Seth Heglar
L27821185
ACCT 301
June 27th, 2024
Judgement Case 1 – 8: A friend asks you about whether GAAP requires companies to disclose
forecasts of financial variables to external users. She thinks that information could be very useful
to investors.
Required 1: What are the two primary qualitative characteristics of accounting information?
According to the Corporate Finance Institute (CFI), the two primary qualitative characteristics of
accounting are relevance and reliability. (CFI, 2024). Relevance in accounting refers to how the
information presented is beneficial during the decision-making process. CFI goes onto mention
that relevant information must possess both details about past events and provides
predictions/forecasts for future events. Relevant information is very important to stakeholders, as
they want to ensure they are receiving accurate information about the company at hand regarding
financial health. “Investors and creditors are interested in the amount, timing, and uncertainty of
a company’s future cash flows. Information about a company’s economic resources (assets) and
claims against resources (liabilities) also is useful.” (Spiceland, et al, 2023). All parties involved
are very interested in the assets and liabilities of a company, this will help them to determine if
they want to continue investing or begin to pull away from said company. The second qualitative
characteristic being reliability means that all information “… accurately reflects a company’s
resources, obligatory claims, transactions, etc.” (CFI, 2024). All information presented about a
company’s financial health needs to be presented accurately. CFI goes onto note that all
information must be complete, meaning all statements must include every transaction.
Information should remain neutral, meaning free from bias. Lastly, all information must be free
from error, meaning that the information has been double-checked to ensure that there are no
accounting errors that could influence the decision-making of external users.
The Bible is clear that we need to be intentional with our actions, and that we need to ensure we
are presenting accurate information to those surrounding us. We should be living in a way that
reflects both the relevant and reliable characteristics of accounting, as they can relate to that of a
Christ following life. As a believer we want to show others the straightforward and true love that
Jesus has graciously shown us. Just as financial statements are there for one to lean on due to
them being tested and shown to be accurate regarding the financial health of a company. We can
lean on God’s word for comfort and peace in this life. Proverbs 30:5-6 states “Every word of
God proves true. He is a shield to all who come to him for protection. Do not add to his words, or
He may rebuke you and expose you as a liar.”.
Required 2: Does GAAP routinely require companies to disclose forecasts of financial variables
to external users? Indicate yes or no and explain how your answers relate to the qualitative
characteristics of accounting information.
Seth Heglar
L27821185
ACCT 301
June 27th, 2024
GAAP does not require companies to disclose any forecasts of financial variables to external
users. Looking back at the two primary qualitative characteristics of financial accounting,
relevance and reliability. These two characteristics both require accurate information to be
presented, the financial information being disclosed must have already occurred in order for
these two characteristics to be met. Relevance is details about past events, which can help make
predictions for the future, however, stakeholders can be weary of said predictions, and will likely
go off past data and analytics. Reliability is how accurate the financial information being
presented is, and the most accurate information will be based off what has actually occurred in
the past. Forecasts can be great from an investor standpoint, but this does not hit the main
objectives of GAAP as reports need to focus on transactions that have already been completed
and documented, rather than estimating transactions that will take place in the future.
Seth Heglar
L27821185
ACCT 301
June 27th, 2024
References
Spiceland, J.D., Nelson, M., Thomas, W., & Winchel, J. (2023). Intermediate Accounting (11th
ed). McGraw-Hill LLC.
CFI Team (2024). Qualatative Characteristics of Accounting Information. Corporate Finance
Institute. Qualitative Characteristics of Accounting Information -
Overview, Guide (corporatefinanceinstitute.com)
NIV The Holy Bible. (2020). Zondervan.
