Question

QUESTION 51

1. The FASB conceptual framework states that the fundamental characteristics are:

   	A.	Comparability and relevance.
   	B.	Relevance and faithful representation.
   	C.	Consistency and comparability.
   	D.	Consistency and neutrality.

Answer 1

AnsB.Relevance and Faithful Representation

Fundamental Qualitative Characteristics

1. Relevance

1. it means Relevant information is capable of making a difference in the decisions made by users.
2. It requires financial information to be related to an economic decision. Otherwise, the information is useless.
3. Financial information is useful if it has predictive value and confirmatory value.
4. Predictive value helps users in predicting or anticipating future outcomes. Confirmatory value enables users to check and confirm earlier predictions or evaluations.
5. Materiality is an aspect of relevance which is entity-specific. It means that what is material to one entity may not be material to another. It is relative. Information is material if it is significant enough to influence the decision of users. Materiality is affected by the nature and magnitude (or size) of the item.

2. Faithful Representation

The financial information in the financial reports should represent what it purports to represent. Meaning, it should show what really are present and what really happened, as the case may be.

There are three characteristics of faithful representation:

1. Completeness (adequate or full disclosure of all necessary information), 2. Neutrality (fairness and freedom from bias), and

3. Free from error (no inaccuracies and omissions).

The following comes under Enhancing characteristis not Fundamental characteristis

1.comaprability

2.verifiability

3.timeliness

4.understandability