Which of the following is a characteristic of financial accounting information?

The following are all qualitative characteristics of financial statements.

Understandability

The information must be readily understandable to users of the financial statements. This means that information must be clearly presented, with additional information supplied in the supporting footnotes as needed to assist in clarification.

Relevance

The information must be relevant to the needs of the users, which is the case when the information influences their economic decisions. This may involve reporting particularly relevant information, or information whose omission or misstatement could influence the economic decisions of users.

Reliability

The information must be free of material error and bias, and not misleading. Thus, the information should faithfully represent transactions and other events, reflect the underlying substance of events, and prudently represent estimates and uncertainties through proper disclosure.

Comparability

The information must be comparable to the financial information presented for other accounting periods, so that users can identify trends in the performance and financial position of the reporting entity.

In order to be useful to a user, accounting information should have the following characteristics:

• Prepared objectively. The accountant should record and report on accounting transactions from a neutral perspective, without any bias that would give the reader an incorrect impression about the financial position, results, or cash flows of a business.

• Consistency of recordation and presentation. A particularly important characteristic is for the accountant to record information using a consistent application of accounting standards, and to present aggregated results in the same way, for all periods presented.

• In support of decisions. An experienced accountant will prepare financial reports that provide the specific information needed by management to reach a decision. That is, the accountant does not just issue the same boilerplate reports, month after month. It may also be necessary to create new reports that deal with new situations confronting a business.

• Matches reader knowledge. The accountant should prepare reports that are tailored to the knowledge of the reader. Thus, a short address at a shareholders meeting may call for an aggregated presentation of just a few key performance metrics, while a presentation to an institutional investor may call for a considerably more detailed report.

• Reliability and completeness of information. There should be an accounting system in place that is comprehensive enough to be able to routinely collect, record, and aggregate all transactions, so that users of the accounting information are assured that they are reading about the complete results of a business. This also means that there are no "surprises" that appear as retroactive adjustments to the financial statements.

It can be useful to examine all of the reports issued by the accounting department to see if they adhere to the preceding list of characteristics. If not, consider upgrading the sources of information, altering the reports to exclude the less useful items, or eliminating reports entirely. This review should be scheduled to recur, preferably no less than on an annual basis. It can be interesting to see what types of information crept into the reports since the last review that do not meet the preceding standards, and determine why the information was added.

61) Which of the following is a characteristic of financial accounting information?A) Its preparation requires judgment.B) It is more about the future than it is about the past.C) None of it is based on estimates, assumptions, and judgments.D) Notes and explanations from management are not included.

62) Which of the following statements is considered a "snapshot" of the business in financial or dollarterms?

63) Objectives of financial reporting to external investors and creditors include preparing information aboutall of the followingexcept:

64) Financial accounting information is characterized by all of the followingexcept:

65) It is the function of management accounting to perform the following activities,except:A) Create financial forecasts.B) Perform cost accounting.C) Complete internal audits.D) Audit financial statements.

66) All of the following are characteristics of management accounting,except:

67) Internal users of financial accounting information include all of the followingexcept:

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68) Which of the following isnota user of internal accounting information?

69) Characteristics of internal accounting information include all of the followingexcept:A) It is audited by a CPA.B) It must be timely.C) It is generally oriented toward the future.D) It measures efficiency and effectiveness.

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