Question

Explain the qualitative characteristics of accounting information.

Answer 1

The following are the qualitative characteristics of accounting information:

1. Reliability− It means that the user can rely on the accounting information. All accounting information is verifiable and can be verified from the source document (voucher), viz. cash memos, bills, etc. Hence, the available information should be free from any errors and unbiased.

2. Relevance− It means that essential and appropriate information should be easily and timely available and any irrelevant information should be avoided. The users of accounting information need relevant information for decision making, planning and predicting the future conditions.

3. Understandability− Accounting information should be presented in such a way that every user is able to interpret the information without any difficulty in a meaningful and appropriate manner.

4. Comparability− It is the most important quality of accounting information. Comparability means accounting information of a current year can be comparable with that of the previous years. Comparability enables intra-firm and inter-firm comparison. This assists in assessing the outcomes of various policies and programmes adopted in different time horizons by the same or different businesses. Further, it helps to ascertain the growth and progress of the business over time and in comparison to other businesses.