Final answer:
The Conceptual Framework identifies four characteristics that can enhance the qualitative characteristics: relevance, reliability, comparability, and understandability.
Step-by-step explanation:
Qualitative Characteristics that Enhance the Conceptual Framework
According to the Conceptual Framework, there are four characteristics that can enhance the qualitative characteristics:
- Relevance: Information is relevant if it helps users make decisions. It should be capable of making a difference in users' decisions by helping them assess past, present, or future events or confirming or correcting their past evaluations. For example, financial statements should include relevant information about a company's assets, liabilities, and income to assist investors in making informed decisions about their investments.
- Reliability: Information is reliable if it is free from material error and bias and can be depended upon by users to represent faithfully what it purports to represent. For example, financial statements that have been audited by an independent external auditor are considered more reliable because they have been reviewed for accuracy and adherence to accounting standards.
- Comparability: Information is comparable if users can identify and understand similarities and differences between different entities or different periods for the same entity. Comparability allows users to make meaningful comparisons and evaluate the financial performance and position of the entity over time or in relation to other entities. For example, if two companies use the same accounting standards and disclose their financial information in a consistent manner, users can compare their financial statements and assess their relative financial health.
- Understandability: Information is understandable if it is classified, characterized, and presented in a clear and concise manner. It should be readily comprehensible to users with reasonable knowledge of business and economic activities. For example, financial statements should use clear and straightforward language, avoid complex jargon, and provide explanations and clarifications where necessary to assist users in understanding the information.