Accounting: Characteristics of good accounting information
Accounting requires that data about an organization’s operations be recorded, summarized, analyzed and presented in a form that various stakeholders can use to make economic decisions. To make prudent decisions, good information is required; it follows that good information has certain characteristics.
In light of the goal of providing users with information for economic decisions, complete information is sufficient to fulfill the needs and requirements of the myriad of users. In addition, there is the assumption no error of omission was made in producing the information.
Relevance is an inherently subjective concept, but it refers to whether the information pertains to a particular objective or intended user. For example, information that is relevant to an inventory supervisor might not be wholly relevant to the line manager. Good accounting information is concise and not protracted or unnecessary either. When information is not relevant, time is wasted in trying to pinpoint relevant information and the cost of producing information increases significantly.
Surprisingly for some, accountants do not always need to account for every last penny. The attribute of accuracy suggests that information should be sufficiently precise for its intended purpose or use, without containing unnecessary detail. The level of accuracy required depends on the related concept of materiality.
This refers to the ability of an information user to decipher the information. Everything from layout to labeling helps to improve clarity.
Weygandt Accounting Principles introduces challenging accounting concepts with examples that are familiar to the student. This connection to their everyday lives helps build student motivation, a key driver of student time spent on assignments and ultimately their mastery of the concept.
Without being properly communicated to those who need it, good information has no intrinsic value. Proper communication entails encoding the data properly, using the right medium and ensuring that it reaches its intended destination.
Information usually has a specific purpose for being created. These purposes are usually period-specific. If information is produced too frequently or created after the period in which it is required, its value diminishes significantly.
The process of auditing helps to inspire confidence in the reliability of accounting information. The confidence in economic decisions is based on the confidence in the information on which it was based.
Too little information can be as bad as too much information. Indeed, information overload causes a delay in processing of information. Good accounting information does not overwhelm the user.
Information has value, but it should cost a reasonable sum to produce. The principle is that information should never cost more to produce (in terms of time and money) than it is worth.
Communicated using the right channel
This refers to how good information is communicated – whether it is communicated through formal or informal channels.
This text places emphasis on accounting information as a decision-making tool - not just about record-keeping.
Good information usually possesses several of the aforementioned characteristics. In some cases, certain characteristics may take priority over others. To get valuable information that can lead to better decisions, the majority (if not all) characteristics are desirable.