10 Characteristics of Financial Information

We explain what financial information is and what its objectives are. We also explain the main characteristics of this information.

What is financial information?

Financial information is the set of operational and strategic information which allows you to understand and manage cash flows, organize budgets, analyze investments and make sound financial decisions.

Although they are sometimes taken as synonyms, There is a subtle difference between accounting information and financial information.The first uses the accumulation method, considering the account statement including assets, costs and profits; the financial information focuses on the analysis of cash flows and attempts to make decisions based on this, which more accurately reflects the state of a company.

It may be useful to you: Accounting information.

Characteristics of financial information:

1. Utility

It is the quality of adapting to the user’s purpose.since financial information should be used to make projections and to show the most significant aspects of the organization or company. To be useful, financial information must meet other attributes, which are the following.

2. Relevance

The data to be included in a financial report must be carefully selected so that the user understands the message and can make informed decisions based on that message. implies that it can influence users’ decisionswhether with predictive value, confirmatory value or both. In this sense, it is important to consider the relative importance or materiality, from the quantitative and qualitative perspective.

See also: Financial statements.

3. Objectivity

Financial information It must be prepared with a clear criterion and following a systematic methodnot based on the potential users of that information. Although shareholders, investors and creditors will be the most likely to turn to financial information, it must be able to respond to the needs of all types of entities linked to economic activity.

4. Reliability

The financial information presented must be true and reliable, must represent reality as faithfully and objectively as possiblefree from distortions. And when we talk about “faithful representation” we are not saying that everything must be exact, because unintended errors often occur. What should not exist are deliberate and biased errors or omissions.

5. Verifiability

It means that the operating system can be confirmed by other peopleapplying tests to verify the information produced. are not “deliberately” distorted and that, as a result of this objectivity, the financial statements reasonably represent reality, in accordance with the rules on which they were based, and there should of course not be any type of manipulation of the information.

You may be interested in: Balance sheet.

6. Comparability

Financial information must allow both horizontal comparison (with other companies) and vertical comparison (within the same company in different periods), in order to identify similarities and differences of interestwhich allow us to draw valuable conclusions.

7. Chance

Financial information It must be available when the user requires it.; this is very important because it is not always possible to predict when it is needed; therefore, as a rule, it should be prepared with a certain regularity (monthly, quarterly, annually).

8. Provisionality

Given the need to have financial information prepared, it takes on a provisional character.

9. Comprehensibility

This is a fundamental characteristic of financial information, since Cryptic information is of no usecomplicated, which can only be understood by those who have compiled it; it must always be kept in mind that information is an instrument that must be useful to the different users.

10. Stability

This feature means that during the generation of all financial information the same criteria and general rules were always followed, so that the information presented It is methodologically comparable to other.