Introduction to Accounting

To be relevant, information must be available in time, must help in prediction and feedback, and must influence the decisions of users by : helping them form prediction about the outcomes of past, present or (b) confirming or correcting their past evaluations. Understandability means decision-makers must interpret accounting information in the same sense as it is prepared and conveyed to them. The qualities that distinguish between good and bad communication in a message are fundamental to the understandability of the message. A message is said to be effectively communicated when it is interpreted by the receiver of the message in the same sense in which the sender has sent.

Accountants should present the comparable information in the most intenlligible manner without sacrificing relevance and reliability. It is not sufficient that the financial information is relevant and reliable at a particular time, in a particular circumstance or for a particular reporting entity. But it is equally important that the users of the general purpose financial reports are able to compare various aspects of an entity over different time period and