Exercise 1-7: Concepts; Terminology; Conceptual Framework

Agreement between a measure and the phenomenon it purports to represent.

Faithful representation

Concerns the relative size of an item and its effect on decisions.

Materiality

The process of admitting information into financial statements.

Recognition

Pertinent to the decision at hand.

Relevance

Users understand the information in the context of the decision being made.

Understandability

Important for making interfirm comparisons.

Comparability

The change in equity from non owner transactions.

Comprehensive Income

Information confirms expectations.

Confirmatory value

Applying the same accounting practices over time.

Consistency

Requires consideration of the costs and value of information.

Cost Benefit/Cost Effectiveness

Decreases in equity resulting from transfers to owners.

Dividends

Results if an asset is sold for more than its book value.

Gain

The absence of bias

Neutrality

Information is useful in predicting the future.

Predictive Value

Information is available prior to the decision.

Timeliness

Implies consensus among different measures.

Verifiable