Conceptual Framework

Question 1

Primary Characteristics are?

Answer 1

Relevance ( primary characteristic)

• Predictive - the information helps make predictions about future expectations
• Confirmatory Value - information has confirmatory value if it confirms or changes past (or present) expectations based on previous evaluations.
• Materiality - Information is material so it will affect the user’s decision.

Question 2

What are the characteristics of relevance?

Answer 2

Relevance ( primary characteristic)

• Predictive - the information helps make predictions about future expectations
• Confirmatory Value - information has confirmatory value if it confirms or changes past (or present) expectations based on previous evaluations.
• Materiality - Information is material so it will affect the user’s decision.

Question 3

What are the characteristics of faithfulness?

Answer 3

• Completeness - information is complete if it includes all the necessary data to be faithfully represented.
• Neutral - information must be free from bias.
• Free from error - the information must not contain errors.

Question 4

What are the four enhancing characteristics?

Answer 4

• Comparability - information enables the user to identify similarities in the same industries.
• Verifiability - information is verifiable if independent observers could reach the same conclusions.
• Timeliness - the information is reported in a timely manner to make a difference to the decision-makers.
• Understandability -the informations understandable if a person with business can come to the same conclusions.

Question 5

According to the conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called:

Answer 5

Predictive value is the ingredient that helps users increase the likelihood of forecasting the outcome of events. Financial statement information is useful if it helps users make decisions about investing and extending credit. These decisions involve predictions of a firm’s future financial performance, position, and cash flows.

Question 6

Conceptually, interim financial statements can be described as emphasizing:

Answer 6

Interim reporting emphasizes timeliness over faithful representation. Interim reports are generally more aggregate and reflect estimates that are of a more approximate nature than those found in annual reports. The objective is to provide reasonable information in a timely fashion, rather than exact information. The cost to provide the latter would often be prohibitive on a quarterly basis.