Accounting information is prepared for persons related to the organization like owners, employees, creditors, banks, investors, etc. so that they can understand about the organization through it and make related decisions. So, while preparing accounting information, elements like reliability, relevance, understandability, comparability, consistency, materiality, etc. are followed which help in making accounting information perfect, and these are also called qualitative characteristics of accounting information.
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Qualitative Characteristics of Accounting Information
Following are the qualitative characteristics of accounting information:
1. Reliability:
Accounting information should always be reliable because it maintains the trust of the persons concerned with the accounting information. For example, the data used in preparing the accounting information should always be supported with source documents and should be complete, proper accounting standards should be followed, there should be no misrepresentations in the accounting information, etc.
2. Relevance:
This characteristic states that accounting information should always be relevant as it helps in making correct and relevant decisions. In simple language, the purpose for which accounting information is prepared should be fulfilled through it. For example, if accounting information is being prepared for future planning, then it should contain all the relevant information so that it helps in future planning.
3. Understandability:
It is not enough for accounting information to be reliable and relevant because unless it is understandable, its purpose will not be served. In simple words, accounting information is used to know about the status, performance, capability, etc. of the organization and if it is unable to tell about the organization, its purpose will not be served. That is why accounting information should always be understandable.
4. Comparability:
Accounting information should be presented in such a way that it can be compared with other accounting information. For example, data of two or more periods or data of a firm can be compared, etc. If possible, the organization should also provide comparative information which will help the concerned persons to understand the organization in a better way. Therefore, the feature of comparability plays an important role in improving accounting information.
5. Consistency:
This characteristic states that there should be consistency between accounting information and the methods, principles, etc. used in it as it makes it easier to understand accounting information and compare it with each other. If an organization makes frequent changes in the methods, principles, etc. used in accounting information then it may cause difficulty in understanding accounting information because changing the method also changes the process of understanding.
6. Materiality:
Only that much information should be given in accounting information which is necessary because giving more information may make it difficult to understand or may create doubt in accounting information. In simple language, only relevant information should be given separately in accounting information and the rest should be presented by combining it. Note: Necessary or relevant information may be different for every organization.
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QNA/FAQ
Q1. Why are qualitative characteristics important in accounting information?
Ans: It helps in making the accounting information complete, reliable, accurate, etc., that is why qualitative characteristics are important in accounting information.
Q2. Why should accounting information be understandable?
Ans: Accounting information cannot be used properly unless it is understandable, hence accounting information should always be understandable.
Q3. What does the comparison characteristic in accounting information help to do?
Ans: Comparison characteristic in accounting information help in comparing two or more accounting information.
Q4. What does materiality feature mean in accounting information?
Ans: Materiality feature in accounting information means that only that much information should be given in the accounting information which is necessary.
Q5. What are the qualitative characteristics that accounting information should have?
Ans: Accounting information should have the following qualitative characteristics:
1. Reliability
2. Relevance
3. Understandability
4. Comparability
5. Consistency
6. Materiality, etc.
