Accounting information provides useful data about business transactions and events. The people who provide and use financial reports must often select and evaluate accounting alternatives. The conceptual framework that was discussed in this chapter examines the characteristics of accounting information that make it useful for decision-making.
It also points out that various limitations that are part of the measurement and reporting process can make it necessary to trade off or sacrifice some of the characteristics of useful information.
Instructions
(a) For each of the following pairs of qualitative characteristics, give an example of a situation in which one of the characteristics may be sacrificed for a gain in the other:
1. Relevance and verifiability
2. Relevance and comparability
3. Relevance and timeliness
4. Relevance and understandability
(b) What criterion should be used to evaluate trade-offs between information characteristics?