Answer
a.
1. Relevance: Information has a bearing on the business-related resolutions endorsed by stakeholders.
2. Faithful representation: Information is impressively sensible and truthful.
3. Understandability: The implication of the financial reports can be readily grasped.
4. Comparability: The information espouses prevailing industry tenets and standards persistently.
5. Consistency: The financial information is crafted using invariant principles through periods. Shifts in techniques or criteria must be admissible.
b.
1. Relevance vs. faithful representation
Faithful representation could be traded for relevance. Information may be presented faithfully, yet it is not relevant because its materiality is low. For example, immaterial non-cash transactions may be incorporated in balance sheets, but they may not be applicable to decision-making.
2. Relevance vs. consistency
Consistency may be traded for relevance in a scenario whereby an entity submits relevant facts about evaluating assets, yet the assets have been valued using diverse methodologies and assumptions.
3. Comparability vs. consistency
Consistency could be traded for comparability if an entity changes its approach to valuing inventory to use a methodology employed by other entities for comparability.
4. Relevance vs. understandability
Understandability could be traded for relevance when an entity divulges facts about the valuation of its bonds, yet some users do not comprehend the valuation methods. The users take the bond values as reported by the entity even though they do not apprehend the computation procedures.
c.
Trade-offs should be based on the comparable magnitudes of the qualities. The potential implications of the qualities should be assessed (qualitatively and quantitatively) before the qualities are traded off. Good review and cost-benefit examination should be involved during the trading-off.
Work Step by Step
N/A
