Qualitative characteristics

are the qualities or attributes that make financial accounting information USEFUL to the users

Fundamental qualitative characteristic, enhancing qualitative characteristic

qualitative characteristics are classified into:

fundamental qualitative characteristic

relate to the content or substance of financial innformation

fundamental qualitative characteristic

are relevance and faithful presentation. (information must be both relevant and faithfully represented if
it is to be useful

understandability, comparability, verifiability, timeliness

the enhancing qualitative characteristics are: (4)

relevance

means "the capacity of information to make a difference in a decision made by users"

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relevance

is the capacity of the information to influence a decision

relevance

requires that the financial information should be related or pertinent to the economic decision

earnings per share

_________________ is more relevant than book value per share in determining the attractiveness of an
investment

materiality

when all payments out of petty cash are debited to miscellaneous expense, _________ is applied

relative size of the item, nature of the item

2 factors for consider in determining materiality

in relation to the total of the group to which the item belongs

relative size of the item

the amount of advertising in relation to total distribution costs, or the amount of leasehold
improvements in relation to total property, plant, and equipment is an example of??

nature of the item

an item may be inherently material because by its very nature it affects economic decision

free from bias

to be neutral, the information contained in the financial statements must be _____________

principle of fairness

Neutrality is synonymous with _________________. To be neutral is to be fair.

Free from error

means there are no errors or imissions in the description of the phenomenon and the process used to
produced the reported information has been selected and applied with no errors in the process

Perfectly accurate

free from error does not mean _____________ in all respects

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described clearly and accurately

a representation of that estimate can be faithful if the amount is __________________ as an estimate

conservatism, prudence

the conceptual framework did not include _____________ or _____________ as an aspect of faithful
representation because to do so would be inconsistent with neutrality.

conservatism or prudence

an approach that is subjective and may contain an element of bias

Managers, investors, and accountants have generally preferred that posssible errors in measurement be
in the direction of UNDERSTATEMENT rather than OVERSTATEMENT of net income and net assets

Record any loss and do not record any gain

in the SIMPLEST TERMS, conservatism means "in case of doubt, ______________"

Lower figure

In conservatism,, if there is a choice between two acceptable asset values, the ____________ is selected

lower of cost and net realizable value

accordingly, inventories are measured at the ___________________

Contingent Loss

is recognized as a "provision" if the loss is probable and the amount can be reliably measured

contingent gain

is not recognized but disclosed only

Conservatism

this concept is NOT a license to DELIBERATELY understate net income and net assets

prudence

conservatism is synonymous with ___________

Prudence

is the desire to exercise care and caution when dealing with the UNCERTAINTIES in the measurement
process such that assets and income are NOT OVERSTATED or liabilities and expenses are NOT
UNDERSTATED

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faithful representation

under the conceptual framework for financial reporting, the term ________ is used instead of the term
RELIABILITY

faithful representation
means that financial reports represent economic phenomena or transactions in words and numbers

faithful representation

means that the actual effects of the transactions shall be properly accounted for and reported in the
financial statements

Faithful representation

when ending inventory is misstated, either understated or overstated, the presentation or reporting
lacks ____________________.

Recognition of an impairment of loss

the ___________ on property, plant and equipment is an application of faithful representation

completeness, neutrality, free from error

What are the ingredients of faithful representation? (3)

Completeness of financial statements

requires that relevant information should be presented in a way that facilitates understanding and
avoids erroneous implication

adequate disclosure standard or the principle of full disclosure

completeness is the result of the ______________________________________________

Standard of adequate disclosure

The _________________________ means that significant and relevant information leading the the
preparation of financial statements shall be clearly reported

standard of adequate disclosure

disclosure of any financial facts significant enough to influence the judgment of informed users

standard of adequate disclosure

best described by disclosure of any financial facts significant enough to influence the judgment of
informed users

notes to financial statements

to be complete, the financial statements shall be accompanied by ____________

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necessary disclosures

the purpose of the notes is to provide the __________________ required by Philippine Financial
Reporting Standards

Notes to financial statements

provide narrative description or disaggregatiln of the items presented in the financial statements and
information about items that do not qualify for recognition

Neutrality

means that the financial statements should be prepared so as to favor one party to the detriment of
another party

Understandability

requires that the financial information must be comprehensible or intelligible if it is to be useful

Understandability

the information should be presented in a form and expressed in the terminology that a user
understands

reasonable knowledge of business

Financial reports are prepared for users who have a _____________________ and economic activities
and who review and analyze the information diligently

Comparability (Qualitative characteristics)

means the ability to bring together for the purpose of noting points of likeness and difference

