The qualitative characteristics of accounting information that are of significance are Relevance, faithful representation as part of fundamental characteristics and Verifiability, Timeliness, Understandability, Comparability as part of Enhancing (Secondary) Qualitative Characteristics.

Managers have some discretion about how certain transactions are represented on financial statements. Consequently, they may not fully represent the true condition of the firm. In addition, some managers may intentionally misrepresent the condition of the firm, resulting in accounting malpractice or fraud. An auditor would physically examine the inventory and buildings and check accounts receivable and other assets (as well as liabilities) to verify that the financial statements are accurate.

Discuss the consequences of misrepresenting data in the financial statement.