Feedback: Information should provide us with feedback on how we are doing. Immediate feedback is better than delayed feedback. A great example of a system that provides us with instant feedback is the speedometer in our cars. It tells us how fast we are going at the present time. In fact, it's a far better system than the flashing red lights in the rearview mirror.
Timely: Timely information shows itself in "good time," that is, its occurrence is opportune, suitable to the moment or to a particular time, and adapted to the occasion. Information that is not timely is merely historical. Historical information is just that: it's about what did happen. Historical costs are sunk costs. As we said earlier, no matter what we do, we're not going to get them back. Historical data per se is irrelevant for decision making. That last sentence should raise some eyebrows. After all, don't we rely on history for guidance when making decisions? Yes. Haven't we all heard the old cliché, "Those who ignore history are bound to repeat it?" Yes. Furthermore, aren't a firm's balance sheet and income statements based on historical data? Yes. Does this mean that financial statements are of no use for decision making? No.
There is continuity between the past, the present and the future. The value of historical data is that we can use the relationships it reveals to make informed forecasts. Analysis of a firm's financial statements reveals those relationships. If the firm's cost of goods sold has consistently been 60 percent of sales over the past several years, there's a good chance it will also be close to 60 percent of sales next year unless something significantly different happens. If overhead has consistently been 125 percent of direct labor for the past several years, it will in all probability continue to be so. Consequently, we can generally rely on historical data to aid us in making reasoned estimates about the future.
Verifiable: Verification provides a degree of assurance that accounting measures really do represent what they say they represent. For accounting information to be verifiable, different observers looking at the same data should get the same measure. When a company gets a "clean" audit report, it's because independent auditors have examined the firm's records and financial statements and have confirmed that the financial statements "present fairly in all material respects" the financial position of the firm. In other words, competent evidence substantiates assets and liabilities and that income figures have been verified.
Non-biased: information is free from opinion or preconceptions. Its neutrality does not attempt to promote any particular agenda. For an example of information that is not neutral, think of information provided by the "other" political party. Varies among alternatives. If a piece of information is the same for different alternatives, it's irrelevant. If we plan to buy machine A or machine B and if we are going to hire an operator at a salary of $50,000 per year regardless of which machine we buy, the operator's salary is not relevant. On the other hand, if one machine is more energy efficient than the other, our expected future utility bills are very relevant.
Tina Smith is an accountant with SageNext Infotech. She is having expertise in project management, accounting operations. With SageNext, she consults the client accountants about the benefit of QuickBooks Hosting. SageNext is a leading QuickBooks cloud provider, dealing in all kinds of tax and accounting application hosting.
Author: Tina S Smith
Article Source: http:http://articlesed.blogspot.com/
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