Qualitative Characteristics of Useful Accounting Information

The following is a list of qualitative characteristics of accounting information identified in the FASBs conceptual framework and situations that relate to these characteristics.

A. Comparability

B. Decision Usefulness

C. Relevance

D. Faithful Representation

E. Predictive Value

F. Confirmatory Value

G. Verifiability

H. Neutrality

I. Free from Error

J. Consistency

K. Materiality

L. Timeliness

M. Understandability

N. Completeness

Required:

Select the appropriate letter identifying each quality on the line in front of the statement describing the quality.

1.

The Securities and Exchange Commission requires public companies to file both quarterly and annual financial statements shortly after the end of the accounting period.

2.	A financial analyst is examining the financial statements of a company. Their task is complicated by the fact that several companies in the same industry use different accounting methods in accounting for inventory.

3.	The company generated growth in sales revenues that were 15% faster than analysts' expectations.

4.	A large company purchases a webcam for $60. Even though this equipment is expected to be used for several years, the company records the equipment as an expense rather than an asset. No violation of GAAP has occurred.

5.	In choosing what accounting method to use, this should be the primary objective that is considered.

6.	Kirk Company has used the FIFO method to value its inventory since the company was incorporated 20 years ago.

7.	Multiple auditors agree on the measurement of a company's accrual for its tax liability.

8.	An analyst uses the previous 3-year trend in revenue as an input into a model that forecasts next year's revenue.

9.	A complex transaction is classified, characterized, and presented in a manner that allows an analyst to use this information in deciding to buy or sell a company's stock.

10.	The reported amount for sales revenue captures the actual amount of sales to customers for the period.

11.	A company discloses information in the notes to the financial statements about potential lawsuits that it expects to win as well as those it may lose.

12.	A creditor who loaned money to a company would have charged a higher interest rate if it had known information about a company's liquidity.