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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

Statement of Financial Accounting Concepts No.5 identifies four characteristics that an item must have before it is recognized in the financial statements. What are these four characteristics?

Homer Winslow and Jane Alexander are discussing various aspects of the FASB鈥檚 concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving accounting controversies. He believes that the statement provides such broad guidelines that it would be impossible to apply the objective to present-day reporting problems. Jane concedes this point but indicates that the objective is still needed to provide a starting point for the FASB in helping to improve financial reporting.Instructions

  1. Indicate the basic objective established in the conceptual framework.
  2. What do you think is the meaning of Jane鈥檚 statement that the FASB needs a starting point to resolve accounting controversies?

Wayne Cooper has some questions regarding the theoretical framework in which GAAP is set. He knows that the FASB and other predecessor organizations have attempted to develop a conceptual framework for accounting theory formulation. Yet, Wayne鈥檚 supervisors have indicated that these theoretical frameworks have little value in the practical sense (i.e., in the real world). Wayne did notice that accounting rules seem to be established after the fact rather than before. He thought this indicated a lack of theory structure but never really questioned the process at school because he was too busy doing the homework. Wayne feels that some of his anxiety about accounting theory and accounting semantics could be alleviated by identifying the basic concepts and definitions accepted by the profession and considering them in light of his current work. By doing this, he hopes to develop an appropriate connection between theory and practice.Instructions

(a) Help Wayne recognize the purpose of and benefit of a conceptual framework.

(b) Identify any Statements of Financial Accounting Concepts issued by the FASB that may be helpful to Wayne in developing his theoretical background.

Why is it necessary to develop a definitional framework for the basic elements of accounting?

How is materiality (or immateriality) related to the proper presentation of financial statements? What factors and measures should be considered in assessing the materiality of a misstatement in the presentation of a financial statement?
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