Essay on "Accounting Information"

Essay 3 pages (995 words) Sources: 2

[EXCERPT] . . . .

Enhancing Qualitative Characteristics:

Apart from the fundamental qualitative characteristics, accounting information has enhancing qualities i.e. comparability, verifiability, timeliness, and understandability. Verifiability of accounting information is an important component in promoting reliability and refers to agreement among various measures. This means that the information must be consistent with market value and other factors used by appraisers. Therefore, the information should contain some measure of objectivity, which is associated with verifiability.

Understandability is the expression of accounting information in a clear manner that will be comprehensible by users. This is an important characteristic because users are generally presumed to have rational knowledge of economic and business activities. While accounting information may contain complex matters, it should be presented in a way that it can be understood by all users including a layperson.

Comparability is the ability to assist users to identify the similarities and differences across various financial conditions and events. In this case, accounting information should be prepared in a way that promotes evaluation of the business information within a certain period of time and compared to similar entities within the same period. One of the major ways to ensure comparability of accounting information is by complying with the international accounting standards. The significance of this characteristic is that it allows a business to review accounting information against that of a rival (Vitez, n.d.).

Timeliness is a significant component of relevance and means that the accounting information should be available to users at an appropriate time for its use in the decision-making process. Due to the need for timely information, businesses or companies are legally required to provide information to external users periodically. The significance of timeliness is attributed to the use of accounting information in decision making by internal and external stakeholders.

Effect on Decision Making:

Each of these qualitative characteristics of accounting information play a crucial role in the decision making process of a business. Business owners use understandability to comprehend accounting information while consistency is used to ensure similar handling of financial transactions and usefulness promotes applicability of the information in decisions. Relevance is used during trend analysis of financial information while reliability ensures the development and sustenance of accurate accounting information. In addition, relevance also ensures that accounting information is available to users at the appropriate time in the decision making process.

In conclusion, accounting information consist quantitative and qualitative characteristics, which play a crucial role in the use of accounting information. Generally, qualitative characteristics are attributes associated with the seeming importance of financial information and used for decision making. Some of the major qualitative attributes of accounting information include reliability, relevance, consistency, understandability, comparability, and usefulness.

References:

Spiceland, J.D., Sepe, J.F. & Tomassini, L.A. (2007). Intermediate accounting (4th ed.).

Retrieved February 20, 2014, from http://highered.mcgraw-hill.com/sites/0072994029/student_view0/ebook/chapter1/chbody1/qualitative_characteristics_of_accounting_information.html

Vitez, O. (n.d.). Qualitative Characteristics of Accounting Information. Retrieved February 20,

2014, from http://smallbusiness.chron.com/qualitative-characteristics-accounting-information-3952.html READ MORE

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