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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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A friend, who is not an accounting major, is interested in what makes accounting useful to decision makers. The friend asks, “I have a gut feel for what makes information useful to me, but how do you know what makes accounting information useful to users of financial statements? What qualities does useful accounting information have?”

Required:

Prepare a written response for your friend that identifies and explains the qualitative characteristics of useful accounting information.

To determine

Prepare a written response that identifies and explains the qualitative characteristics of useful accounting information.

Explanation

Memo

From

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March 29, 2019

Sub: Qualitative characteristics of useful accounting information.

Financial reporting is the procedure used to communicate the information obtained from financial statements prepared for a company. It is essential to disclose the data to various stakeholders of the company, as various decisions need to be taken by the stakeholders.

The qualitative characteristics of useful accounting information are:

Relevance:

Relevance is a qualitative characteristic, which emphasizes that the financial statement prepared should indicate the affirmatory value or supporting value.

Predictive Value:

The predictive value is the net income value which helps the user to predict the future cash flows of the company

Confirmatory value:

Confirmatory value is the net income value which helps the investors to assess the future cash flows of the company.

Materiality:

Materiality constraint focuses, on recording financial transactions of the particular business, which have a significant impact on the financial statement; hence it requires that the accounting standards must be followed for all items of significant size.

Faithful representation:

Faithful representation is a qualitative characteristic, which emphasizes that the information shared or shown in the financial statement should be fair and agree with the original facts.

Completeness:

The financial statements are considered to be complete if it includes entire information required for the faithful representation...

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