Essay: Relevance of Accounting Information

Essay: Relevance of Accounting Information
June 8, 2011 Comments Off on Essay: Relevance of Accounting Information Academic Papers on Business Studies,Sample Academic Papers admin

Sample Essay

Relevance implies that accounting information presented to users should be applicable to decisions and reflect the current position of a company with a forward looking perspective so decisions for the future can be made easily. The implementation of fair value accounting instead of historical cost accounting especially in financial instruments is a good example of measures taken by standard setters.

If information is provided to stakeholders in a timely fashion they can make swift decisions based on this information but if there is a time lag, the information may be rendered useless. In order to ensure that information is presented to shareholders in a timely fashion the Securities and Exchange Commission requires companies to present financial statements not only on an annual basis but on a quarterly basis as well (McGraw-Hill 2008).

The biggest advantage of relevance is that users of accounting information can make decisions based on current conditions and future predictions instead of historical values, for example if the value of land may have changed significantly over a period of time and decisions based on this value may affect the overall outcome. The investors can only make decisions if accounting information is provided to them on a continuous basis but as companies present information on an annual and quarterly basis it poses problems for making decisions on a monthly or weekly basis. Another criticism is that in pursuit of relevance original values of assets and liabilities may be distorted.

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