Accounting measurements are enhanced by the presence of the qualities of predictive value, feedback value, comparability, verifiability, timeliness, freedom from bias, and representational faithfulness. For each of the following, indicate the quality demonstrated:
1. The value assigned to equipment is checked by referring to the original invoice.
2. Predictions concerning this year’s income, issued 12 months ago, are compared with the actual results to assess the accuracy of the prediction.
3. Past trends are used to forecast this year’s sales.
4. An outside expert is retained to assess the value of the recorded amounts for tangible and intangible capital assets.
5. Adjustments are made to financial statements that both increase and decrease net income despite the manager’s preference to report lower net income.
6. Financial statements are issued four weeks after the year- end, even though this requires the use of estimates for some elements.
7. Preferred shares that have to be repaid on a given date are classified as a liability despite their legal status as equity.
8. The company releases estimates of operating results for the coming year, based on its budgets.
9. Cash received in advance of work done is recorded as a liability, unearned revenue.
10. Lawyers provide an estimate of the company’s potential liability for product defects.