Question

Aegnir Corp., a multimillion dollar company, disclosed in a footnote that its CEO was charged by the SEC for paying a $25,000 bribe to a government official in another country. No other details were given because this allegation was made just prior to Aegnir’s year end. This allegation, if true, is a clear violation of the Foreign Corrupt Practices Act and a serious federal crime. In addition, it could tarnish Aegnir’s much publicized plans for expanding internationally.

Which of the following fundamental qualitative characteristics of accounting information is (are) best represented in this example?

a. Confirmatory value.

b. Materiality.

c. Free from error.

d. Neutrality.

e. Both B and D are best represented.

A brief explanation of the answer would be much appreciated!

Answer 1

Answer is e) Both B and D are best represented

The information that CEO has been charged by SEC for bribing the government official in another county is material information which can affect the end user decision. Hence materiality concept has been complied with by disclosing the information in the footnote.

The neutrality principle has been applied in disclosing the information since the information is presented in an unbiased manner. The information disclosed should be give balanced view of the way things are supposed to be done and shown.