Q2- Basic Accounting Processes and Systems (ICAN ATSWA Sept 2021 Insight)

Question 2:

Which of the following is an example of fundamental quality of accounting information  

A. Relevance  

B. Comparability  

C. Understandability  

D. Timeliness  

E. Verifiability 

The correct answer is (A)

Hint: 

The question above tests major keywords which are "fundamental qualities" and "accounting information". Here is what you need to know.

Question Review:

Accounting information is general used by investors, lenders, creditors, etc., for decsion-making purposes and should be designed to serve the needs of all types of interested parties.

With this in mind, there are qualitative characteristics that every accounting information should have.

There are six qualitative characteristics of accounting information. Two of the six are fundamental qualities (primary or must have), while the remaining four are enhancing qualities (secondary or nice to have).

Examples of Fundamental Qualities are:

1. Relevancy - how helpful the accounting information is for financial decision-making processes.

2. Faithful representation (Reliability) - the extent to which an accounting information accurately reflects a company’s resources, obligatory claims, transactions, etc.

Examples of Enhancing Qualities are:

1. Comparabilty - the degree to which accounting standards and policies are consistently applied from one period to another.

2. Verifiability - the extent to which the accounting information is reproducible given the same data and assumptions.

3. Timeliness - how quickly information is available to users of accounting information.

4. Understandability - the degree to which the accounting information is easily understood.

So the correct answer is (A)

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