it may be argued that information about secured non-current
liabilities could be expected to be relevant to the decisions of potential lenders and be
capable of being reliably determined. However, in a particular entity it could be that total
debt is so small in comparison to available collateral that dissection of existing debt
between the secured and unsecured portions would be immaterial. Therefore, in this
Statement materiality is employed as a threshold test of which relevant and reliable
financial information should be excluded from a general purpose financial report of an
entity.
3. Relevance: For financial information to be relevant it must have value in terms of assisting
users in making and evaluating decisions about the allocation of scarce resources and in
assessing the rendering of accountability by preparers. If information is to assist users in
making decisions about the allocation of scarce resources, it must assist them in making
predictions about future situations and in forming expectations, and/or it must play a
confirmatory role in respect of their past evaluations. The predictive and confirmatory
roles of financial information are interrelated. For example, financial information about
the current level and structure of asset holdings will have value to users when they
endeavor to assess an entity’s ability to take advantage of opportunities in the market
place. That same information will play a confirmatory role in respect of past predictions
about the way in which the entity would be structured and about the outcome of planned
operations. Analysis of the relationship between predictions and outcomes will assist
users to identify the range of variables they ought to be considering when making
predictions.

4. Reliability: The reliability of financial information will be determined by the degree of
correspondence between what that information conveys to users and the underlying
transactions and events that have occurred and been measured and displayed. Reliable
information will, without bias or undue error, faithfully represent those transactions and
events. It is important that financial information be reliable. Information may be of a type
which bears upon users’ decision-making, that is, be relevant, but be so unreliable in

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