Comparability

is the enhancing qualitative characteristic that enables users to identify and understand similarities and
dissimilarities among items

WITHIN or BETWEEN and ACROSS entities

comparability may be made:

comparability within an entity, comparability across entities

2 kinds of comparability
Comparability within an entity

is the quality of information that allows comparisons within a single entity through time or from one
accounting period to next

Horizontal comparability or intracomparability

comparability WITHIN an entity is also known as ______________________________

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Comparability across entities

is the quality of information that allows comparisons between 2 or more entities engages in the same
industry

Intercomparability or dimensional comparability

comparability ACROSS entities is also known as

consistency

implicit in the qualitative characteristics of comparability is the principle of ____________

principle of consistency

the ________________________ requires that the accounting methods and practices should be applied
on a uniform basis from period to period

comparability

consistency is not the same as _______________

comparability

______________ is the goal, and consistency helps to achieve that goal

consistency

___________ is desirable and essential to achieve comparability of financial statements

period to period

consistency is the uniform application of accounting method from ________________ within an entity
consistency

_____________ does not mean that no change in accounting methods can be made

Verifiability

means that different knowledgeable and independent observers could reach CONSENSUS that a
particular depiction is a faithful representation

consensus

verifiability implies ___________

Verifiable

the information is ________ in the sense that it is supported by evidence so that an accountant that
would look into the same evidence would arrive at the same decision or conclusion

Timeliness

means having information available to decision makers in time to influence their decisions

Timeliness

requires that financial information must be available or communicated early enough when a decision is
to be made

Timeliness

"without knowledge of the past, the basis for prediction will usually be lacking and without interest in
the future, knowledge of past is sterile" (what happen in the past would become the basis of what
would happen in the future)

cost

is a pervasive constraint on the information that can be provided by financial reporting

cost constraint

is a consideration of the cost incurred in generating financial information against the benefit to be
obtained from having the information

a.) qualitative characteristics are the attributes that make the information provided in financial
statements useful to users

What are the qualitative characteristics of financial statements?

a.) qualitative characteristics are the attributes that make the information provided in financial
statements useful to users
b.) qualitative characteristics are broad classes of financial effects of transactions and other events

c.) qualitative characteristics are nonqualitative aspects of financial position and financial performance

d.) qualitative characteristics measure the extent to which an entity has complied with all relevant
standards and interpretations

d.) all the choices are correct

Qualitative characteristics

a.) are considered either fundamental or enhancing

b.) contribute to the decision-usefulness of financial reporting information

c.) distinguish better information from inferior information for decision making purposes

d.) all of the choices are correct

relevance and faithful representation

the fundamental qualitative characteristics are

b.) is capable of making a difference in a decision

accounting information is considered relevant when it

a.) can be depended upon to represent the economic conditions and events that it is intended to
represent

b.) is capable of making a difference in a decision

c.) is understandable by reasonably informed users

d.) is verifiable and neutral

predictive value and confirmatory value

the ingredients of relevant financial information are

faithful representation

what is the quality of information that gives assurance that it is reasonably free from error and bias?

c.) freedom from material error

which of the following is the best description of faithful representation in relation to information in
financial statements?

a.) influence on the economic decision of users

b.) inclusion of a degree of caution

c.) freedom from material error

d.) comprehensibility to users

the ingredients of faithful representation are

neutrality

the financial accounting information is directed toward the common needs of users and is independent
of presumptions about particular needs and desires of specific users

comparability, understandability, verifiability and timeliness

the enhancing qualitatitve characteristics of financial information are (4)

c.) accounting entities give similar events the same accounting treatment each period

financial information exhibits CONSISTENCY when

a.) accounting procedures are adopted which smooth net income and make results consistent between
years

b.) gains and loses are shown separately in the income statement

c.) accounting entities give similar events the same accounting treatment each period

d.) expenditures are reported as expenses and netted against revenue in the period when paid

comparability

when information about TWO DIFFERENT ENTITIES engaged in the same industry has been prepared and
presented in similar manner, the information exhibits the enhancing qualitative characteristics of

verifiability

the characteristic that is demonstrated when a high degree of consensus can be secured among
independent measurers using the same measurement method is

verifiability

which concept of accounting holds that to the maximum extent possible, financial statements shall be
based on arm's length transactions?

timeliness

an entity issuing the annual financial reports within one month at the end of reporting period is an
example of which enhancing quality of accounting information?

