Case 3-6 Qualitative Characteristics Identified by the IASB
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Case 3-6 Qualitative Characteristics Identified by the IASB
In 1978, the Financial Accounting Standards Board (FASB) issued its Statement of
Financial Accounting Concepts (SFAC) No. 1. The International Accounting Standards Board
(IASB) was formed in 1973, during the beginning years there were many differences between the
two standards. In 2002, the FASB and the IASB met and agreed to work together in “The
Norwalk Agreement”. The conceptual Framework for Financial reporting was issued in 2010 and
revised in March 2018, while the SFAC No. 8 was amended in August 2018. SFAC No. 8
superseded SFAC No. 1 and No. 2, which made it align closer to the IASB. We will discuss the
IASB Qualitative Characteristics and compare and contrast them to SFAC No. 8.
IASB Qualitative Characteristics
The fundamental qualitative characteristics identified by the IASB are relevance and
faithful representation, these can then be enhanced by the following four characteristics:
comparability; verifiability; timeliness; and understandability. For information to be relevant, it
needs to have the capability to make a difference in the decision-making of the users of the
information and has predictive value or confirmatory value. Faithful representation represents
the data being to the maximum extent possible, complete, neutral, and free from error. The
information must represent the substance of what it is supposed to represent, and A neutral
depiction is supported by the exercise of prudence (Schroeder et al., p. 96, 2019).
Comparability results in more useful information when it is compared with similar
information about year-over-year data or in comparing with another entity with similar
information for another period or another date. It allows users of the information to identify and
Case 3-6 Qualitative Characteristics Identified by the IASB
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understand similarities and differences in the information. According to the IFRS (2018)
conceptual framework “Unlike the other qualitative characteristics, comparability does not relate
to a single item.”
Verifiability helps assure that the users are getting information that fully represents the
“economic phenomena” it is supposed to represent. An example of verification is to verify the
carrying amount of inventory by calculating the beginning balance, inputs, and outputs and
comparing the results to on-hand inventory.
The information needs to be in the decision makers hands in time to help influence
decisions. The timeliness characteristic ensures that the information is disseminated quickly.
It is important to get the information to the decision-maker in a timely manner, but it is
also important that the end user understands the information presented to them.
Understandability helps make complex data and information into a more clear and more concise
presentation.
Contrast and compare FASB in SFAC No. 8 to IASB
The fundamental Qualitative characteristics of FASB SFAC no. 8 are relevance and
faithful representation. According to the FASB (2018) conceptual statement No. 8, to have useful
financial information, “it must be relevant and faithfully represent what it purports to represent.
The usefulness of financial information is enhanced if it is comparable, verifiable, timely, and
understandable.” The FASB has more detail within relevance than IASB, for example, under the
materiality subsection IASB defines materiality and states (2018) “the Board cannot specify a
uniform quantitative threshold for materiality or predetermine what could be material in a
particular situation.” While FASB also has the definition of materiality they added what is the
Case 3-6 Qualitative Characteristics Identified by the IASB
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sufficient bases for material judgment. They also agree on no quantitative method to determine
materiality. The IFRS concludes applying the fundamental characteristics by adding the line “in
some cases, a trade-off between the fundamental qualitative characteristics may need to be made
in order to meet the objective of financial reporting.”
The FASB had SFAC no. 2, this was updated to SFAC No. 8 in 2018. Also in 2018, the
IASB updated its standards, both are similar in the respects of the four qualitative characteristics,
the small differences were in the fundamental characteristics shown above.
Christian Worldview
It is important to adapt to a changing world, and the FASB and the IASB did that when
they updated their standards to be more in line with each other. We need to remember what
Romans 12:2 said about change “Do not be conformed to this world, but be transformed by the
renewal of your mind, that by testing you may discern what is the will of God, what is good and
acceptable and perfect.” This will keep the two bodies closely related and adapt to the constant
changing world.
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References
ESV. (2016). Romans 12:2 (ESV). Bible Gateway. Retrieved November 6, 2022, from
https://www.biblegateway.com/
FASB. (2018, August). Statement of Financial Accounting Concepts No. 8 As Amended.
https://fasb.org/Page/ShowPdf?
path=Concepts+Statement+8+Chapter+3+As+Amended.pdf&title=CONCEPTS+STATE
MENT+NO.
+8%E2%80%94CONCEPTUAL+FRAMEWORK+FOR+FINANCIAL+REPORTING
%E2%80%94CHAPTER+3%2C+QUALITATIVE+CHARACTERISTICS+OF+USEFU
L+FINANCIAL+INFORMATION+%28AS+AMENDED
%29&acceptedDisclaimer=true&Submit=
IFRS. (2018, March). Conceptual Framework for Financial Reporting.
https://www.ifrs.org/content/dam/ifrs/publications/pdf-
standards/english/2021/issued/part-a/conceptual-framework-for-financial-reporting.pdf
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and
Analysis: Text and Cases (13th ed.). Wiley Global Education US.
https://mbsdirect.vitalsource.com/books/9781119577713
