CFAS CHAPTER 3

97問 • 1年前

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Are the qualities or attributes that make financial accounting information useful to the others.

qualitative characteristics

In deciding which information to include in financial statements, the objective is to ensure that the information is useful to the users in making _____

economic decisions

Under the CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING, _____ are classified into FUNDAMENTAL QUALITATIVE CHARACTERISTICS and ENHANCING QUALITATIVE CHARACTERISTICS.

QUALITATIVE CHARACTERISTICS

Under the CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING, QUALITATIVE CHARACTERISTICS are classified into _____ and _____.

FUNDAMENTAL QUALITATIVE CHARACTERISTICS ENHANCING QUALITATIVE CHARACTERISTICS

Relate to the content or substance of financial information.

fundamental qualitative characteristics

What are the fundamental qualitative characteristics?

relevance and faithful representation

For information to be useful for decision making, it must be both _____ of the economic transactions that it represents.

relevant and a faithful representation

Application of qualitative characteristics First, identify an economic phenomenon or transaction that has the ______.

potential to be useful

Application of qualitative characteristics Second, identify the type of information about the phenomenon or transaction that would be most _____ and can be _____ represented.

relevant faithfully

Application of qualitative characteristics Third, determine whether the ______ is available.

information

Is the capacity of the information to influence a decision.

relevance

To be _____, the financial information must be capable of making a difference in the decisions made by users.

relevant

Requires that the financial information should be related or pertinent to economic decision.

relevance

Information that does not bear on an economic decision is _____

useless

To be useful, information must be _____ to the decision making needs of users.

relevant

For example, broadly, the statement of financial position is relevant in determining financial position, and the income statement is relevant in determining performance.

relevance

More specifically, the earnings per share information is more relevant than book value per share in determining the attractiveness of an investment.

relevance

Financial information is capable of making a difference in a decision if it has ____

predictive value and confirmatory value

Financial information has _____ if it can be used as an input by users to predict future outcome.

predictive value

Financial information has ______ when it can help users increase the likelihood of correctly or accurately predicting or forecasting outcome of events.

predictive value

For example, information about financial position and past performance is frequently used in predicting dividend and wage payments and the ability of the entity to meet maturing commitments.

predictive value

Financial information has ______ if it provides feedback about previous evaluations.

confirmatory value

Financial information has ______ when it enables users to confirm are correct earlier expectations.

confirmatory

For example, a net income measure has _____ if it can help shareholders confirm or revise their expectation about an entities ability to generate earnings.

confirmatory value

The ______ roles of information are interrelated.

predictive and confirmatory

The interim income statement for the first quarter shows net income of 2 million pesos. This information is the?

confirmatory value

If this trend continues for the entire year, it is logical to assume that the net income after four quarters or one year would be 8 million pesos. This information is the?

predictive value

Is a practical rule in accounting which dictates that strict adherence to GAAP is not required when the items are not significant enough to affect the evaluation, decision and fairness of the financial statements.

materiality

Is also known as the DOCTRINE OF CONVENIENCE

materiality concept

DOCTRINE OF CONVENIENCE is also called as?

materiality concept

Is really a quantitative threshold linked very closely to the qualitative characteristic of relevance.

materiality

The relevance of information is affected by its nature and _______

materiality

Is a SUB QUALITY or ATTRIBUTE of relevance based on the NATURE or MAGNITUDE or both of the items to which the information relates.

materiality

Materiality of an item depends on ____ size rather than _____ size.

relative absolute

What is material for one entity may be immaterial for another.

materiality

As a general guide, an item is material if knowledge of it could reasonably affect or influence the economic decision of the primary users of the financial statements.

materiality

Very often, this is dependent on good judgement, professional expertise and common sense.

materiality

Information is material if omitting, mistating or obscuring it could reasonably be expected to influence the economic decisions the primary users of general purpose financial statements make on the basis of those statements which provide financial information about a specific reporting entity.

materiality

An information is ______ if the omission, misstatement and obscuring of the information could reasonably affect the economic decision of primary users.

material

The revised definition of materiality highlights three important aspects:

a. could reasonably be expected to influence b. obscuring information c. primary users

The COULD REASONABLY BE EXPECTED TO INFLUENCE threshold adds an element of _______ of financial information on which economic decision is based.

reasonability

By including the term _____ in the new definition, material information shall be limited to the economic decision of primary users rather than to all users which is too broad in scope

could reasonably be expected to influence

Moreover, the _____ threshold insurance pet information capable of influencing economic decision of the primary users shall be included in the financial statements.

could reasonably be expected to influence

Information is obscured if presenting or communicating it would have a similar effect as omitting or mistating the information.

obscuring information

Means that the presentation of financial information not readily understood or not clearly expressed.

obscuring information

Maybe characterized by deliberate vagueness, ambiguity and abstruseness.

obscuring information

a. The language is vague or unclear.

