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The qualitative characteristics of financial informationIn order for the financial statements to be useful to the stakeholders of a business they must embody certain qualitative characteristics. They are defined as follows: The fundamental qualitative characteristics:Relevance – financial information is regarded as relevant if it is capable of influencing the decisions of users.Faithful representation – this means that financial information must be complete, neutral and free from error. The enhancing qualitative characteristics:Comparability – it should be possible to compare an entity over time and with similar information about other entities. Verifiability – if information can be verified (e.g. through an audit) this provides assurance to the users that it is both credible and reliable. Timeliness – information should be provided to users within a timescale suitable for their decision making purposes. Understandability – information should be understandable to those that might want to review and use it. This can be facilitated through appropriate classification, characterisation and presentation of information.
Page | 1 Problem 3-1 (IAA) 1.What are the attributes that make the information provided in the financial statements useful to the readers? a.Qualitative characteristics of financial information b. Quantitative characteristics of financial information c.Elements of financial statements d.Objectives of financial reporting 2.Qualitative Characteristics a. are considered either fundamental or enhancing. b.contribute to the decision-usefulness of financial reporting information. c.distinguish better information from inferior information for decision-making purposes. d.All of the choices are correct. 3.The fundamental qualitative characteristics are a.Relevance and faithful representation b.Relevance, faithful representation and materiality c.Relevance and reliability d.Faithful representation and materiality 4.Accounting information is considered relevant when it a.Can be depended on to represent the economic conditions and events that is intended to represent. b.Is capable of making a difference in a decision. c.Is understandable by reasonably informed users of accounting information. d.Is verifiable and neutral. 5.The ingredients of relevant financial information are a.Predictive value and confirmatory value b.Predictive value, confirmatory value and timeliness c.Predictive value, confirmatory value and materiality d.Predictive value, confirmatory value, timeliness and materiality 6.What is the quality of information that gives assurance that is reasonably free of error and bias? a.Relevance b.Faithful representation c.Verifiability d.Neutrality 7.Which of the following is the best description of “faithful representation” in relation to information in financial statements? a.Influence on the economic decision of users b.Inclusion of a degree of caution c.Freedom from material error d.Comprehensibility to users 8.To achieve faithful representation, the financial statements a.Must have predictive and confirmatory value. b.Must be complete, neutral and reasonably free from error. c.Are understandable, comparable, verifiable and timely. d.Must possess all of these. 9.The financial accounting information is directed toward the common needs of users and is independent of presumptions about particular needs and desires of specific users. a.Relevance b.Verifiability c.Neutrality d.Completeness 10. In the event of conflict between the economic substance of a transaction and the legal form, the economic substance shall prevail. a.Form over substance b.Substance over form c.Relevance d.Completeness Problem 3-2 (IAA) 1. The enhancing qualitative characteristics of financial information are a.Comparability and understandability b.Verifiability and timeliness c.Comparability, understandability and verifiability d.Comparability, understandability, verifiability and timeliness 2.Financial information exhibits consistency when a. Accounting procedures are adopted which smooth net income and make results consistent between years. b.Gains and losses are shown separately on the income statement. c.Accounting entities give similar events the same accounting treatment each period. d.Expenditures are reported as expenses. 3.When information about two different entities engaged in the same industry has been prepared and presented in similar manner, the information exhibits the enhancing qualitative characteristic of a.Relevance b.Faithful representation c.Consistency d.Comparability 4.The characteristic that is demonstrated when a high degree of consensus can be secured among independent measures using the same measurement method is a.Relevance b.Understandability c.Verifiability d. Neutrality Why is this page out of focus?This is a Premium document. Become Premium to read the whole document. Which enhancing qualitative characteristic means that information is received in time to influence decisionTimeliness. The characteristic of timeliness means that the accounting information is available to all stakeholders in time for decision-making purposes.
Which qualitative characteristics of accounting information is reflected when user of information is able to depend on the information?Understandibility qualitative characteristics of accounting information is reflected when accounting information is clearly presented. As understandibility means that the information provided through the financial statements be presented in a manner that the users are able to understand it in the manner it should be.
Which of the fundamental and enhancing qualitative characteristics do you regard as most important for the preparers of financial statements and why?Enhancing Qualitative Characteristics. Comparability, verifiability, timeliness and understandability are directed to enhance both relevant and faithfully represented financial information. Those characteristics should be maximised both individually and in combination.
What are the enhancing qualitative characteristics?The Enhancing Qualitative Characteristics are divided into 4 attributes.. Comparability.. Verifiability.. Timeliness.. Understandability.. |