GLOSSARY: QUALITIES OF THE ACCOUNTING INFORMATION

REALIZADOR POR:
Angie Yafid Arbelaez
Laura Valentina Rodríguez Leuro
Yeny Yohana Zambrano Velandia

PRIVATE SECTOR

GROUP 1

RELEVANT INFORMATION

Relevant financial information is capable of influencing the decisions made by

users. Information may be able to influence a decision even if some users do
not take advantage of it or are already aware of it by other sources. Financial
information is capable of influencing decisions if it has predictive value,
confirmatory value, or both.

MATERIALITY

Information is material or materially relevant if its omission or inappropriate

expression can reasonably be expected to influence the decisions that primary
users of general-purpose financial reports make from those reports, which
provide financial information about a specific reporting entity. In other words,
materiality or relative importance is an entity-specific aspect of relevance,
based on nature or magnitude, or both of those referred to in the information in
the context of an individual entity's financial report. Accordingly, the Board
cannot specify a uniform quantitative threshold for materiality or importance or
predetermine what might be material or have relative importance in a
particular situation.

FAITHFUL REPRESENTATION

Financial reports represent economic phenomena using words and numbers. To

be useful, financial information must not only represent the relevant
phenomena, but also faithfully represent the essence of the phenomena it
purports to represent. In many circumstances, the essence of an economic
phenomenon and its legal form are the same. If they are not, the provision of
information only on the legal form does not accurately represent the economic
phenomenon.

COMPARABILITY

User decisions involve choosing between alternatives, for example, selling or

maintaining an investment, or investing in one reporting entity or another.
Accordingly, information about a reporting entity is more useful if it can be
compared with similar information about other entities, as well as similar
information about the same entity for another period or date.

VERIFIABILITY

Verifiability helps assure users that the information faithfully represents the
economic phenomena it purports to represent. Verifiability means that
independent and different observers, duly informed, could reach an agreement,
although not necessarily complete, that a description is a faithful
representation. Quantified information does not need to be a single estimate to
be verifiable. A range of possible amounts can also be verified, along with
corresponding probabilities.

OPPORTUNITY

Opportunity means having information available to decision-makers in time to

be able to influence their decisions. Generally, the older the information, the
less useful it is. However, some information may continue to be timely for quite
a long time after the end of a reporting period because, for example, some
users may need to identify and assess trends.

UNDERSTANDABILITY

The classification, characterization and presentation of the information in a

clear and concise way makes it understandable.

Some phenomena are complex in themselves and cannot be understood. The

exclusion of information about these phenomena in financial reports could
facilitate the understanding of the information contained in said financial
reports. However, those reports would be incomplete, and therefore possibly
misleading.

GROUP 2

UNDERSTANDABILITY

The information provided in the financial statements should be presented in a

way that is understandable to users who have a reasonable understanding of
accounting, economic and business activities, and a willingness to study the
information with reasonable diligence. However, the need for understandability
does not allow the omission of relevant information merely because it may be
too difficult for certain users to understand.

RELEVANCE

The information provided in the financial statements should be presented in a

manner that is understandable to users who have a reasonable understanding
of accounting, economic and business activities, and a willingness to study the
information with reasonable diligence. However, the need for understandability
does not allow the omission of relevant information merely because it may be
too difficult for certain users to understand.

MATERIALITY OR RELATIVE IMPORTANCE

The information is material - and therefore is relevant - if its omission or its

erroneous presentation may influence the economic decisions that users make
based on the financial statements. The materiality (relative importance)
depends on the amount of the item or the error judged in the particular
circumstances of the omission or the erroneous presentation. However, it is not
appropriate to make, or leave uncorrected, insignificant deviations from the
IFRS for SMEs in order to achieve a particular presentation of an entity's
financial position, financial performance or cash flows.

RELIABILITY

The information provided in the financial statements must be reliable.

Information is reliable when it is free from significant error and bias, and it
faithfully represents what it purports to represent or can reasonably be
expected to represent. The financial statements are not free of bias (that is,
they are not neutral) if, due to the selection or presentation of the information,
they intend to influence the decision-making or the formation of a judgment, to
achieve a result or outcome predetermined.

THE ESSENCE ON FORM

Transactions and other events and conditions must be accounted for and
presented in accordance with their essence and not only in consideration of
their legal form. This improves the reliability of the financial statements.

PRUDENCE

The uncertainties that inevitably surround many events and circumstances are
recognized through the disclosure of information about their nature and extent,
as well as the exercise of prudence in the preparation of the financial
statements. Prudence is the inclusion of a certain degree of caution when
making the necessary judgments to make the required estimates under
conditions of uncertainty, so that assets or income are not over-expressed and
that liabilities or expenses are not expressed in default. However, the exercise
of prudence does not allow the deliberate undervaluation of assets or income,
or the deliberate overvaluation of liabilities or expenses. In short, prudence
does not allow bias.

