Question

Question: FASB ASC 2-4 Understandability ConceptThe “understandability” concept is a component of several FASB ASC topics Find, cite, and copy the relevant sections of those topics. Please provides the section if you can.

Answer 1

Understandability

QC30. Classifying, characterizing, and presenting information clearly and concisely makes it understandable.

QC31. Some phenomena are inherently complex and cannot be made easy to understand. Excluding information about those phenomena from financial reports might make the information in those financial reports easier to understand. However, those reports would be incomplete and therefore potentially misleading.

QC32. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze the information diligently. At times, even well-informed and diligent users may need to seek the aid of an adviser to understand information about complex economic phenomena

BC3.40 Both Concepts Statement 2 and the Framework (1989) included

understandability, a qualitative characteristic that enables users to comprehend

the information and therefore make it useful for making decisions. Both

frameworks also similarly described that for financial information to be

understandable, users should have a reasonable degree of financial knowledge

and a willingness to study the information with reasonable diligence.

BC3.41 Despite those discussions of understandability and users’

responsibilities for understanding financial reports, misunderstanding persists.

For example, some have expressed the view that a new accounting method

should not be implemented because some users might not understand it, even

though the new accounting method would result in reporting financial information

that is useful for decision making. They imply that understandability is more

important than relevance.

BC3.42 If understandability considerations were fundamental, it might be

appropriate to avoid reporting information about very complicated things even if

the information is relevant and faithfully represented. Classifying

understandability as an enhancing qualitative characteristic is intended to 31

indicate that information that is difficult to understand should be presented and

explained as clearly as possible.

BC3.43 To clarify another frequently misunderstood point, the Conceptual

Framework explains that users are responsible for actually studying reported

financial information with reasonable diligence rather than only being willing to do

so (which was the statement in the previous frameworks). In addition, the

Conceptual Framework states that users may need to seek the aid of advisers to

understand economic phenomena that particularly are complex