Question

How useful are accounting numbers? Contrast US and Australia evidence.

Answer 1

Accounting is the language of business, and it benefits management in many ways. Accounting involves recording of transactions and compiling them in reports. An important advantage of accounting information is that it is based on numbersi.e measurable data. Another advantage of accounting information is that it is objective and based on generally accepted accounting principles. GAAP includes rules to be followed in accounting to make reports standard and comparable. Data entered in an accounting system is verifiable dataand is not at all based on opinions and emotions i.e accounting information is unbiased.Another advantage of accounting information is that it is reliable. For example, when you see $10,000 in accounts payable, you owe that much to others. Any questions about that can be answered by reports which show you how that number was calculated. To make it to an accounting system, data has to make sense and to have proper documentation to back it up. Accounting department, reconciliations are made and procedures are in place to assure reliability and accuracy of information.

Constrast between US and Australia Evidence:

We extend research exploring differences between U.S. and Australia's Generally Accepted Accounting Principles (GAAP) by investigating whether differences are associated with firms’ returns and prices. The accounting differences we investigate include goodwill, asset revaluations, income taxes, pensions, interest capitalization, foreign currency, and extractive industries accounting. We conclude that goodwill is priced as an asset; that asset revaluations, successful efforts accounting for extractive industries, and immediate recognition of foreign currency exchange gains and losses on long-term assets and liabilities are generally uncorrected with the information that investors consider relevant.