1) Primary qualities of useful accounting information:
- Relevance - Accounting information is relevant if it is capable of making a difference in a decision.
Relevant information has:
(a) Predictive value
(b) Feedback value
- Reliability - Accounting information is reliable to the extent that users can depend on it to represent the economic conditions or events that it purports to represent.
Reliable information has:
(b) Representational faithfulness
2) Secondary qualities of useful accounting information:
Comparability - Accounting information that has been measured and reported in a similar manner for different enterprises is considered comparable.
Consistency - Accounting information is consistent when an entity applies the same accounting treatment to similar accountable events from period to period.
Accounting Qualities and Useful Information for Analysts
Here is how these qualities provide analysts with useful information:
Relevance- Relevant information is crucial in making the correct investment decision.
Reliability - If the information is not reliable, then no investor can rely on it to make an investment decision.
Comparability - Comparability is a pervasive problem in financial analysis even though there have been great strides made over the years to bridge the gap.
Consistency - Accounting changes hinder the comparison of operation results between periods as the accounting used to measure those results differ.
The following key SEC filings must be reported:
• S-1: Filed prior to sale of new securities
• 10-K: Annual filing similar to annual report; 40-F for Canadians; 20-F for other foreign issuers
• 10-Q: Quarterly unaudited statements
• 8-k: Disclose material events such as asset acquisition and disposition, changes in management or corporate governance
• DEF-14: Proxy statement
• 144: Issue of unregistered securities
• Beneficial and insider ownership of securities by company's officers and directors
Students should note that relevance and reliability tend to be opposite qualities. For example, an auditor may improve the quality of the audit but at the cost of timeliness. Relevance and reliability can also clash strongly in these ways: the market value of an investment can be highly relevant but may be accurate only to a certain extent. On the other hand, the historical cost, while reliable, may have little relevance.
Setting and Enforcing Global Accounting Standards
InvestingEssentially, quality management entails overseeing all activities and tasks needed to maintain excellence.
MarketsPrice indices are used to measure inflation, but qualitative improvements in products complicates attempts to isolate the true cause of rising prices.
MarketsThe forms companies are required to file provide a clear view of their histories and progress.
Personal FinanceFind out who is actually paying the most state taxes as a percent of their income. California and New Jersey are not in the top 10.
MarketsYou can learn a lot about any listed company through this system - if you know how to use it.
Managing WealthIn an emergency like a fire, hurricane, flood, tornado or earthquake, you may not be able to protect your home. But you can take steps to avoid financial disaster.
InvestingBy Bob Schneider Accounting can be divided into several areas of activity. These can certainly overlap and they are often closely intertwined. But it's still useful to distinguish them, not ...
Managing WealthLearn about the average salary of an accounting research manager as well as the necessary skills, experience and education, and licenses to hold this position.
MarketsFind out how these two have grown hand-in-hand throughout our modern history.
Managing WealthDiscover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.