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Chapter 2: Question 6Q (page 61)

What are the enhancing qualities of the qualitative characteristics? What is the role of enhancing qualities in the conceptual framework?

Short Answer

Expert verified

Enhancing qualitative characteristics include:

  • Providing timely information.
  • Providing information that is easily understandable.
  • Information provided is verifiable.
  • Available information is comparable in nature.

The role of enhancing qualities is it separates the more-useful information from the less-useful information.

Step by step solution

01

Enhancing qualities of the qualitative characteristics

There are four enhancing qualitative characteristics as follows:

  • Timeliness: The term timeliness means the presentation of the accounting information to its users on a regular basis so as to aid them in taking decisions.
  • Understandability: Understandability denotes the method by which the financial information must be displayed in a way that is easily understandable by the reader.
  • Verifiability: The term verifiability comprises that the information must be displayed in a way that it is verifiable by the independent accountants.
  • Comparability: It indicates the qualitative characteristics that help users in recognizing and understanding the similarities and distinctions among items.
02

Role of enhancing qualities in the conceptual framework 

Enhancing qualities are characteristics that are beneficial for the management and the investors for using the financial statements of the company in their decision-making process.

Thus, these qualities in a conceptual framework enhance the organization's fundamental characteristics. Moreover, these characteristics also provide extra benefit and usefulness in financial reporting information.

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Most popular questions from this chapter

Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The FASB statement on qualitative characteristics of accounting information examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information.

Instructions

a) Describe briefly the following characteristics of useful accounting information.

1. Relevance (4) Comparability

2. Faithful representation (5) Consistency

3. Understandability

b)For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other.

1. Relevance and faithful representation.

2. Relevance and consistency.

3. Comparability and consistency.

4. Relevance and understandability.

c) What criterion should be used to evaluate trade-offs between information characteristics?

Explain the revenue recognition principle.

CA2-7 (Expense Recognition Principle) Accountants try to prepare income statements that are as accurate as possible. A basic requirement in preparing accurate income statements is to record costs and revenues properly. Proper recognition of costs and revenues requires that costs resulting from typical business operations be recognized in the period in which they expired.

Instructions

(a) List three criteria that can be used to determine whether such costs should appear as charges in the income statement for the current period

.(b) As generally presented in financial statements, the following items or procedures have been criticized as improperly recognizing costs. Briefly discuss each Item from the viewpoint of matching costs with revenues and suggest corrective or alternative means of presenting the financial information.

(1) Receiving and handling costs.

(2) Cash discounts on purchases.

Expenses, losses, and distributions to owners are all decreases in net assets. What are the distinctions among them?

Question: For each item below, indicate to which category of elements of financial statements it belongs.

(a) Retained earnings (f) Loss on sale of equipment

(b) Sales (g) Interest payable

(c) Additional paid-in capital (h) Dividends

(d) Inventory (i) Gain on sale of investment

(e) Depreciation (j) Issuance of common stock
See all solutions

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