Question

To provide relevant and reliable information to meet the users’ needs, financial statements
should be subject to certain constraints should also be subject to certain constraints. Describe three
(3) of these constraints.

Answer 1

Answer:

Three constraints of the financial statements related to the relevant and reliable information provided to the users:

(a) Timeliness: Timeliness is the constraint for having reliable and relevant financial statement information as delay in providing the information affects the users' decisions. Providers have to effectively choose which information is provided to the users at which time.

(b) Benefit and Cost: Financial statements provide that information for which the benefit of information is more than the cost. Estimation of the benefit and cost of information is subject to judgment of person to ensure optimum reliability of information.

(c) Qualitative characteristics: Providing relevant and reliable qualitative information to the users is also a constraint of the financial statements. Qualitative information is information that is not measured in terms of money but still need to be conveyed to users.

Explanation:

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