The fundamental qualitative characteristics of accounting that are guiding principles (like basic axioms) for what is kept in financial statements.
The key principles are:
- Relevance — makes a difference in a decision. Has predictive and feedback value. Should be timely information.
- Representational faithfulness — the statements should be complete with respect to material transactions, neutral as in prepared by a person without a conflict of interest (there might be some inherent bias), and reasonably free of error (no need to be perfect).
- Perhaps there’s a transaction that hasn’t been completed yet, but are good for investors to know.
- Comparability — information measured and reported in a similar way.
- Understandability — allows reasonably informed users (i.e., those with a reasonable understanding of accounting) to see the significance of the information.