The following are the key characteristics of accounting information. These characteristics are the threshold, which makes accounting information important to the user. This essay will discuss those characteristics in detail and look into why they are important. The first characteristic of accounting information is understandability. Understandability means that the information needs to be cohesive and arranged in a manner, that any person with basic business knowledge can comprehend.
The organization of accounting information in a cognizable and comprehensible manner is a vital aspect in communicating to the people who need this information. This is because business people who want to understand it to improve their businesses or comprehend where their businesses may have loopholes usually require the information (Romney 7).
The second major characteristic of accounting information is that of relevance. Relevance has to do with time because accounting information requires the base of time. It has to include when a transaction occurred and who carried out that transaction. This relevance also means that it has to relate to people who need that information. Someone cannot include transactions that do not correlate with the business and authorize for the accounting information (Romney 8).
The other major factor, which is part of the threshold of accounting information, its timeliness. The accounting information compares with the news on radio and television. People are not interested in stale news or information that happened many years ago because they need information, which is timely and recent to evaluate today’s performance and for prediction of the future. Any information that does not serve the two purposes lacks relevance (Romney 8).
The reliability of accounting information is another factor of great significance. Accounting information, which is misleading and unreliable, may have negative consequences on the users. This happens when this information is useful for the evaluation of business and its performance as well as predicting the future. The information and the sources of information should possess unquestionable characteristics. This means that sources of information need verification. In the case of accounting, such sources are the receipts, the cashbook, and the invoices. They need authentication for consideration as a reliable source of information (Romney 9).
This adds another major characteristic, which is necessary and critical to accounting information. The verifiability of accounting information is a major attribute that integrates with the characteristic of reliability. This means that the sources of accounting information must be identifiable so that if the evidence is required to prove or support information provided the sources are capable of such test. The materials used need to be positioned in a manner that can be proved (Romney 10).
The other characteristic is neutrality for the accounting information to be free from bias. Biasness in accounting information is a tendency to hide some facts in the information provided such that a company does not provide true costs of production to make its profit and loss accounts portray huge profits even though the profit was minimal. Neutrality is important to ensure that the facts obtained help t the business or whoever needs that information. The information has to be a representation of the truth (Romney 8).
Comparability and consistency are another important characteristic of accounting information. This means that the information can measure against other standards or with other businesses. This calls for the accountants to provide information that adheres to the set standards and procedures for it to be used for comparison with other businesses (Romney 9).
Works Cited
Romney, Marshall. Accounting Information Systems. New Jersey: Prentice Hall, 2009. Print.