Chapter 01 Qualitative Characteristics

Question 1

What are the two fundamental qualities that make accounting information useful for decision-making

Answer 1

Relevance, Faithful representation

Question 2

What are the fundamental qualities of Relevance

Answer 2

1. Predictive value
2. Confirmatory value
3. Materiality

Question 3

What are the fundamental qualities of Faithful representation

Answer 3

1. Completeness
2. Neutrality
3. Free from error

Question 4

Relevance

Answer 4

The information provided in the Financial statements are relevant if it is capable of making a difference in the users decision

Question 5

Predictive Value

Answer 5

Information that helps users predict/ form their own expectations about the future

ex. If investors are interested in buying stock in a company and analyze the current resources and claims

Question 6

Confirmatory Value

Answer 6

Helps users confirm or correct prior expectations

ex. UPS issues its year-end financial statements, confirms or changes past or present expectations based on previous evolutions

Question 7

Materality

Answer 7

Company-specific aspect of relevance, must make a difference or a company will not need to use it

Question 8

Faithful Representation

Answer 8

The numbers and description match what really existed or happened- Necessary because users don’t have the time nor the expertise to evaluate the factual content of information

Question 9

Completeness

Answer 9

All the information that is necessary for a faithful representation to be provided

Question 10

Neutrality

Answer 10

A company cannot select information to favor one set of interested parties over another

Question 11

Free From Error

Answer 11

Accurate representation of information

Question 12

Comparability

Answer 12

Enables users to identify the real similarities and differences in economic events between companies

Question 13

Verifiability

Answer 13

When independent measures using the same methods obtain similar results

Question 14

Timeliness

Answer 14

Having information available to decision-makers before it loses its capacity to influence decisions

Question 15

Understandability

Answer 15

The quality of information that lets reasonably informed users see its significance