Ch 2

Question 1

What is the title of Chapter 2?

Answer 1

Qualitative Characteristic Of Useful Financial Information

Question 2

If financial information is to be useful, it must be _________ represent what it purports to represent.

Answer 2

relevant and faithfully

Question 3

The usefulness of financial
information is _________ if it is comparable, verifiable, timely and
understandable.

Answer 3

enhanced

Question 4

The fundamental qualitative characteristics are ___________________ and _________________

Answer 4

relevance and faithful
representation

Question 5

capable of making a difference in the
decisions made by users.

Answer 5

relevance financial information

Question 6

capable of making a difference in decisions if it has
predictive value, confirmatory value or both

Answer 6

financial information

Question 7

Financial information has _______________ if it can be used as an input to
processes employed by users to predict future outcomes. Financial
information need not be a ______________ to have predictive value.
Financial information with predictive value is employed by users in making
their ____________.

Answer 7

predictive value

prediction or forecast

own predictions

Question 8

Financial information has ___________ if it provides feedback about
(confirms or changes) previous evaluations.

Answer 8

confirmatory value

Question 9

The predictive value and confirmatory value of financial information are
___________. Information that has predictive value often also has ____________. For example, revenue information for the current year, which can be used as the basis for predicting revenues in future years, can also be compared with revenue predictions for the current year that were made in past years. The results of those comparisons can help a user to _______and _____ the processes that were used to make those previous predictions.

Answer 9

interrelated

confirmatory value

correct and improve

Question 10

Information is _____________if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of
general purpose financial reports (see paragraph 1.5) make on the basis of
those reports, which provide financial information about a specific reporting
entity.

In other words, __________is an entity-specific aspect of relevance
based on the nature or magnitude, or both, of the items to which the
information relates in the context of an individual entity’s financial report.
Consequently, the Board cannot specify a uniform quantitative threshold for
materiality or predetermine what could be material in a particular situation.

Answer 10

material

materiality

Question 11

Financial reports represent economic phenomena in words and numbers. To
be useful, financial information must not only represent relevant phenomena,
but it must also _____________ the substance of the phenomena that it
purports to represent. In many circumstances, the substance of an economic phenomenon and its legal form are the same. If they are not the same,
providing information only about the legal form would not faithfully
represent the economic phenomenon

Answer 11

faithfully represent

Question 12

To be a perfectly faithful representation, a depiction would have three
characteristics. It would be _____.__________,_________. Of course,
perfection is seldom, if ever, achievable. The Board’s objective is to __________
those qualities to the extent possible.

Answer 12

complete, neutral and free from error

maximise

Question 13

A _____________ includes all information necessary for a user to
understand the phenomenon being depicted, including all necessary
descriptions and explanations. For example, a complete depiction of a group of assets would include, at a minimum, a description of the nature of the assets
in the group, a numerical depiction of all of the assets in the group, and a
description of what the numerical depiction represents (for example,
historical cost or fair value). For some items, a complete depiction may also
entail explanations of significant facts about the quality and nature of the items, factors and circumstances that might affect their quality and nature,
and the process used to determine the numerical depiction.

Answer 13

complete depiction

Question 14

A ____________ is without bias in the selection or presentation of financial
information. A __________ is not slanted, weighted, emphasised, de-emphasised or otherwise manipulated to increase the probability that financial information will be received favourably or unfavourably by users. _____________ does not mean information with no purpose or no
influence on behaviour. On the contrary, ____________________ is, by
definition, capable of making a difference in users’ decisions.

Answer 14

neutral depiction

neutral depiction

Neutral information

relevant financial information

Question 15

______________ is supported by the exercise of prudence. __________ is the exercise of caution when making judgements under conditions of uncertainty.

The ____________ means that assets and income are not overstated and liabilities and expenses are not understated.6 Equally, the exercise of prudence does not allow for the understatement of assets or income or the overstatement of liabilities or expenses. Such misstatements can lead to the overstatement or understatement of income or expenses in future periods.

Answer 15

Neutrality

Prudence

exercise of prudence

Question 16

The exercise of prudence does not imply a need for _________, for example, a
systematic need for more persuasive evidence to support the recognition of
assets or income than the recognition of liabilities or expenses. Such
asymmetry is not a qualitative characteristic of useful financial information. Nevertheless, particular Standards may contain asymmetric requirements if this is a consequence of decisions intended to select the most relevant information that faithfully represents what it purports to represent.

Answer 16

asymmetry

Question 17

Faithful representation does not mean _________ in all respects. _________
means there are no errors or omissions in the description of the phenomenon,
and the process used to produce the reported information has been selected
and applied with no errors in the process. In this context, free from error does
not mean perfectly accurate in all respects. For example, an estimate of an
unobservable price or value cannot be determined to be accurate or
inaccurate. However, a representation of that estimate can be faithful if the
amount is described __________ as being an estimate, the nature and limitations of the estimating process are explained, and no errors have been made in selecting and applying an appropriate process for developing the
estimate.

