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Qualities Of Effective Accounting Information Essay

600 words - 3 pages

Accounting information contains qualitative characteristics that make it useful to existing and potential investors, lenders, and other creditors for making decisions about an organization. A decision maker needs to determine which alternative provides the most useful information for decision-making purposes (Kieso, Weygandt, & Warfield, 2007). To make the information useful, effective accounting information needs to be understandable to a reasonably informed user and contain primary qualities of relevance and reliability and secondary qualities of comparability and consistency.

Understandability
The quality of information that lets reasonably informed users see its significance is ...view middle of the document...

” Information provided is verifiable when independent users obtain similar results using the same methods. Verifiability ensures users that the information is a faithful representation of what occurred by seeking to provide complete and neutral information, free of errors (FASB, 2010, p. 17). These fundamental qualities assist a decision maker in determining which alternative provides the most useful information for decision-making purposes.

Secondary Qualities
The secondary qualities that make accounting information useful are comparability and consistency. As stated in the FASB Concepts Statement Number 8, “information about a reporting entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date” (FASB, 2010, p. 19). Comparability allows the user to identify the similarities and differences that an economic event caused between two organizations. Consistency helps achieve the goal of comparability by applying the same accounting treatment to...

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