Overview
This lecture explains the enhancing characteristics of accounting information that make financial reports more useful for decision-making.
Enhancing Characteristics of Accounting Information
- Enhancing characteristics improve the usefulness of accounting or financial information.
- The four main enhancing characteristics are: verifiability, comparability, understandability, and timeliness.
Verifiability
- Verifiability means information can be independently validated or confirmed by different users.
- Users can agree or disagree with the financial information based on evidence.
Comparability
- Comparability allows users to identify similarities and differences between financial information across different periods or entities.
- It enables meaningful analysis by comparing past and present financial statements.
Understandability
- Understandability means financial information is presented clearly and can be easily understood by users, including the general public or potential investors.
- Useful financial reports should be accessible and comprehensible to a wide range of users.
Timeliness
- Timeliness refers to providing financial information when it is needed for decision-making.
- Delayed information loses its usefulness, so reports should be prepared and available promptly.
Key Terms & Definitions
- Verifiability — the quality that allows information to be independently confirmed or validated.
- Comparability — the ability to compare financial information to see similarities or differences over time or between entities.
- Understandability — information is presented clearly so users can easily comprehend it.
- Timeliness — information is available when required for decision-making.
Action Items / Next Steps
- Review and remember the four enhancing characteristics for future discussions or assessments.