By: Shachie Garcia, Angeline Bigornia, Aubrey Aba,

Carlo Vitug, Thomas Diaz, and Kirk Chu

1989FRAMEWORK

Relevance

Reliability

Comparability

Understandability

2010 FRAMEWORK

FUNDAMENTALCHARACTERISTICS

Relevance

FaithfulRepresentation

ENHANCING CHARACTERISTICS

Comparability

Verifiability

Timeliness

Understandability

Fundamental Qualitative Characteristics

Relevance -means the capacity ofthe information toinfluence a decision. Itrequires that the financialinformation should berelated or pertinent to theeconomic decision.

Major Ingredients:a) Predictive Value:

- If the information can be used as an input for users making predictions.

b) Confirmatory Value:

- Provides feedback about the previous evaluations

Materiality-It is a sub quality of relevance based on magnitude or nature, or both.-Information is material if it’s omission and misstatement could influence decision.

-means that financial reports represent economic phenomena or transactions in words and numbers.

3 characteristics for perfect faithful representation:

1. Completeness

2.Neutrality

3.Free from error

COMPLETENESS- Requires that relevant information should be presented in a way that facilitates understanding and avoids erroneous implication.

NEUTRALITY-means that the financial statements should not be prepared so as to favor one party to the detriment of another party.

FREE FROM ERROR- Means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process.

Enhancing Qualitative Characteristics

COMPARABILITY

Information is more useful if it

can be compared with similar

information about:

-Other entities

-Same entity for another

date

*Not same as Consistency

*Not Uniformity

VERIFIABILI

TY-Different knowledgeable

and independent observers

could reach consensus.

-Maybe not possible to

verify some information

until a future period.

-Verification can be direct

or indirect:Direct verification-

means verifying an

amount or other

representation through

direct observation.

Indirect verification-

means checking the

inputs to a model,

formula or other

technique and

recalculating the inputs

using the same

methodology.

UNDERSTANDABI

LITY

requires that financial

information must be

comprehensible or intelligible

if it is to be useful.

Accordingly, the information

should be presented in a form

and expressed in terminology

that a user understands.

COST CONSTRAINT

It is a consideration of the cost

incurred in generating financial

information against the benefit

to be obtained from having the

information.