Question

Please describe the primary characteristics of Financial Accounting Measures (information)

Answer 1

Financial accounting measurement is the computation of financial activites in terms of money.

The following points highlight the characteristics of accounting information. The characteristics are:

1. Relevance 2. Reliability 3. Understandability 4. Comparability 5. Consistency 6. Materiality 7. Timeliness 8. Conservatism 9. Substance over Form.

1) Relevance means that all the relevant information for decision making should form part of the financial statement.

2) Reliability means the information which is present in the financial statement should be reliable to use for the stakeholders. To be useful, information must be reliable as well as relevant.

3) The information in the financial statement should be such that any person having some knowledge about financial statement should be able to understand the information placed in financial statement.

4) The information in the financial statement should be comparable with the information of the past and with the industry.

5) The information once placed in the financial statement should be consistent for the future years. If the same is not consistent, than such information should be reported in the statement.

6) Information is said to be material if it changes the decision of its user. It means that if because of one amount or information, the decision of the user is changed, the information is said to be material.

7) The information will only be useful to the users only if the said information is presented on time. Timeliness of infortaion is very important.

8) The information to be presented in the financial statement should be on the principle of conservatism. Conservatism is a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations arc adequately considered. Thus, if two estimates of amounts to be received or paid in the future are about equally likely, conservatism dictates using the less optimistic estimates.

9) The information in the financial statement should be presented on the principle of substance over form. Management should give importance to the substance of the transaction or event rather than its form.