The third level of the conceptual framework typically refers to the qualitative characteristics of useful financial information. In many accounting frameworks, such as the IFRS (International Financial Reporting Standards), the third level includes fundamental qualitative characteristics along with enhancing qualitative characteristics.
Here is how they generally break down:
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Fundamental Qualitative Characteristics:
- Relevance: Information must be relevant to the decision-making needs of users. Relevant information can help users form predictions about the outcome of past, present, and future events or confirm or correct their past evaluations.
- Faithful Representation: Information accurately reflects the phenomena it purports to represent. It should be complete, neutral, and free from error.
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Enhancing Qualitative Characteristics:
- Comparability: Users should be able to compare the financial statements of different entities and understand the similarities and differences.
- Verifiability: Information should be verifiable, meaning independent observers could reach a consensus that a particular representation is a faithful depiction.
- Timeliness: Information should be available to decision-makers in time to be capable of influencing their decisions.
- Understandability: Information should be presented clearly and concisely, making it understandable to users who have a reasonable knowledge of business and economic activities.
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Ethics: While ethics is critical in the practice of accounting and financial reporting, it is generally not classified as a qualitative characteristic in most conceptual frameworks. Instead, it underpins the integrity and trustworthiness of financial reporting.
In summary, while "Recognition" and "Quality" can be interpreted in various ways in the context of frameworks, the specific terms you mentioned are best characterized under relevance (as a fundamental characteristic) and ethics (as an overarching principle in accounting practice).