obscuring information

b. The information is scattered throughout the financial statements.

obscuring information

c. Dissimilar items are aggregated inappropriately.

obscuring information

d. Similar items are disagregated inappropriately.

obscuring information

The new definition of materiality narrows the definition to _____ who are primarily affected by general purpose financial statements.

primary users

The new definition specified that only ____ of financial statements are considered because these groups are the users to whom general purpose financial statements are primarily directed.

primary users

Such ____ cannot require a reporting entities to provide information directly to them and their form must rely on general purpose financial reports for how much financial information is needed.

primary users

Materiality depends on the ______ of the financial information.

magnitude and nature

In the exercise of judgement in determining materiality, the relative ______ and _____ of an item are considered.

size and nature

The ____ of the item in relation to the total of the group to which the item belongs is taken into account.

size

For example, the amount of advertising in relation to total selling expenses, the amount of office salaries to total administrative expenses, the amount of prepaid expenses the total current assets and the amount of leasehold improvements to total property, plant and equipment.

size of the item

The _____ of the item may be inherently material because by its very nature it affects economic decision.

nature

For example, the discovery of a 20,000 pesos bribe is a material event even for a very large entity.

nature of the item

Means that financial reports represent economic phenomena or transactions in words and numbers.

faithful representation

Stated differently, the reported descriptions and figures must match what really existed or happened.

faithful representation

Means that the actual effects of the transactions shall be properly accounted for and reported in the financial statements.

faithful representation

For example, if an entity reports land at 3 million pesos, the entity must actually have purchased the land that much.

faithful representation

_____ replaces RELIABILITY as a primary quality.

Faithful representation

To have a perfectly faithful representation, a depiction should have three characteristics, namely:

a. completeness b. neutrality c. free from error

Requires that relevant information should be presented in a way that facilitates understanding and avoids erroneous implication.

completeness

A complete defection includes all information necessary for a user to understand the phenomenon or transaction being depicted, including all necessary description and explanation.

completeness

To be complete, the financial statements shall be accompanied by _____.

notes to financial statements

The purpose of the ______ is to provide the necessary DISCLOSURES required by the Philippine Financial Reporting Standards.

notes the financial statements

_____ is the result of the STANDARD OF ADEQUATE DISCLOSURE or PRINCIPLE OF FULL DISCLOSURE.

COMPLETENESS

COMPLETENESS is the result of the _____ or _____.

STANDARD OF ADEQUATE DISCLOSURE or PRINCIPLE OF FULL DISCLOSURE

Means that all significant and relevant information leading to the preparation of financial statements shall be clearly reported.

standard of adequate disclosure

The accountants should disclose a material fact known to him which is not disclosed in the financial statements but disclosure of which is necessary in order that the financial statements would not be misleading.

adequate disclosure or standard of adequate disclosure

Is best described by disclosure of any financial facts significant enough to influence the judgement of informed users.

standard of adequate disclosure

A neutral depiction is without bias in the preparation or presentation of financial information.

neutrality

A neutral depiction is not slanted, weighted, emphasized, de-emphasized or otherwise manipulated to increase the probability that financial information will be received favorably or unfavorably by users.

neutrality

The information contained in the financial statements must be free from bias.

neutrality

The financial information should not favor one party to the detriment of another party.

neutrality

The information is directed to the common needs of many users and not to the particular needs of specific users.

neutrality

Neutrality is synonymous with

principle of fairness

To be neutral is to be

fair

For example, an entity may be reluctant to report a net loss. _____ requires that a net loss should be reported regardless of any possible effect on the entity.

neutrality

The revised conceptual framework has reintroduced the concept of _____

prudence

Is the exercise of care and caution when dealing with the uncertainties in the measurement process such that assets or income are not overstated and liabilities are expenses are not understated.

prudence

Neutrality is supported by the exercise of ____

prudence

______ is synonymous with prudence.

conservatism

Names that one alternatives exist, the alternatives which has the least effect on equity should be chosen.

conservatism

Means "in case of doubt, record any loss and do not record any gain"

conservatism

For example, if there is a choice between two acceptable asset values, the lower figure is selected.

conservatism

Accordingly, inventories are measured at the lower cost and net realizable value.

conservatism

Is recognized in the financial statements if the loss is probable and the amount can be reliably measured.

contingent loss

Is not recognized but disclosed only.

contingent gain

"anticipate no profits and provide for probable and measurable loss"

conservatism

"in the matter of income recognition, the accountant takes the position that no matter how sure the businessman might be in capturing the bird in the bush, he, sa accountant, must see it in the hand."

conservatism

"don't count your chicks until the eggs hatch."

conservatism

Means there or no errors or omissions in the description of the phenomenon or transaction.

free from error

More over, the process to produce the reported information has been selected and applied with no errors in the process.

free from error

Business Finance

Sab Sescon · 46問 · 2年前

Business Finance