What are the enhancing qualitative characteristics of accounting information?

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Financial reporting
Test your knowledge
What are the enhancing qualitative characteristics of accounting information enumerated in the conceptual framework?
What is the purpose of enhancing qualitative characteristics?
Which enhancing qualitative characteristic means that information is received in time to influence decision making?
How should the enhancing qualitative characteristics be applied?

8 months ago

The enhancing qualitative characteristics in the Conceptual Framework are: (a) Uniformity, reliability, materiality, consistency (b) Understandability, timeliness, uniformity, readability (c) Verifiablity, timeliness, comparability, understandability (d) Uniformity, comparability, reliability, consistency (e) None of the above

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Expert Answer

7 months ago

The correct answer is

c) Verifiability, timeliness, Comparility, Understandability

Explanation :

The four enhancing qualitative characteristics are timeliness, comparability, verifiability and understandability. Comparability is distinguishing similarities and differences between two economic phenomena. That helps in enhancing the information value. On the other hand, verified information is said to be verified when two different observers come up with the same confirmed result. Timeliness is that the information should reach the users at the right time which will help the users for decision making and understandability is the factor which means that the users should be able to understand the information which is put down in the financial statements.

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Financial reporting

The primary objective of financial reporting is to provide useful information for making business decisions.

Useful accounting information should possess two fundamental qualitative characteristics:

Relevance
Relevance means that the information can influence the economic decisions made by users. For example, the information may help users to predict future events, such as future cash flows, and help determine alternative courses of action under consideration. Information is also relevant if it is able to help decision makers evaluate past decisions. Thus, information that is relevant is said to have a predictive role and a confirmatory or feedback role.
Reliability
Reliability means that the user is assured that the information presented represents faithfully, without bias, the transactions and events being reported. This is a major reason that accountants record assets at their original historical cost. For accountants to record current market values requires the use of estimates, appraisals or opinions, all of which are more unreliable.

Additionally, there are enhancing qualities.

Timeliness
For accounting information to be relevant, it must be timely, i.e. it must be available to the decision makers before it loses its capacity to appropriately inform decisions.
Comparability
Comparability results when different companies use the same accounting principles.
Materiality
It is important that users are not overwhelmed with so much detail that they cannot clearly understand the message. The concept of materiality relates to the extent to which information can be omitted, misstated or grouped with other information without misleading the statement users when they are making their economic decisions.
Verifiability
Information is verifiable if independent observers, using the same methods, obtain similar results.
Consistency
A company uses the same accounting principles and methods from year to year.
Understandability
When information is included in general purpose financial reports, there is an obvious need for the users of those reports to be able to comprehend their meaning.

Test your knowledge

Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.

Unlike the other qualitative characteristics, comparability does not relate to a single item.

A comparison requires at least two items.

Consistency, although related to comparability, is not the same. Consistency refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities.

Comparability is the goal; consistency helps to achieve that goal. Comparability is not uniformity.

For information to be comparable, like things must look alike and different things must look different.

Comparability of financial information is not enhanced by making unlike things look alike any more than it is enhanced by making like things look different.

ETHICS (Expense Recognition Principle) Anderson Nuclear Power Plant will be "mothballed" at the end of its useful life (approximately 20 years) at great expense. The expense recognition principle requires that expenses be recognized as assets are used up or liabilities are incurred. Accountants Ana Alicia and Ed Bradley argue whether it is better to allocate the expense of mothballing over the next 20 years or ignore it until mothballing occurs.

Instructions

Answer the following questions.

(a) What stakeholders should be considered?

(b) What ethical issue, if any, underlies the dispute?

(c) What alternatives should be considered?

(d) Assess the consequences of the alternatives.

(e) What decision would you recommend?

What are the enhancing qualitative characteristics of accounting information enumerated in the conceptual framework?

The four enhancing qualitative characteristics continue to be timeliness, understandability, verifiability and comparability.

What is the purpose of enhancing qualitative characteristics?

The Conceptual Framework explains that enhancing qualitative characteristics 'enhance the usefulness of information that both is relevant and provides a faithful representation of what it purports to represent'.

Which enhancing qualitative characteristic means that information is received in time to influence decision making?

Timeliness means having information available to decision makers in time to be capable of influencing their decisions.

How should the enhancing qualitative characteristics be applied?

Enhancing qualitative characteristics If financial information is to be useful then it must be relevant and must also faithfully represent what is being reported. The usefulness of this information is enhanced if it is comparable, verifiable, timely and understandable.