Qualitative Characteristics of Accounting Information

Accounting information is necessary in today’s business world to gain competitiveness and

strategizing. Qualitative characteristics determine the quality of the financial accounting data and
information provided within an organization. The qualitative characteristics are divided by two
main qualities fundamental and enhancing regarding the accounting information. The
fundamental quality of primary necessity whereas once it’s accomplished the focus lies on
enhancing quality which is secondary necessity.

The fundamental quality for accounting information includes

 Relevance of data – It deals with usefulness of the information to investors and decision
makers. FASB ensure that the reporting is relevant for end user. This includes three
characteristics of relevance; Timeliness, Predictive and Feedback. The reports are to be
generated on time so that they can be used for effective decision making. The predictive
nature of accounting information will ensure forecasting and projections based on past
reports. The information quality has feedback value as it can confirmed and adjust the
prediction based on info.
 Faithful representation of information – It is a concept that the accounting information
needs to be a clear reflection of the business. The information needs to be complete and
free of error to avoid losses. The information assessed should be unbiased so that the
investors know the true position of the firm.

The Enhancing quality for accounting information includes

 Comparability – The accounting information needs to be as per the accounting

regulations. The consistency of application is tested through comparison with similar data
process with similar methods.
 Timeliness – the reports need to be attained as quickly as possible which a sign of
efficiency of accounting team. The company just has a quick access to their report in
order to make timely decisions.
 Verifiability – It is the level to which accounting information can be reproduced when
similar data and assumptions are applied. It shows the credibility of analyzing the data
which is replicable given similar situation.
 Understandability – It is necessary for the information to be user friendly meaning that
such jargons are not be used which confuse or sound vague for the reader. The
information must be not be misleading and should paint a false portrait.

(Stice & Stice, 2013 )

Accounting Principles, Accounting Assumptions and Constraints

The accounting principles lay down the general rules and concepts of accounting within an
organization. Financial Accounting Standards Board (FASB) utilizes the basic accounting
principles to get a comprehensive set of rules and accounting standards. The accounting
principles include Materiality, revenue recognition, expense recognition and full disclosure. The
assumptions include economic entity, going concern, monetary unit and periodicity.

 Economic Entity – the business is a separate legal entity thus the accounting data is kept
separate from owners’ personal transactions.
 Periodicity – The complex reports can be delivered in a shorter period of time which
increases the need for credibility. The time interval within reports is shown as well to
make an effective reflection on performance of company.
 Monetary Unit - economic activity is measured based on the transaction which has been
recorded. The accountants sometimes have to look-over the environmental change.
 Going Concern – the accounting principle assumes that the firm will attain its objectives
and commitments as they will operate for long term yet through financial reporting it has
to be stated when the firms position declines the information is to be disclosed to all
stakeholders.
 Matching principle – the organization uses accrual basis of accounting which requires the
expense of the firm to match the revenues.
 Materiality – It requires the accounting team to violate the matching accounting principle
in case where the amount is insignificant. This requires more professional judgment
whether the amount is insignificant or not.
 Conservatism – if a situation where there are two alternative to report the financial data
then this principle guides to follow the oath which chooses the path which represents
lesser net income.
 Revenue recognition – it decides upon an appropriate time at which revenue is
recognized as income
 Expense recognition – it decides upon an appropriate time at which the cost if
recognized.

The constraints include cost and industry practice explained as following:

 Industry practice & Cost – the constraints reflects on the nature of industry and practices
within the industry which may follow different accounting practices. The cost benefit
principle is included within to assess whether it’s costly or not.

(Hunt, Kieso, Weygandt, & Warfield, 2012)

Bibliography

Hunt, M., Kieso, D., Weygandt, J., & Warfield, T. (2012). Intermediate Accounting, , Problem

Solving Survival Guide. Wiley .

Stice, E., & Stice, J. (2013 ). Intermediate Accounting. Brigham : South Western .