Question

Indicate whether the following statements about the conceptual framework are true or false. (a) The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability. select an option (b) Relevant information only has predictive value, confirmatory value, or both. select an option (c) Information that is a faithful representation is characterized as having predictive or confirmatory value. select an option (d) Comparability pertains only to the reporting of information in a similar manner for different companies. select an option (e) Verifiability is solely an enhancing characteristic for faithful representation. select an option (f) In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities. select an option

Answer 1

Answer:

True or False Statements about the conceptual framework:

(a) False: The fundamental qualitative characteristics that make accounting information useful are relevance and faithful representation, which suggest materiality and completeness respectively.

(b) False: Relevant information must also be material in a financial statement user's decision, in addition to having predictive and confirmatory values.

(c) False:  It is information that is relevant that is characterized as having predictive or confirmatory value, and not information that shows faithful representation.

(d) False: Comparability also refers to comparisons of a firm over time (which is appropriately described as consistency).  This is in addition to the similar reporting of information by different companies.

(e) False: Enhancing characteristics do not relate only to faithful representation but also to relevance.

(f) True.

Explanation:

Faithful representation implies completeness.  Relevance means that the disclosure will attract important consideration and is material to the matter.  Therefore, users of financial reports base their decisions on relevant information and not irrelevant details.