Please describe some general desirable characteristics ofaccounting measurements.Please describe some general desirable characteristics ofaccounting...

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Accounting

Please describe some general desirable characteristics ofaccounting measurements.

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1 Relevance Relevance is closely and directly related to the concept of useful information Relevance implies that all those items of information should be reported that may aid the users in making decisions andor predictions In general information that is given greater weight in decisionmaking is more relevant Specially it is informations capacity to make a difference that identifies it as relevant to a decision American Accounting Associations Committee to Prepare A Statement of Basic Accounting Theory defines relevance as the primary standard and requires that information must bear upon or be usefully associated with actions it is designed to facilitate or results desired to be produced Financial Accounting Standards Board in its Concept No 1 comments Relevant Accounting information must be capable of making a difference in a decision by helping users to form predictions about the outcomes of past present and future events or to confirm or correct expectations The question of relevance arises after identification and recognition of the purpose for which the information will be used It means that information relevant for one purpose may not be necessarily relevant for other purposes Information that is not relevant is useless because that will not aid users in making decisions 2 Reliability Reliability is described as one of the two primary qualities relevance and reliability that make accounting information useful for decisionmaking Reliable information is required to form judgements about the earning potential and financial position of a business firm Reliability differs from item to item Some items of information presented in an annual report may be more reliable than others For example information regarding plant and machinery may be less reliable than certain information about current assets because of differences in uncertainty of realisation Reliability is that quality which permits users of data to depend upon it with confidence as representative of what it purports to represent 3 Understandability Understandability is the quality of information that enables users to perceive its significance The benefits of information may be increased by making it more understandable and hence useful to a wider circle of users Presenting information which can be understood only by sophisticated users and not by others creates a bias which is inconsistent with the standard of adequate disclosure Presentation of information should not only facilitate understanding but also avoid wrong interpretation of financial statements Thus understandable financial accounting information presents data that can be understood by users of the information and is expressed in a form and with terminology adopted to the users range of understanding 4 Comparability Economic decision requires making choice among possible courses of actions In making decisions the decisionmaker will make comparisons among alternatives which is facilitated by financial information Comparability implies to have like things reported in a similar fashion and unlike things reported differently Hendriksen observes that the primary objective of comparability should be to facilitate the making of predictions and financial decisions by creditors investors and others He defines comparability as the quality or state of having enough like characteristics to make comparisons appropriate FASB USA Concept No 2 pare 115 1980 defines comparability as the quality or state of having certain characteristics in common and comparison is normally a quantitative assessment of the common See Answer

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