Answer 17

accurate

Free from error

clearly and accurately

Question 18

When monetary amounts in financial reports cannot be observed directly and
must instead be ________,____________. The use of ____________is an essential part of the preparation of financial
information and does not undermine the usefulness of the information if the
estimates are clearly and accurately described and explained. Even a high level of measurement uncertainty does not necessarily prevent such an estimate
from providing useful information (see paragraph 2.22)

Answer 18

estimated, measurement uncertainty arises.

reasonable estimates

Question 19

Users’ decisions involve choosing between ___________, for example, selling or holding an investment, or investing in one reporting entity or another.
Consequently, information about a reporting entity is more useful if it can be
________ with similar information about other entities and with similar
information about the same entity for another period or another date

Answer 19

alternatives

compared

Question 20

qualitative characteristic that enables users to identify
and understand similarities in, and differences among, items. Does not relate a single item, requires atleast 2 items.

Answer 20

Comparability

Question 21

refers to the use of the same methods for the same items, either from period
to period within a reporting entity or in a single period across entities.

__________is the goal; ____________helps to achieve that goal.

Answer 21

Consistency

Comparability, consistency

Question 22

Comparability is not ________. For information to be comparable, like
things must look alike and different things must look different. Comparability
of financial information is not enhanced by making unlike things look alike
any more than it is enhanced by making like things look different.

Answer 22

uniformity

Question 23

Some degree of comparability is likely to be attained by satisfying the _____________. A faithful representation of a relevant economic phenomenon should ___________ some degree of comparability with a faithful representation of a similar relevant economic phenomenon by
another reporting entity

Answer 23

fundamental qualitative characteristics

naturally possess

Question 24

Although a single economic phenomenon can be faithfully represented in
_____________, permitting alternative accounting methods for the same
economic phenomenon diminishes comparability

Answer 24

multiple ways

Question 25

___________ helps assure users that information faithfully represents the economic phenomena it purports to represent. _________ means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation. Quantified information need not be a single point estimate to be verifiable. A range of possible amounts and the related probabilities can also be verified.

Answer 25

Verifiability Verifiability

Question 26

Verification can be ___________. _____________ means verifying an amount or other representation through direct observation, for example, by counting cash. __________________ means checking the inputs to a model, formula or other technique and recalculating the outputs using the same methodology. An example is verifying the carrying amount of inventory by checking the inputs (quantities and costs) and recalculating the ending inventory using the same cost flow assumption (for example, using the first- in, first-out method)

Answer 26

direct or indirect Direct verification Indirect verificatioN

Question 27

It may not be possible to verify some explanations and forward-looking financial information until a __________, if at all. To help users decide whether they want to use that information, it would normally be necessary to ___________ the underlying assumptions, the methods of compiling the information and other factors and circumstances that support the information.

Answer 27

future period disclose

Question 28

____________________ mean having information available to decision-makers in time to be capable of influencing their decisions. Generally, the older the information is the less ___________. However, some information may continue to be timely long after the end of a reporting period because, for example, some users may need to identify and assess trends.

Answer 28

Timeliness useful it is

Question 29

Classifying, characterising and presenting information clearly and concisely makes it _____________

Answer 29

understandable

Question 30

Some phenomena are __________ 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 possibly misleading.

Answer 30

inherently complex

Question 31

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

Answer 31

aid of an adviser

Question 32

Enhancing qualitative characteristics should be____________ . However, the enhancing qualitative characteristics, either individually or as a group, cannot make information useful if that information is irrelevant or does not provide a faithful representation of what it purports to represent.

Answer 32

maximised to the extent possible

Question 33

Applying the enhancing qualitative characteristics is an __________process that does not follow a prescribed order. Sometimes, one enhancing qualitative characteristic may have to be _________ to maximise another qualitative characteristic. For example, a temporary reduction in comparability as a result of prospectively applying a new Standard may be worthwhile to improve relevance or faithful representation in the longer term. Appropriate disclosures may partially compensate for non-comparability.

Answer 33

iterative diminished

Question 34

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

Answer 34

cost

Question 35

Reporting financial information imposes costs, and it is important that those costs are __________ by the benefits of reporting that information. There are several types of costs and benefits to consider.

Answer 35

justified

Question 36

___________ of financial information expend most of the effort involved in collecting, processing, verifying and disseminating financial information, but users ultimately bear those costs in the form of _____________. Users of financial information also incur __________ and interpreting the information provided. If needed information is not provided, users incur additional costs to obtain that information elsewhere or to estimate it.

Answer 36

Providers Reduce returns costs of analysing

Question 37

Reporting financial information that is relevant and faithfully represents what it purports to represent helps users to make decisions with _________. This results in more efficient functioning of capital markets and a lower cost of capital for the economy as a whole. An individual investor, lender or other creditor also receives benefits by making more informed decisions. However, it is not possible for general purpose financial reports to provide all the information that every user finds relevant.

Answer 37

more confidence

Question 38

In applying the ________________, the Board assesses whether the benefits of reporting particular information are likely to justify the costs incurred to provide and use that information. When applying the cost constraint in developing a proposed Standard, the Board seeks information from providers of financial information, users, auditors, academics and others about the expected nature and quantity of the benefits and costs of that Standard. In most situations, assessments are based on a combination of quantitative and qualitative information.

Answer 38

cost constraint

Question 39

Because of the inherent subjectivity, different individuals’ assessments of the costs and benefits of reporting particular items of financial information will vary. Therefore, the Board seeks to consider ________________ in relation to financial reporting generally, and not just in relation to individual reporting entities. That does not mean that assessments of costs and benefits always justify the same reporting requirements for all entities. Differences may be appropriate because of different sizes of entities, different ways of raising capital (publicly or privately), different users’ needs or other factors.

Answer 39

costs and benefits