timeliness and verifiability

allowing entities to estimate rather than physically count inventory at an interim period is an example of
a tradeoff between
a.) users have a reasonable knowledge of business and economic activities and review the information
with reasonable diligence

which statement is true in relation to the enhancing qualitative characteristics of understandability of

a.) users have a reasonable knowledge of business and economic activities and review the information
with reasonable diligence

b.) users are expected to have significant business knowledge

c.) financial statements shall exclude complex matters

d.) financial statements shall be free from material error

decision usefulness

the overriding qualitative characteristic of accounting information is

relevant

which best describes information that influences the economic decisions of users?

relevance

what is the quality of information that enable users to better forecast future operations?

neutral

which term best decribes information in financial statements that is unbiased

understandability

for information to be useful, the linkage between the users and the decisions made is

c.) users need reasonable knowledge of business and financial accounting matters to understand the
information contained in financial statements

an enhancing quality of financial accounting information is that

a.) information must be decision useful to all potential users of financial reporting

b.) general purpose financial reporting is the primary source of information for users

c.) users need reasonable knowledge of business and financial accounting matters to understand the
information contained in financial statements

d.) all of the choices are correct

c.) information is measured and reported in a similar fashion across entities

What is meant by COMPARABILITY when discussing financial accounting information?

b.) information is reasonably free from error

c.) information is measured and reported in a similar fashion across entities

d.) information is timely

a.) information is measured and reported in a similar fashion across points in time

what is meant by CONSISTENCY when discussing financial accounting information?

a.) information is measured and reported in a similar fashion across points in time

b.) information is timely

c.) information is measured similarly across the industry

d.) information is verifiable

b.) profit-oriented

which of the following is not an enhancing qualitative characteristic?

a.) understandability

b.) profit-oriented

c.) timeliness

d.) comparability

d.) the omission or misstatement of the amount would make a difference to the users

an item would be considered material when

a.) the expected benefits of disclosure exceed the additional costs.

b.) the impact on earnings is greater than 10%

c.) the standard definition of materiality is met

d.) the omission or misstatement of the amout would make a difference to the users

d.) all of these statements are true about materiality

which statement about materiality is true?

a.) an item must make a difference or it need not be disclosed

b.) materiality is a matter of relative size

c.) an item is material if the inclusion or omission would influence or change the judgment of a
reasonable person

d.) all of these statements are true about materiality

cost
the conceptual framework includes which constraints?

a.) the benefit of the information must be greater than the cost of providing it

which statement best describes the cost and benefit constraint?

a.) the benefit of the information must be greater than the cost of providing it

b.) financial information should be free from cost to users of the information

c.) cost of providing financial information is not always evident or measurable but must be considered

d.) all of the choices are correct

b.) has the least favorable impact on equity

conservatism is best described as selecting an accounting alternatives that

a.) understates assets and net income

b.) has the least favorable impact on equity

c.) overstates liabilities

d.) is least likely to mislead users of financial information

d.) excludes prudence or conservatism because it is consistent with neutrality

the conceptual framework

a.) includes prudence or conservatism which means when in doubt, choose the solution that will be least
likely to overstate assets and income

b.) includes prudence or conservatism which means when in doubt, choose the solution that will be
least likely to understate liabilities and expenses

c.) includes prudence or conservatism as a desirable but not required quality of accounting information

d.) excludes prudence or conservatism because it is consistent with neutrality

verifiability

the ability through consensus among measures to ensure that information represents what it purpose to
represent is an example of the concept of

objectivity

which accounting concepts states that an accounting transaction shall be supported by sufficient
evidence to allow two or more qualified individuals to arrive at essentially similar conclusion?

c.) involves an arm's length transaction between two independent parties

objectivity is assumed to be achieved when an accounting transaction

a.) is recorded in a fixed amount of pesos

b.) involves the payment or receipt of cash

d.) allocates revenue or expenses in a rational and systematic manner

objective

proponents of historical costs maintain statements prepared using historical costs are more

a.) fair value is more relevant

which statement is an argument against historical cost?

a.) fair value is more relevant

b.) historical cost is based on exchanged transaction

c.) historical cost is verifiable and reliable

d.) fair value is subjective

c.) financial statements included an item of property, plant and equipment with carrying amount
increased to management estimate of market value

which of the following situations violates the concept of faithful representation?

a.) financial statements were issued nine months late

b.) data on segments having the same expected risks and growth rates are reported to analysts
estimating future profits

c.) financial statements included an item of property, plant and equipment with carrying amount
increased to management estimate of market value

d.) management reports refer to new projects undertaken but the financial statements never report
project results

conservatism

what is the underlying concept governing the generally accepted accounting principles pertaining to
recording gain contingencies?

cost-benefit

the usefulness of providing information in financial statements is subject to the constraint of