INTEGRITY
To be reliable, the information in the financial statements must be complete
within the limits of relative importance and cost. An omission can cause the
information to be false or equivocal, and therefore unreliable and deficient in
terms of relevance.

COMPARABILITY

Users should be able to compare an entity's financial statements over time, to

identify trends in its financial position and performance. Users should also be
able to compare the financial statements of different entities, to assess their
financial situation, performance, and relative cash flows. Therefore, the
measurement and presentation of the financial effects of similar transactions
and other events and conditions should be carried out in a uniform way by the
entire entity, over time for that entity and also in a uniform way between
entities. In addition, users must be informed of the accounting policies used in
the preparation of the financial statements, of any changes in these policies
and of the effects of these changes.

OPPORTUNITY

To be relevant, financial information must be able to influence the economic

decisions of users. The opportunity involves providing information within the
time frame for the decision. If there is an undue delay in presenting the
information, it may lose its relevance. Management may need to weigh the
relative merits of timely submission against the provision of reliable
information. In striking a balance between relevance and reliability, the critical
consideration is how users' needs are best met when making their financial
decisions.

BALANCE BETWEEN COST AND BENEFIT

The benefits derived from the information must exceed the costs of supplying
it. The evaluation of benefits and costs is, substantially, a trial process.
Furthermore, the costs are not necessarily borne by those who enjoy the
benefits, and often the benefits of information are enjoyed by a wide range of
external users.

EFFORT OR IMPROPORTIONAL COST

The consideration of whether obtaining or determining the information

necessary to comply with a requirement would involve disproportionate effort
or cost depends on the specific circumstances of the entity and the
management's judgment of the costs and benefits of applying that
requirement.

GROUP NUMBER 3

UNDERSTANDABILITY
Information is understandable when it is clear and easy to understand.
However, the need for understandability does not allow the omission of
relevant information due to the fact that it may be difficult for certain users to
understand.

RELEVANCE

Information has the quality of relevance when it can influence the economic
decisions of those who use it, helping them to evaluate past, present or future
events, or to confirm or correct evaluations made previously.

MATERIALITY OR RELATIVE IMPORTANCE

The information is material and, therefore, it is relevant, if its omission or its

erroneous presentation may influence the economic decisions that users make
based on the financial statements. The materiality (relative importance)
depends on the amount of the game or the error, judged in the particular
circumstances of the omission or the erroneous presentation.

RELIABILITY

The information provided in the financial statements must be reliable.

Information is reliable when it is free from significant error and bias, and it
faithfully represents what it purports to represent or can reasonably be
expected to represent. The financial statements are not free of bias (that is,
they are not neutral) if, due to the selection or presentation of the information,
they intend to influence the decision-making or the formation of a judgment, to
achieve a result or outcome predetermined.

ESSENCE ON FORM

Transactions and other events and conditions must be accounted for and
presented in accordance with their economic reality and not only in
consideration of their legal form.

PRUDENCE

Whenever there are difficulties in reliably and verifiably measuring an

economic event, you should choose to record the alternative that is less likely
to overestimate assets and income, or to underestimate liabilities and
expenses.

INTEGRITY

The information in the financial statements must be complete within the limits
of relative importance and cost, since this is a reliability budget. An omission
can cause the information to be false or equivocal, and therefore unreliable
and deficient in terms of relevance.
COMPARABILITY

The financial statements of a microenterprise must be comparable over time,

to identify trends in its financial situation and in the results of its operations.
Therefore, the measurement and presentation of similar transactions and other
events and conditions must be carried out in a uniform way over time.

OPPORTUINITY

The opportunity involves supplying information within the period of time that is
useful for decision making. If there is a delay in the presentation of information,
it may lose its relevance. Management may need to weigh the relative merits
of filing on time against the provision of reliable information.

BALANCE BETWEEN COST AND PROFIT

The benefits derived from the information must exceed the costs of supplying
it. This evaluation is substantially a trial process.

PUBLIC SECTOR

GROUP 1: COMPANIES LISTING IN THE STOCK MARKET

RELEVANT INFORMATION

Relevant financial information is capable of influencing the decisions made by

users. Information may be able to influence a decision even if some users do
not take advantage of it or are already aware of it by other sources.

Financial information is capable of influencing decisions if it has predictive

value, confirmatory value, or both.

MATERIALITY

Information is material or materially relevant if its omission or inappropriate

expression could reasonably be expected to influence the decisions that
primary users of general-purpose financial reports make from those reports,
which provide financial information about a specific reporting entity. In other
words, materiality or relative importance is an entity-specific aspect of
relevance, based on nature or magnitude, or both of those referred to in the
information in the context of an individual entity's financial report. Accordingly,
the Board cannot specify a uniform quantitative threshold for materiality or
importance or predetermine what might be material or have relative
importance in a particular situation.

