Question

Which of the following statements about accounting quality is false?

a. accounting information should be conservative.
b. accounting information should be a fair and complete representation of the firms' financial performance.
c. accounting information should provide relevant information to forecast payoffs such as earnings, cash flows, and dividends.
d. accounting information should be a fair and complete representation of the firms' financial position and risk.

Answer 1

The false statement about accounting quality is that accounting information should be conservative, as extreme conservatism can obscure the true performance and financial position of a firm. Therefore correct option is A

Step-by-step explanation:

The statement about accounting quality that is false is: a. accounting information should be conservative. The principle of conservatism in accounting dictates that potential expenses and liabilities should be recognized immediately, but potential revenues should only be reported once they have been realized or can be reliably expected. However, extreme conservatism can result in hiding the true economic performance and position of a firm.

Accounting quality demands that information be relevant, reliable, complete, and a fair representation of the firm's financial performance and position. Accounting should indeed help in forecasting payoffs and present an accurate assessment of a firm's financial status and risk; however, an overly conservative approach can skew this representation.