Financial Accounting: Tools for Business Decision Making, 8th Edition
8th Edition
ISBN: 9781118953808
Author: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
Publisher: WILEY
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Chapter 2, Problem 2.8BE
To determine
Useful information: The financial information which is more relevant to make significant decisions for the investors and creditors is referred to as useful information. The useful information should have the following qualities according to Financial Accounting Standards Board (FASB):
- Fundamental qualities:
- Relevance: The relevant accounting information should have a predictive value and a confirmatory value. Predictive value means the accounting information should help the investors and creditors in predicting the future trends. Confirmatory value means the predicted accounting information comes to pass. All the financial items which could significantly influence the investors and creditors should be reported. This is the materiality concept of useful and relevant information.
- Faithful representation: This concept requires that the accounting information reported by a company should be complete, neutral (unbiased), and represented without any mathematical and material errors.
- Enhancing qualities:
- Comparability: All the accounting information reported by the companies should be comparable because the accounting principles used to prepare accounting information would be similar; and consistent because accounting methods and principles would not vary from year to year.
- Verifiability: The accounting information should provide similar results, if tested and examined by independent public accountants.
- Timeliness: As per the Securities Exchange Commission, companies should report the accounting information in the time it would influence the investors and creditors decisions, which is within 60 days of the accounting period of the company.
- Understandability: The accounting information should be concise, precise, interpretable, and able to comprehend.
To complete: The statements with the qualitative characteristics of accounting information
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Chapter 2 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
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