(L.O.4) According to Statement of Financial Accounting Concepts No. 8, which of the following is considered a constraint?

a. Faithful representation

b. Verifiability

c. Comparability

d. Costs < Benefits Approach and Explanation: In visualizing the diagram for a hierarchy of accounting qualities

(Illustration 2-2), it is an easy task to identify why “costs < benefits” (or benefits exceed cost) is the pervasive constraint in question and why the other selections can be eliminated in selecting the correct response. Selection “d” is correct because SFAC No. 8 states that in order to justify requiring a particular measurement or disclosure, the benefits perceived to be derived from it must exceed the costs perceived to be associated with it. Selection “a” is incorrect because faithful representation is a fundamental quality of accounting information. Selections “b” and “c” are both enhancing qualities. (Solution = d.)