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Accounting information - characteristics

Author: Jim Riley  Last updated: Sunday 23 September, 2012

Key characteristics of accounting information

There is general agreement that, before it can be regarded as useful in satisfying the needs of various user groups, accounting information should satisfy the following criteria:

Understandability

This implies the expression, with clarity, of accounting information in such a way that it will be understandable to users - who are generally assumed to have a reasonable knowledge of business and economic activities

Relevance

This implies that, to be useful, accounting information must assist a user to form, confirm or maybe revise a view - usually in the context of making a decision (e.g. should I invest, should I lend money to this business? Should I work for this business?)

Consistency

This implies consistent treatment of similar items and application of accounting policies

Comparability

This implies the ability for users to be able to compare similar companies in the same industry group and to make comparisons of performance over time. Much of the work that goes into setting accounting standards is based around the need for comparability.

Reliability

This implies that the accounting information that is presented is truthful, accurate, complete (nothing significant missed out) and capable of being verified (e.g. by a potential investor).

Objectivity

This implies that accounting information is prepared and reported in a "neutral" way. In other words, it is not biased towards a particular user group or vested interest



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Related study notes

INTRODUCTION TO ACCOUNTS
Introduction to Accounting
Users of Accounts
Accounting Concepts and Conventions
Stakeholder Theory
Characteristics of Accounting Information
Alternatives to Profit Maximisation
Maximising the Value of a Business
Non-financial Objectives of a Business
Comparison of Financial and Management Accounting

BUDGETING
Financial objectives - intro
Financial objectives - key measures
Introduction to Business Planning
Introduction to Budgets
Purpose and Role of Budgets
Incremental Budgeting
Zero-based Budgeting
Variance analysis
Budgeting limitations

COMPANY FORMATION
Introduction to Business Organisation
Forming a Company
Advantages of Incorporation

FINANCIAL MANAGEMENT
Introduction to Financial Management
Introduction to Working Capital
Working Capital Needs of Different Businesses
Working Capital Cycle

SOURCES OF FINANCE
Managing Business Cash Flows - An Introduction
Introduction to Raising Business Finance
Sources of Finance for SMEs
Overdraft Financing
Business Angels
Introduction to Venture Capital
Sources of Equity Finance
Rights Issues
New Share Issues & Flotations
Intoduction to Leasing
Leasing - Advantages & Disadvantages

FINANCIAL STATEMENTS
Introduction to Financial Accounting
Income Statement
Profit quality
Balance Sheet
Current assets
Current liabilities

RATIO ANALYSIS
Introduction to Ratio Analysis
Interpreting Financial Information
Accounts & financial performance
ROCE
Asset turnover
Stock turnover
Debtor days
Creditor days
Liquidity ratios
Gearing ratio
Shareholder ratios
Limitations of ratios

ACCOUNTING ISSUES
Accounting for Fixed Assets - Introduction
Depreciation
Depreciation - Straightline Method
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STAKEHOLDERS
Stakeholders - intro
Stakeholder power
Stakeholder conflicts

 


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