Wednesday 5 June 2013

Reliability

This implies that the accounting information that is presented is truthful, accurate, complete (nothing significant missed out) and capable of being verified (e.g. by a potential investor).

Value accounting has created numerous debates surrounding the trade-offs of the concepts of relevance and reliability. Relevance and reliability are both critical for the quality of the financial information, but both are related such that an emphasis on one will hurt the other and vice versa. Hence, we have to trade-off between them. Accounting information is relevant when it is provided in time, but at early stages information is uncertain and hence less reliable. But if we wait to gain while the information gains reliability, its relevance is lost.


Under the AASB accounting policies of March 1999:


Reliability is defined in the following sections: 

4.1.5 Reliable financial information faithfully conveys to users the underlying transactions and other events that have occurred.

4.1.6 For financial information to be reliable, it needs to be free from bias. Reliable financial information does not lead users to conclusions that serve particular needs, desires or preconceptions of the prepares of financial reports.

Paragraph 4.1.7 goes on to explain that "To be reliable, financial information also needs to be free from undue error..."

A good example of what happens when reliability fails can be found here. 

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