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What two primary qualitative characteristics make accounting information useful?

Question

What two primary qualitative characteristics make accounting information useful?

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Solution

The two primary qualitative characteristics that make accounting information useful are:

  1. Relevance: This means that the accounting information should be capable of making a difference in the decision-making process by helping users to form predictions about the outcomes of past, present, and future events, or to confirm or correct their past evaluations. For example, information about an organization's current financial condition, its past earnings record, and its future earning potential is relevant to investors in making decisions about buying, holding, or selling its shares.

  2. Faithful Representation: This means that the accounting information should be complete, neutral, and free from error. A faithful representation provides information that is comprehensive, exact, and unbiased. For example, a company's financial statements should accurately reflect its economic resources and obligations, its equity or net assets, its changes in resources and obligations, and its financial performance.

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