Some theorists contend that companies that create pollution should report the social cost of that pollution in income statements. They argue that such companies are indirectly subsidized as the cost of pollution is borne by society while only production costs (and perhaps minimal pollution fines) are shown in the income statement. Thus, the product sells for less than would be necessary if all costs were included. Assume that the FASB is considering a standard to include the social costs of pollution in the income statement.

Required:

1.The process would require considering both relevance and faithful representation of the information produced by the new standard.Explain how the concepts of relevance and faithful representation relate to this issue.

2.In your opinion, which characteristic (relevance or faithful representation) will make it difficult to come up with a reasonable standard in this area? Why?