AIAF 114 CHAPTER 1 - SECTION 1
EXAM QUESTIONS WITH COMPLETE
SOLUTIONS
Cost-Benefit Effectiveness - ANSWER- The development of accounting information
consumes resources. Consequently, the cost of producing such information should be
reasonable in relation to the expected benefit of the information
Comparing Relevance and Reliability - ANSWER-In many cases, a trade-off exists
between relevance and reliability. The relationship between relevance and reliability
also affects the valuation of difficult-to-estimate insurance liabilities
Comparing Lack of Bias and Reliability - ANSWER-A conflict can arise between lack of
bias and reliability of information where uncertainty exists. Some accounting
frameworks require conservatism or prudence in such circumstances.
What constitutes conservatism depends on the context in which an estimate is made.
Any bias in accounting information could produce misleading information unless the end
user can quantify or adjust for the bias.
In the face of uncertainty, accounting frameworks may call for reporting of unbiased
estimates accompanied by disclosure of the uncertainty rather than reported biased
estimates.
Reliability - ANSWER-In many cases a trade-off exists between relevance and
it is timely - ANSWER-A specific characteristic of Relevant account information
Transparent - ANSWER-In general, to be understandable, information contained in
financial reports must be intelligible, clearly disclosed and
Lack of Bias - ANSWER-When uncertainty exists, a conflict can arise between reliability
and
Neutrality - ANSWER-Information that can be used for economic decision making
without regard for how it may affect economic, political, or social behavior embodies the
characteristic of reliability known as
Consistent - ANSWER-Because accounting information must allow for comparisons
between time periods and among entities, it must be, above all else
Five basic assertions of accounting - ANSWER-complete, valued correctly, exists,
belongs to the company, and is properly classified, described, and disclosed
Accounting information criteria - ANSWER-Understandability, Relevance, Reliability,
Comparability and Consistency, Lack of Bias, and Cost-Benefit Effectiveness
EXAM QUESTIONS WITH COMPLETE
SOLUTIONS
Cost-Benefit Effectiveness - ANSWER- The development of accounting information
consumes resources. Consequently, the cost of producing such information should be
reasonable in relation to the expected benefit of the information
Comparing Relevance and Reliability - ANSWER-In many cases, a trade-off exists
between relevance and reliability. The relationship between relevance and reliability
also affects the valuation of difficult-to-estimate insurance liabilities
Comparing Lack of Bias and Reliability - ANSWER-A conflict can arise between lack of
bias and reliability of information where uncertainty exists. Some accounting
frameworks require conservatism or prudence in such circumstances.
What constitutes conservatism depends on the context in which an estimate is made.
Any bias in accounting information could produce misleading information unless the end
user can quantify or adjust for the bias.
In the face of uncertainty, accounting frameworks may call for reporting of unbiased
estimates accompanied by disclosure of the uncertainty rather than reported biased
estimates.
Reliability - ANSWER-In many cases a trade-off exists between relevance and
it is timely - ANSWER-A specific characteristic of Relevant account information
Transparent - ANSWER-In general, to be understandable, information contained in
financial reports must be intelligible, clearly disclosed and
Lack of Bias - ANSWER-When uncertainty exists, a conflict can arise between reliability
and
Neutrality - ANSWER-Information that can be used for economic decision making
without regard for how it may affect economic, political, or social behavior embodies the
characteristic of reliability known as
Consistent - ANSWER-Because accounting information must allow for comparisons
between time periods and among entities, it must be, above all else
Five basic assertions of accounting - ANSWER-complete, valued correctly, exists,
belongs to the company, and is properly classified, described, and disclosed
Accounting information criteria - ANSWER-Understandability, Relevance, Reliability,
Comparability and Consistency, Lack of Bias, and Cost-Benefit Effectiveness
