An Analysis Of Qualitative Characteristics Of Accounting Information (Essay Sample)
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1 Qualitative Characteristics of Accounting Information
Accounting information refers to the data derived from analysis of business transactions. The information portrays the transactions involving the purchase of machinery, equipment, and inventory. In addition, the information also highlights the revenues collected from sales and other business operations. Accounting is an approach of identifying and collecting data about business transactions and applying it in the generation of various reports that are useful to various stakeholders. The stakeholders are both internal and external, which necessitates a firm to have two perspectives of accounting. One of the perspectives is the managerial accounting focusing on the needs of the internal users. On the other hand, financial accounting focuses on historical data and consequently standardized for external stakeholders' application.
Qualitative Characteristics of Accounting Information
Accounting information has four qualitative characteristics. One of the characteristics is that it is relevant because it influences the decision-making process of an organization. In this regard, the management and other internal stakeholders use the information to make decisions concerning the strategies to be applied and ensure that the firm is headed in the right direction. Without accounting information, it would be impossible to determine the financial performance of the organization and therefore the management does not have a basis for making decisions that will improve or sustain the company's productivity (Nobes and Stadler 579). In relation to external stakeholders, investors use the accounting information of a firm to make decisions if it is a viable investment opportunity.
Accounting information is also reliable because it is factual, verifiable, and neutral. Many stakeholders rely on accounting information to gauge the performance of an organization in the market. For instance, the management can verify that a firm made a profit or a loss through the information provided by accounting methods. In addition, investors use accounting information to determine the yields of their investments (Nobes and Stadler 580). The reliability of accounting information plays an essential role in highlighting factual data about the financial position of a business.
Accounting information is comparable, which means that it can be used to compare the performance of different businesses. The comparability characteristic is primarily beneficial to the external stakeholders particularly the investors. Accordingly, investors are interested in firms that are performing positively in financial terms and therefore they use the information provided by accounting methods to identify the most viable firm to invest in. Subsequently, the provision of historical data is used to identify an organization that has the ideal strategies that counters the current challenges in the market.
Accounting information is characterized by consistency in different financial periods. The consistency of the financial performance of corporations benefits a variety of both internal and external stakeholders. For instance, the management identifies the discrepancies in financial performance of a firm and subsequently provides the employees with the necessary resources and motivation to augment the business's revenue generation (Peterson, Schmardebeck, and Wilks 2484). In addition, external stakeholders such as investors and the community are provided with the necessary information of how the organization has been performing in the past and currently and therefore can make decision about supporting some of the policies introduced by the corporation.
The qualitative characteristics of accounting information makes it comprehensible and applicable for reporting and decision-making purposes. Consequently, the management and other stakeholders are offered useful information regarding the performance of the organization. Furthermore, regulatory bodies, gov
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