Information Needs of Users Based on Qualitative Characteristics

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Information Needs of Users

The qualitative characteristics of the conceptual framework serve to guide accounting standard setters about the qualities that make the financial statement "useful." That is the overarching goal of these qualities: to ensure that the reported amounts will be useful to the users. The way they make them useful is by insisting that the reports have the following attributes (Stice & Stice 2008; Keiso et al. 2013):
1. relevant (predictive, material, confirming)
2. faithful representation (neutral, complete, error free)
3. comparability
4. verifiable
5. timeliness
6. understandability

The first two are the "fundamental" characteristics and the last four are the enhancing characteristics. That is, if the information is not relevant and faithful/reliable, then the other four qualities matter little. If you tell the user about the square feet of the building, for which the user has no interest and makes no connection with future cash flows, ability to repay debt or whatever decision is at hand, the understandability, timeliness, comparability or the ability to verify the square feet is just not important. Basically, the user does not care about it; it is not relevant. So, the quality of the square feet data does not enhance the usefulness. Second, if the data may not be reliable for some reason (errors, bias, incomplete), then the user is not interested in the data regardless of how timely, understandable, comparable or verifiable it is. If the data is from a related party and missing half of the building, the square feet data will not be useful to the user.

Once the fundamental qualities are true, then the four enhancing characteristics make the reported data even more helpful. That is, they are not only relevant and faithful, but they are timely, understandable, subject to audit and comparable. Now, the user has what they need to use the information for their decision(s).

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