ExpertMedium2 marksMultiple Choice
Qualitative Characteristics of Financial InformationSyllabus BQualitative CharacteristicsIntangibles
ACCA · Question 02 · Qualitative Characteristics of Financial Information
Section A
Quantum AI Ltd, a tech startup, has developed a proprietary algorithm. The directors want to value this algorithm at $10 million in the financial statements based on their own internal estimates of future revenue, despite having no active market or historical cost data. Which fundamental qualitative characteristic of financial information would be most compromised if this valuation is included?
Section A
Quantum AI Ltd, a tech startup, has developed a proprietary algorithm. The directors want to value this algorithm at $10 million in the financial statements based on their own internal estimates of future revenue, despite having no active market or historical cost data. Which fundamental qualitative characteristic of financial information would be most compromised if this valuation is included?
Answer options:
A.
Relevance
B.
Faithful representation
C.
Comparability
D.
Timeliness
How to approach this question
Recall the two fundamental qualitative characteristics: Relevance and Faithful Representation. Assess which one deals with accuracy, neutrality, and verifiable measurement.
Full Answer
B.Faithful representation✓ Correct
Faithful representation is a fundamental qualitative characteristic. To be a perfectly faithful representation, a depiction would have three characteristics: it would be complete, neutral, and free from error. Highly subjective internal valuations of internally generated intangibles lack verifiability and neutrality.
Common mistakes
Confusing fundamental characteristics (Relevance, Faithful representation) with enhancing characteristics (Comparability, Verifiability, Timeliness, Understandability).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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