Chapter 3: Qualitative Characteristics

1. Which of the following terms best describes information in financial statements that is
unbiased?
 Neutral
2. An entity issuing the annual financial reports within one month after the end of the
reporting period is an example of which enhancing quality of accounting information?
 Timeliness
3. Which concept of accounting holds that, to the maximum extent possible, financial
statements shall be based on arm's length transactions?
 Verifiability
4. Which of the following statements are True pertaining to “qualitative characteristics “?
 Are considered either fundamental or enhancing.
 Contribute to the decision-usefulness of financial reporting information.
 Distinguishes better information from inferior information for decision making
purposes.
5. Accounting information is considered relevant when it
 Is capable of making a difference in a decision.
6. Allowing entities to estimate rather than physically count inventory at interim periods is
an example of a trade-off between
 Timeliness and verifiability
7. The characteristic that is demonstrated when a high degree of consensus can be secured
among independent measurers using the same measurement method is
 Verifiability
8. According to the Conceptual Framework, predictive value and confirmatory value are
ingredients of
 Relevance
9. The financial accounting information is directed toward the common needs of users and
is independent of presumptions about particular needs and desires of specific users.
 Neutrality
10. Which of the following qualitative characteristics of financial information requires that
information should not be biased in favor of one group of users to the detriment of others?
 Neutrality
11. What is the quality information that gives assurance that it is reasonably free of error
and bias?
 Faithful representation
12. The overriding qualitative characteristic of accounting information is
 Decision usefulness
13. Which of the following is the best description of “faithful representation” in relation to
information in financial statements?
 Freedom from material error
14. The fundamental qualitative characteristics are
 Relevance and faithful representation
15. What is the quality of information that enables users to better forecast future
operations?
 Relevance
16. The conceptual framework includes which of the following constraints?
 cost/ cost-benefit
17. Which of the following is true in relation to the enhancing quality of understandability?
 Users have a reasonable knowledge of business and economic activities and review
the information with reasonable diligence.
18. The ingredients of relevant financial information are
 Predictive value and confirmatory value
19. Which of the following terms best describes information that influences the economic
decisions of users?
 Relevant
20. In the event of conflict between the economic substance of a transaction and the legal
form, the economic substance shall prevail.
 Substance over form
21. Financial information exhibits consistency when
 accounting entities give similar events the same accounting treatment each period
22. To achieve faithful representation, the financial
 Must be complete, neutral and reasonably free from error.
23. The enhancing qualitative characteristics of financial information are
 Comparability, understandability, timeliness and verifiability
24. What are the attributes that make the information provided in the financial statements
useful to the readers?
 Qualitative characteristics of financial information
25. When information about two different entities engaged in the same industry has been
prepared and presented in similar manner, the information exhibits the enhancing
qualitative characteristic of
 Comparability