Balancing Qualitative Characteristics of Useful
Information
A tradeoff between enhancing qualitative characteristics often occurs. For
example, when a company records sales revenue, it is required to simultane
ously estimate and record an expense for potential bad debts uncollectible
accounts Including this estimated expense is considered to represent the
economic event faithfully and to provide relevant information about the net
profits for the accounting period. The information is timely and understand
able; but because bad debts may not be known with certainty until a later
period, inclusion of this estimated expense involves a sacrifice of veriffabil
ity. The bad debt expense is simply an estimate. It is apparent that it is not
always possible to simultaneously fulfill all qualitative characteristics.
Companies are most likely to make tradeoffs between which of the following
when preparing financial reports?
A Relevance and materiality.
B Timeliness and verifiability.
C Relevance and faithful representation.
