Relevance and Reliability

Relevance and Reliability - To have accounting information...

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Relevance and Reliability are the parts of Hierarchy of Qualitative Characteristics of  Accounting Information.  Accounting information is relevant if it can make a difference in  a decision by helping company’s management predict the outcomes of past, present,  and future events.  Accounting information is relevant if it can have predictive value.  .  Good example is purchasing a building and cash flows generated by use of the building.  Purchasing is an event and the cash flow generated would be an outcome.  This  predictive value helps managers forecast more accurately the outcome of past or  present events.  It becomes timely when it is available to management before it loses its  ability to influence decisions on major changes. Accounting information reaches its highest usefulness when it is reliable and relevant. 
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Unformatted text preview: To have accounting information reliable, it must be verifiable, neutral, and possess representational faithfulness. The Certified Public Accounting firm audit publicly traded companies and their report is furnished to the Securities and Exchange Commission. The report submitted must be verifiable. The reliable information also needs to possess representational faithfulness. The reported information must verify the changes in transactions from one period to another. It must be neutral, not biased, and this accounting information is intended to be useful in decision making. References: Nilolai L, Bazley J, Jones J. (2009). Intermediate Accounting (I), Textbook...
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This note was uploaded on 02/22/2012 for the course ACCOUNTING 401 taught by Professor Jeter during the Spring '12 term at Kaplan University.

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