What criterion should be used to evaluate trade-offs between information characteristics? 1 answer below »

CA2-4 (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?

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