The second meaning implies nothing about effectiveness but does imply a correspondence between what is represented on the label and what is contained in the bottle.”. Instead, both qualities may be enhanced simultaneously. There are many factors affecting the reliability of information such as uncertainties inherent in the subject-matter and accounting measurements. Generally, the decision-makers (investor, accountant and manager) see materiality in relation to actual assets or income. What seems not to be material in business may turn out to be very important in the investment market. They also believe that if holding gains and losses that may have accrued in past periods are separately displayed, current cost income from continuing operations better portrays operating performance. Substance over Form (Economic Realism). The secondary one is the reliability of the measurement of the (relevant) attribute. Materiality 8. Verification of accounting information does not guarantee that the information has a high degree of representational faithfulness and a measure with a high degree of verifiability is not necessarily relevant to the decision for which it is intended to be useful.”. Vickrey has identified the following normative information quantities: signal relevance, cost effectiveness, act selectivity, state-predictive ability, reliability, representational faithfulness, timeliness, and understandability. If different measurement procedures are adopted, it is difficult to predict trends in earning power or financial position of a company. They are described as the relative quantitative importance of some piece of financial information to a user, in the context of a decision to be made. Qualitative characteristics of accounting information, 2. The reliability concept does not imply 100 per cent reliability or accuracy. Reliability and relevance often impinge upon each other. There is a place for a convention, such as conservatism—meaning prudence, in financial accounting and reporting, because business and economic activities are surrounded by uncertainty, but it needs to be applied with care. Conservatism. The benefits of information may be increased by making it more understandable and hence useful to a wider circle of users. Interestingly, economic value assessment is ranked ninth by the direct placement officers (investment officers)…… The analyses show that as investment officers gain more experience they tend to consider ‘economic value assessment’ less important, and timeliness and understandability more important, ceteris paribus. Whether there is a net gain to users of the information obviously depends on the relative weights attached to relevance and reliability (assuming, of course, that the claims made for current cost accounting are accepted). Relevance is closely and directly related to the concept of useful information. b. Comparability. a. Comparability implies to have like things reported in a similar fashion and unlike things reported differently. Users’ needs may change over time which would require a change in accounting principles, standards and methods. If there is no bias in selection of accounting information reported, it cannot be said to favour one set of interests over another. Content Filtration 6. The goal of reliable information can be achieved by management if it applies generally accepted accounting principles, appropriate to the enterprise’s circumstances, maintains proper and effective systems of accounts and internal control and prepares adequate financial statements. comparability, and consistency), the following qualities of accounting Materiality is directly related to measurement and is a quantitative characteristic. Copyright © Simplestudies LLC 2004-2016. The qualitative characteristics should be arranged in terms of their relative importance. 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