As accounting information is needed by so many users like investors, employees, creditors, government officials etc…, it is imperative to evaluate whether accounting information is useful for decision making by the various users and hence it must possess the following characteristics –
1. Reliability – Reliability means that the users must be able to depend on the information. Reliable information must be free from error and bias and realistically represents the true position of the company; also the information disclosed should be credible and verified by independent parties.
2. Understandability- Understandability means decision-makers must interpret accounting information in the same sense as it is prepared and conveyed to them.. 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.
3. Relevance -Accounting information must be accessible in time, must assist in prediction and feedback, and must influence the decisions of users by helping them form prediction about the outcomes of past, present or future of the company.
4. Comparability – It is not enough 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 accounting information are able to compare various aspects of an entity over different time period and with other entities. Hence to be comparable, accounting reports must belong to a common period and use common unit of measurement and format of reporting.