Distinguish between finite uniformity, rigid uniformity, and flexibility. Also, explain when each is appropriately used.

Question

What will be an ideal response?

Answer 1

ANSWER:
Finite uniformity attempts to equate prescribed accounting methods with the relevant circumstances in generally similar situations. Rigid uniformity means prescribing one method for generally similar transactions even though relevant circumstances may be present. Finite uniformity should be more representationally faithful than rigid uniformity, but may be less verifiable.

Rigid uniformity can improve comparability in situations where representational faithfulness is not the goal. However, improving comparability may destroy or weaken relevance or reliability. The presumption is that if finite uniformity can be attained, it is superior to rigid uniformity from the standpoint of usefulness in decision-making or performance evaluation. However, meaningful finite uniformity could be obtained only at a greater cost than rigid uniformity, so the advantage is merely relative and depends on marginal benefits and costs.

Flexibility applies to situations in which there are no discernible relevant circumstances but more than one possible accounting method exists, any of which may be selected at the firm’s discretion.

Wherever possible, flexibility should be eliminated. If it is possible to discern relevant circumstances and they can be measured and implemented in a cost-effective manner, finite uniformity should be implemented. If the event category is either a simple event or a complex event in which finite uniformity cannot be instituted in a cost-effective manner, rigid uniformity should be employed.