Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between
A) verifiability and faithful representation.
B) faithful representation and comparability.
C) timeliness and verifiability.
D) neutrality and consistency.

Question

Quizplus · Accepted Answer

Allowing firms to estimate inventory at interim periods sacrifices some verifiability (the ability for outsiders to confirm the accuracy of the inventory count) for timeliness (the ability to provide financial statements on a more frequent basis). This trade-off is appropriate because the benefits of timely financial statements outweigh the costs of slightly less verifiability. Option A is incorrect because estimating inventory does not directly impact faithful representation. Option B is incorrect because estimating inventory does not directly impact comparability. Option D is incorrect because neutrality and consistency are not relevant to this decision.

Allowing Firms to Estimate Rather Than Physically Count Inventory at Interim