1-3 Qualitative Characteristics and Constraints of Financial Information Flashcards
Conceptual Framework
Provides the constitution used by the FASB to guide its deliberations and development of GAAP
What is the most recent attempt to develop a theoretical support resolutions to accounting and reporting problems?
The conceptual framework
What are the limitations of the Conceptual Framework?
It is not considered GAAP and may not be referenced as an authoritative source for financial reporting decisions
What are two types of qualitative characteristics to describe useful information?
Fundamental qualitative characteristics and enhancing qualitative characteristics
Fundamental Qualitative Characteristics
Information in terms of usefulness to external decision makers
RELEVANCE AND FAITHFUL REPRESENTATION
Relevant information
Information capable of making a difference to decision makers
What are the characteristics under relevance?
Predictive Value, Confirmatory Value, Materiality
Predictive Value
Predictive if it can be used as an input to processes employed by users to predict future outcomes
Confirmatory Value
Confirmatory if it provides feedback (confirms or changes) about previous evaluations
Materiality
Information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity
Faithful Representation
Authentically representing a fact or occurence
What are the characteristics under Faithful Representation?
Completeness, Neutrality, Free from Error
Completeness
A complete depiction includes all information necessary for a user to understand the phenomenon being depicted
Neutrality
Without bias in the selection or presentation of financial information
Free From Error
Does not mean accurate in all respects, but faithful if the amount is described clearly and accurately as being an estimate if it is an estimate
