Which of the following is the best description of faithful representation in relation to information in financial statements *?

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• Complete Presentation
• Error Free Presentation
• Unbiased Presentation

The two fundamental qualitative characteristics of financial reports are relevance and faithful representation. The four enhancing qualitative characteristics are comparability, verifiability, timeliness and understandability.

Fundamental qualitative characteristics:

1. Relevance
   The characteristic of relevance implies that the information should have predictive and confirmatory value for users in making and evaluating economic decisions. The relevance of information is affected by its nature and materiality. Information is material if omitting it or misstating it could influence decision making. A financial report should include all information which is material to a particular entity.

1. Faithful representation
   The characteristic of faithful representation implies that financial information faithfully represents the phenomena it purports to represent. This depiction implies that the financial information is complete, neutral and free from error.

Enhancing qualitative characteristics:

1. Comparability
   The characteristic of comparability implies that users of financial statements must be able to compare aspects of an entity at one time and over time, and between entities at one time and over time. Therefore, the measurement and display of transactions and events should be carried out in a consistent manner throughout an entity, or fully explained if they are measured or displayed differently.

1. Verifiability
   The characteristic of verifiability provides assurance that the information faithfully represents what it purports to be representing.

1. Timeliness
   The characteristic of timeliness means that the accounting information is available to all stakeholders in time for decision-making purposes.

1. Understandability
   The characteristic of understandability implies that preparers of information have classified, characterised and presented the information clearly and concisely. The financial reports are prepared with the assumption that its users have a ‘reasonable knowledge’ of the business and its economic activities.

References:

• Birt J., et al. (2020). Accounting: Business Reporting for Decision Making 7th John Wiley & Sons Australia, Ltd.
• Google Image. (2021)

Tommy Andrian, S.E., M.Ak, Cert.DA.

Which of the following is the best description of faithful representation in relation to information in financial statements ?

a.Influence on the economic decision of usersb.Inclusion of a degree of caution errorc.Freedom from material errord.Comprehensibility to users

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Faithful representation is the concept that financial statements be produced that accurately reflect the condition of a business. For example, if a company reports in its balance sheet that it had $1,200,000 of accounts receivable as of the end of June, then that amount should indeed have been present on that date. The faithful representation concept should extend to all parts of the financial statements, including the results of operations, financial position, and cash flows of the reporting entity. Financial statements that faithfully represent these aspects of a business should have the following three attributes:

Complete Presentation

All of the information that a user needs in order to form a clear picture of the results, financial position, and cash flows of a business are included in the financial statements. This also means that no information is omitted that might have led a user to have a different opinion of the business. For example, a business could report that it had a $500,000 loan as of the balance sheet date, but this would not be considered complete unless additional information about the loan were provided, such as its maturity date.

Error Free Presentation

The financial statements should contain no errors, so that the information contained within them presents a fair view of the organization. If there is a continuing series of "errors" that tend to bias the results of the financial statements in a certain direction, this may be considered a case of financial reporting fraud.

Unbiased Presentation

The financial statements represent the actual state of an organization, without trying to amplify its results unnecessarily or make them look worse than they really are. For example, biased financial statements could be used to give an overly optimistic view of a business in order to encourage a prospective buyer to pay a higher price for it. Conversely, financial statements could be made to look worse in order to reduce its related income tax liability.

Which of the following is the best description of faithful representation in relation to information in financial statements ?

a.Influence on the economic decision of usersb.Inclusion of a degree of caution errorc.Freedom from material errord.Comprehensibility to users

Uploaded by: ebookcentralph2

ffiacinia pulvi

risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia p

sum dolor sit amet, c

a. Fusce dui lectus, congu

rem ipsum dolor sit amet, con