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