Question

During a weekly meeting the CEO of company made an statement that he heard from a friend that “There is general agreement that, before it can be regarded as useful in satisfying the needs of various user groups, accounting information should satisfy certain criteria.”

You as a chief account of the company is required to explain the to the CEO the key characteristics of Accounting Information with clearly providing example(s) wherever queried for each characteristic.

Answer 1

Accounting information includes all the financial information that a user needs, that can influence the decision of the informed investor. So it must contain special features. Characteristics that an Accounting Information must include are as follows :-

Object oriented - The information should be disclosed as which satisfy the objective of an users. Hence, accounting information should contain objectivity.

Comparable - the information should not be like which cannot be compared with past performance of the year or with other firms too.

Consistency - As there are many method to do a certain thing. Hence, once opted should be followed for number of years. For example there are many different ways to calculate the inventory like FIFO, LIFO, Weighted etc. Hence, once followed should not be changed frequently.

Reliable - information should be reliable as one can believe and take a decision whether to invest or not.

Verifiable - The information should be make effective by adding various proofs of purchase, sales, cash memo etc. to make the information clear.