Nz Framework: Four Principal Qualitative Characteristics

The quality of information provided in financial statements determines how useful the statements will be for their users. The current NZ Framework recognises four principal qualitative characteristics:

1. Understandability means that accounting information is considered to be understandable if it is presented in such way that it can be recognised for what it is and be understood by users who are not necessarily experienced in accounting. It is assumed that “users have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence” (NZ Framework, para.25).

2. Relevance. NZ Framework states that “to be useful, information must be relevant to the decision-making needs of users” (NZ Framework, para.26). Such information would influence their decisions because it would provide users with feedback on the way in which past events have affected the entity during reported accounting period; gives a basis for forecasting or prediction about the company’s economic viability; confirms or corrects previous expectations. The relevant information must to be timely to ensure that users receive it when it is needed and useful. NZ Framework doesn’t state that relevant information has to be verifiable. However, accordingly to FRSB’s of US SFAC 2 the information must be verifiable such that an auditor or other independent observer could agree on its accuracy.

NZ Framework especially highlights that relevance of information is affected by its nature and materiality and omission or misstatement of it would affect users’ decisions. Financial statements must include all financial information if it is deemed to be material and satisfies concepts of relevance and reliability.

3. Reliable information must be “free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent” (NZ Framework,...