Good Accounting Information

Good accounting information matters to any business.

Good accounting information is useful, objective and can be relied on to make sound decisions. Accounting information is for a certain point in time, so for information to be reliable, it needs to be timely and clear, easy to understand and focused. Businesses can create an environment for accounting information to be effective by creating checks and balances to catch mistakes and to improve reliability.

Accuracy

Accounting information needs to be accurate to be effective. If wrong data is presented, there is a risk that management could make bad decisions. So, improving accuracy is a goal of any accounting department. The use of software to process accounting transactions has minimized errors, but hasn't completely eliminated them. Errors can be decreased with proper controls such as: appropriate employee training; reconciliations; and supervision of staff work.

Clarity

When reviewing accounting information, you need to be clear about what you're looking at. That's why titles, labels and descriptions are important. You rarely see an accounting report with only numbers and no text. For accounting information to be good, it needs a context, descriptions of what you're looking at. Nobody is supposed to guess what the numbers relate to. There should be a date or a range of dates to give an idea of the timing of information. For example, if you are looking at a balance sheet, a financial statement, you need to know when data was compiled. Dates on financial statements and most any other accounting report is listed on top, just below the name of the report.

Consistency

Good accounting information is consistent, implying the same treatment of similar issues and accounting practices. For instance, if a report shows expenses not yet paid for a month, then the same report would show the same practice the following month. What was recognized as revenue last month, will continue to be recognized as revenue this month.

Policies and procedures help a lot in this area, creating standards for consistency--even if there is a change in personnel or software. Changes in consistency should be fully disclosed and explained. The point is for reports to be comparable from one period to the next.

Relevance

Usually people looking at accounting information are searching for something specific, such as actual expenses compared to budget, sales increasing or decreasing, or some other concern. For accounting to be good, it should be relevant to the user. A certain set of data may be good for one person and be totally useless to another. So, it is important when releasing reports and other accounting information to know what the reader is interested in. For example, a sales department manager may not be interested in insurance expenses and other items not related to his department. Good accounting numbers are focused and to the point with no irrelevant information.

Completeness

To be good, accounting information needs to be complete. For example, when looking at a number for rent expenses, the assumption is that all rent expenses for a period is accounted for, with no missing transactions. The accounting system is supposed to give you an overall view of how a business is doing financially and if something is amiss. Completeness is an intrinsic quality of good accounting information.

References

• Tutor2U: Key Characteristics of Accounting Information