FAITHFUL REPRESENTATION
Financial reports represent economic phenomena using words and numbers. To
be useful, financial information must not only represent the relevant
phenomena, but also faithfully represent the essence of the phenomena it
purports to represent. In many circumstances, the essence of an economic
phenomenon and its legal form are the same. If they are not, the provision of
information only on the legal form does not accurately represent the economic
phenomenon.

COMPARABILITY

User decisions involve choosing between alternatives, for example, selling or

maintaining an investment, or investing in one reporting entity or another.
Accordingly, the information. About a reporting entity is more useful if it can be
compared with similar information about other entities, as well as similar
information about the same entity for another period or another date.

VERIFIABILITY

Verifiability helps assure users that the information faithfully represents the
economic phenomena it purports to represent. Verifiability means that
independent and different observers, duly informed, could reach an agreement,
although not necessarily complete, that a particular description is a faithful
representation. Quantified information does not need to be a single estimate to
be verifiable. A range of possible amounts can also be verified, along with
corresponding probabilities.

OPPORTUNITY

Opportunity means having information available to decision-makers in time to

be able to influence their decisions. Generally, the older the information, the
less useful it is. However, some information may continue to be timely for quite
a long time after the end of a reporting period because, for example, some
users may need to identify and assess trends.

UNDERSTANDABILITY

The classification, characterization and presentation of the information in a

clear and concise way makes it understandable.

Some phenomena are complex in themselves and cannot be understood. The

exclusion of information about these phenomena in financial reports could
facilitate the understanding of the information contained in said financial
reports. However, those reports would be incomplete, and therefore possibly
misleading.

GROUP 2: COMPANIES THAT DO NOT TRADE IN THE STOCK MARKET

RELEVANCE
Financial information is relevant if it is capable of influencing the decisions
made by users. Financial information is influential if it is material and if it has
predictive value or confirmatory value, or both.

FAITHFUL REPRESENTATION

To be useful, financial information must faithfully represent the facts it purports

to represent in addition to representing the relevant facts; to be true
representation, a description must be complete and neutral and free from
error.

COMPARABILITY

Comparability is the qualitative characteristic that allows users to identify and

understand similarities and differences between items, so that the information
is comparable, similar elements must look similar and different elements must
look different.

VERIFICABILITY

It helps to assure users that the information faithfully represents the economic
facts that they purport to represent. Verifiability means that different
independent and duly informed observers could reach an agreement, although
not necessarily complete, on the fidelity of the representation of a particular
description.

OPPORTUNITY

It means having information available to users on time, so that it can influence

their decisions

Understandability

It means that the information is classified, characterized and presented in a

clear and concise way.

GROUP 3: GOVERNMENT ENTITIES

RELEVANCE

Financial information is relevant if it is capable of influencing the decisions

made by users. Financial information is influential if it is material and if it has
predictive value or confirmatory value, or both.

FAITHFUL REPRESENTATION

To be useful, financial information must faithfully represent the facts it purports

to represent in addition to representing the relevant facts; to be true
representation, a description must be complete and neutral and free from
error.
COMPARABILITY

Comparability is the qualitative characteristic that allows users to identify and

understand similarities and differences between items, so that the information
is comparable, similar elements must look similar and different elements must
look different.

VERIFICABILITY

It helps to assure users that the information faithfully represents the economic
facts that they purport to represent. Verifiability means that different
independent and duly informed observers could reach an agreement, although
not necessarily complete, on the fidelity of the representation of a particular
description.

OPPORTUNITY

It means having information available to users on time, so that it can influence

their decisions

UNDERSTANDABILITY

It means that the information is classified, characterized and presented clearly

and concisely.

GROUP 4: ENTITIES IN LIQUIDATION

RELEVANCE

Financial information is relevant if it is capable of influencing the decisions

made by users. Financial information is influential if it is material and if it has
predictive value or confirmatory value, or both.

FAITHFUL REPRESENTATION

 To be useful, financial information must faithfully represent the facts it

purports to represent in addition to representing the relevant facts; to be true
representation, a description must be complete and neutral and free from
error.

COMPARABILITY

Comparability is the qualitative characteristic that allows users to identify and

understand similarities and differences between items, so that the information
is comparable, similar elements must look similar and different elements must
look different.

VERIFICABILITY
It helps to assure users that the information faithfully represents the economic
facts that they purport to represent. Verifiability means that different
independent and duly informed observers could reach an agreement, although
not necessarily complete, on the fidelity of the representation of a particular
description.

OPPORTUNITY

It means having information available to users on time, so that it can influence

their decisions

UNDERSTANDABILITY

It means that the information is classified, characterized and presented clearly

and concisely.