Accounting Attributes – Which is The Most Important?
You have four primary attributes to accounting information – Relevance, reliability, comparability and understandability – but which is the most important and why?
It is a matter of opinion which primary attribute of accounting information is most important and why. All four attributes are important in their own way and all four are used to help make decisions for the business purposes. In this article I will explain what each attribute is and why they are important. I will also give my personal opinion on which is most important to me, but please remember each report may have different needs so different levels of importance for each attribute.
relevance is important in accounting imformation as the information provided needs to be ble to influence the decision making or it is not useful. The information needs to have confirmatory value and/or for predictive value to be relevant to decision making.
When we say confirmative value we mean the information should help to confirm predictions about the past or help correct expectations if goals or aims were not met. It is useful and relevant to compare predicted/planned performance with what actually happened in order to identify problems or difficulties to improve performance or current systems that are working for the business. This in turn can help determine if future predictions are correct or need revising.
When we say predictive value we mean the information should help make predictions about future performance e.g. budgets, forecast sales, future costs etc. it does not mean the information is a prediction but it helps the decision makers form a prediction. A statement may help to predict what will happen in the future. Timelessness is also important in relevance and reliability too as a time lag can affect how relevant or reliable the information is.
reliability is important because it concerms portraying what should be portrayed. If information is unreliable then it can make the decision makers predictions unuseful. To be reliable the information needs to be complete, neutral, prudice, have substance and have representational faithfulness.
When we say neutral we mean the information provided should not be bias in anyway. If a report is bias it can take away the credibility of the report and will undermine the perceived value of the report also making it unreliable. The information should be a valid description of what it purports to represent and not contain errors. It must reflect the underlying economic conditions that it is attempting to represent, and this is what is referred to as representational faithfulness.
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