Chapter 1 - Fundamental Qualitative Characteristics

Question 1

• Fundamental Qualitative Characteristics

RELEVANCE

Answer 1

Financial information that is capable of making a difference in decision making if it has:

(Capable of making a difference in the decision making of the user)

• A predictive value
• Confirmatory value
• Or both

Question 2

• Fundamental Qualitative Characteristics

FAITHFUL REPRESENTATION

Answer 2

Faithful representation requires the financial statements:

• Correspond to the effect of transactions or events
• Complete
• Neutral (free from bias)
• Free of error

Question 3

Conceptual Framework

• MATERIALITY

Answer 3

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions of a user of the financial statements

Question 4

• Supporting Qualitative Characteristics

COMPARABILITY

Answer 4

Information is more useful if information can be compared with:

• Other entities
• Previous periods

Question 5

• Supporting Qualitative Characteristics

VERIFIABILITY

Answer 5

Helps assure users that the information is faithfully represented.

• Different independent observers could reach a consensus that the information is correct

Question 6

• Supporting Qualitative Characteristics

TIMELINESS

Answer 6

Having information available to users in time to be capable of influencing their decisions.

• The older the information the less useful it generally is
• Some information may continue to be timely. E.g - Changes in assets/liabilities

Question 7

• Supporting Qualitative Characteristics

UNDERSTANDABILITY

Answer 7

Presenting and classifying information clearly and concisely makes it understandable.

• Financial reports are prepared for users with reasonable knowledge of business and economic activities

Question 8

Conceptual Framework

Going Concern

Answer 8

It is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

If the entity is not a going concern then IFRS may not be used. The break up basis would be more appropriate.

Note that the assumption is that the financial statements are prepared under this assumption, not simply that the company will continue for the foreseeable future.