MATERIALITY

• or “DOCTRINE OF CONVENIENCE”
• it is a “subquality” of relevance based on the nature or
magnitude or both of the items to which the information Ingredients of Relevance:
related
• depends on the relative size rather than absolute size PREDICTIVE VALUE
• Dependent on good judgment, professional expertise
and common sense. RELEVANCE
CONFIRMATORY
• FACTORS: (1) size and (2) nature
VALUE
Capacity of the
information to influence
FUNDAMENTAL Ingredients of Faithful Representation:
a decision
QUALITATIVE
Adequate disclosure or the
CHARACTERISTICS COMPLETENESS the result of
principle of full disclosure
Relate to the content or FAITHFUL
substance of financial REPRESENTATION • Free from bias
NEUTRALITY
information • “Principle of fairness” SUBSTANCE OVER FORM
The actual effects of the
• It is necessary that the transactions
transactions shall be There are no errors or and events are accounted in
properly accounted for FREE FROM ERROR omissions in the description of accordance with their substance in
QUALITATIVE and reported in the the phenomenon or transaction reality and not merely their legal form
CHARACTERISTICS financial statements
CONSERVATISM
CONSISTENCY • When alternative exist, the alternative
Qualities or attributes • is not the same as comparability
that make financial which has the least effect on equity
Enable users and to identify • the use of the same method for the
accounting information should be chosen
COMPARABILITY similarities and dissimilarities same item, either from period to
useful to the users. • “in case of doubt, record any loss and
among items period within an entity or in a single do not record any gain”
period across entities • “conservatism is not a license to
Financial information must be • “It is inappropriate for an entity to deliberately understate net income
UNDERSTANDABILITY comprehensible or intelligible if it is leave accounting policies unchanged and net assets”
to be most useful when better and acceptable • synonymous with “prudence”
alternatives exist.”
ENHANCING Different knowledgeable and
QUALITATIVE independent observers could reach
CHARACTERISTICS consensus, although not necessarily COST CONSTRAINT ON USEFUL INFORMATION
VERIFIABILITY • Cost is a pervasive constrain on the information
complete agreement, that a
particular depiction is a faithful that can be provided by financial reporting
representation • Benefit > Cost
• Substantially a “judgmental process”
TYPES: (1) Direct and (2) Indirect

Financial information must be

TIMELINESS available or communicated early
enough when a decision is to be
made