Importance Of Conceptual Framework In Financial Accounting

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Register to read the introduction… 2 identifies the most important quality for accounting information as usefulness for decision making. Relevance and reliability are the primary qualities leading to this decision usefulness. Usefulness is the most important quality because, without usefulness, there would be no benefits from information to set against its costs.

c) The number of key characteristics or qualities that make accounting information desirable are described in the Statement of Financial Accounting Concepts No. 2. The importance of three of these characteristics or qualities are discussed below. 1. Understandability–information provided by financial reporting should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. Financial information is a tool and, like most tools, cannot be of much direct help to those who are unable or unwilling to use it, or who misuse it. 2. Relevance–the accounting information is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct
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2, 128. provides the following examples of screens that might be used to determine materiality:

“ a. An accounting change in circumstances that puts an enterprise in danger of being in breach of covenant regarding its financial condition may justify a lower materiality threshold than if its position were stronger. b. A failure to disclose separately a nonrecurrent item of revenue may be material at a lower threshold than would otherwise be the case if the revenue turns a loss into a profit or reverses the trend of earnings from a downward to an upward trend. c. A misclassification of assets that would not be material in amount if it affected two cate-gories of plant or equipment might be material if it changed the classification between a noncurrent and a current asset category. d. Amounts too small to warrant disclosure or correction in normal circumstances may be considered material if they arise from abnormal or unusual transactions or events.”

However, according to CON 2, Pars. 129, 131 the FASB notes that more than magnitude must be considered in evaluating

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