The FASB has issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Scope section of the pronouncement states that its provisions do not apply to enterprises whose specialized accounting practices include accounting for these investments at market value or fair value. The result of the scope limitation is that some enterprises will be using the specialized practices and others will be using the practices required by the pronouncement. Thus, the financial statements will be different. The presentation of stockholders' equity will be different. Also, those companies that use the specialized accounting practices will recognize more unrealized gains and losses in the income statements than those companies that will account for the same types of investments under SFAS No. 115.

Required:

a. Discuss the qualitative characteristic of comparability. What is its purpose?

b. Does the scope limitation of SFAS No. 115 affect comparability? Explain. You do not need to know or describe the specifics of the pronouncement to discuss this issue.

c. Discuss the concept of representational faithfulness. If financial statements differ under different accounting representations, how can each company say that their financial statements fairly represent the under-lying economic phenomenon which they purport to represent? Discuss.