Evaluate and Examine the Four Qualitative Characteristics of Accounting Information

Topics: Financial statements, Decision making Pages: 4 (1089 words) Published: April 12, 2011
One of the most significant purposes of General Purpose Financial Reports is providing useful and valuable accounting information, which is an important basis to making appropriate decisions for information users. The quality of accounting information is directly related to information users in decision-making and its consequences. Hence, the four qualitative characteristics, namely Understandability, Relevance, Reliability and Comparability are set out in the conceptual framework to ensure that information users can make the right decisions. This essay will definitely and intensively evaluate and examine the four qualitative characteristics of accounting information.

To start with, understandability demands the accounting information be simple, clear, easy to be understood and in plain English to reflect finical position and result of operation of the business. Loren et al. (2009) also suggests that the accounting information should be understood by broad classes of decision makers. One gigantic class is included investors; lenders, suppliers and other trade creditors, customers and so on (Hoggett et al. 2009, p.447). Sometimes, the information users were non-professionals and even a small number of people are outsiders, like us students, if the accounting information is very professional and difficult to comprehend, it will increase the risk of investors’ decision-making, even worse, and it will form a phenomenon of internal control that may affect the efficiency and capacity of the whole capital market. Another smaller class is excluded auditors and government agency staff, who audit and examine the financial position and tax condition of the business or makes the accounting information of the business in public fairly and righteously.

Next, relevance requires accounting information be relevant with the information users and be useful for them to make decisions, evaluate the past and present situation and forecast the future. Obaidat Ahmad N(2007)...
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