Evidence on the Usefulness of Accounting

Introduction to Evidence on the Usefulness of Accounting

There are arguments and believable evidence that accounting information is as a minimum supposed as being helpful to users. Several research surveys have enquired users to rank the significance of accounting information, in relation to another source of information, for decision-making purposes. Usually, these studies have observed that users rank accounting information extremely high. There is also very considerable proof that businesses choose to generate accounting information which exceeds the minimum needs imposed through accounting regulations. (For instance, businesses frequently generate a considerable amount of accounting information for managers that is not needed through any regulations.) Most probably, the cost of producing this additional accounting information is acceptable on the grounds that users find it helpful.

Such types of arguments and evidence, though, leave unanswered the question of whether the information that is generated is actually employed for decision-making purposes, i.e.: does it influence people's behaviour? It is generally very complex to assess the influence of accounting on decision making. Though, one condition happens in which the influence of accounting information can be measured and observed. On a stock exchange this is where the shares are traded. The proof depict that, while a business formulates an announcement regarding to its accounting profits, the prices on which shares are traded and the volume of shares traded frequently change considerably.

This implies that investors are varying their views about the future prospects of the business the outcome of this new information becoming exists to them and that this, sequentially leads them to make their decision either to buy or to sell shares in the business. Even though there is evidence that accounting reports are perceived as being helpful and are employed for decision-making purposes, it is not possible to measure just how accounting reports are helpful to users. After the result we cannot say with confidence whether the cost of producing those reports correspond to value for money. Accounting information will generally represent only one input to a specific decision and so the exact weight attached to the accounting information through the decision maker and the advantages that flow as a result cannot be precisely calculated. We shall now continue to see, though that it is at least feasible to identify the types of qualities that accounting information must possess in order to be useful. Wherever these qualities are not present, the usefulness of the information will be reduced.

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