What are the two fundamental qualitative characteristics of financial statements?

The two fundamental qualitative characteristics of financial statements are relevance and faithful representation.

Relevance ensures that the information presented in financial statements is capable of making a difference in the decisions made by users. This means that financial information should be timely and have predictive or confirmatory value. It should help stakeholders understand the financial performance and position of an entity, thereby influencing their economic decisions.

Faithful representation means that the financial information accurately reflects the actual transactions and events of the entity. This includes aspects such as completeness (all necessary information is included), neutrality (not biased), and freedom from error (correctly measures and describes what it purports to represent).

These two characteristics are essential because they enhance the usefulness of financial statements to users, ensuring that what is presented is not only applicable to their decision-making but also reliable in terms of accuracy and integrity. In contrast, the other options, while they do feature important aspects of financial reporting, do not encompass the fundamental qualities as set out in the Conceptual Framework for Financial Reporting.