Qualitative Characteristics. Accounting Information Provides Useful Information About Business Transactions and Events

question 94

Essay

Qualitative Characteristics.
Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The FASB statement on qualitative characteristics of accounting information examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information.
Instructions.

(a) Describe briefly the following characteristics of useful accounting information.
(1) Relevance
(2) Faithful representation
(3) Understandability
(4) Comparability
(5) Consistency
(b) For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other.
(1) Relevance and faithful representation.
(2) Relevance and consistency.
(3) Comparability and consistency.
(4) Relevance and understandability.
(c) What criterion should be used to evaluate trade-offs between information characteristics?

Distinguish between different control flows within an organization (e.g., bureaucratic vs. clan control).

Understand the importance of quality control and assurance in production and service provision.

Recognize and differentiate the purpose and application of different review and control questions related to improvement before and after completing a task or project.

Understand the significance of organizational culture, norms, and practices in the management of control systems (e.g., clan control).

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Definitions:

Marginal Cost

The additional cost incurred by producing one more unit of a product or service.

Dispose of Cars

The process of disposing or getting rid of cars that are no longer wanted, which can include selling, recycling, or scrapping them.

Average Variable Costs

The total variable costs (costs that change with production volume) divided by the total output.

Repairs

The process of fixing or restoring something that is broken or damaged to bring it back to a good condition.