• Explanation

FASB has outlined two fundamental (ie, relevance, faithful representation) and four enhancing (ie, comparability, understandability, timeliness, verifiability) qualitative characteristics of useful financial information. To be considered useful, information must have both fundamental characteristics (Choice B). The enhancing (ie, secondary) characteristics further impact (ie, increase) the degree of usefulness to users.

Applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed order. CPAs should maximize each characteristic to the extent possible and use it in conjunction with the others. In other words, one characteristic is not more important than the others.

In fact, sometimes one enhancing qualitative characteristic may be sacrificed to improve another (Choice A). For example, applying a new financial reporting standard might require temporarily sacrificing some comparability in the financial statements. However, the sacrifice may be necessary to improve the long-term understandability of the statements.

(Choice C) Compiling and reporting financial information has inherent costs; therefore, when applying enhancing characteristics costs are a pervasive constraint, not a secondary consideration. In other words, the costs of providing information are a constant consideration and should not outweigh the benefits.

Things to remember: FASB has outlined two fundamental and four enhancing qualitative characteristics of useful financial information. Applying the enhancing characteristics is an iterative process that does not follow a prescribed order. CPAs should maximize each enhancing characteristic to the extent possible and use it in conjunction with the others.

Lecture References :

• FAR 1.01 : Basic Concepts & Financial Statements: FASB Standards & Frameworks