The characteristics of useful accounting information

In order to be useful to the user, accounting information should have the following characteristics:

  • Prepared objectively. The accountant should record and report on accounting transactions from a neutral perspective, without any bias that would give the reader an incorrect impression about the financial condition, results, or cash flows of a business.
  • Consistency of recordation and presentation. A particularly important characteristic is for the accountant to record information using a consistent application of accounting standards, and to present aggregated results in the same way, for all periods presented.
  • In support of decisions. An experienced accountant will prepare financial reports that provide the specific information needed by management to reach a decision. That is, the accountant does not just issue the same boilerplate reports, month after month. It may also be necessary to create new reports that deal with new situations confronting a business.
  • Matches reader knowledge. The accountant should prepare reports that are tailored to the knowledge of the reader. Thus, a short address at a shareholders meeting may call for an aggregated presentation of just a few key performance metrics, while a presentation to an institutional investor may call for a considerably more detailed report.
  • Reliability and completeness of information. There should be an accounting system in place that is comprehensive enough to be able to routinely collect, record, and aggregate all transactions, so that users of the accounting information are assured that they are reading about the complete results of a business. This also means that there are no "surprises" that appear as retroactive adjustments to the financial statements.

It can be useful to examine all of the reports issued by the accounting department to see if they adhere to the preceding list of characteristics. If not, consider upgrading the sources of information, altering the reports to exclude the less useful items, or eliminating reports entirely. This review should be scheduled to recur, preferably no less than on an annual basis. It can be interesting to see what types of information crept into the reports since the last review that do not meet the preceding standards, and determine why the information was added.