This week in class we discussed measurements and how they are important to a business. Different segments of business have different forms of measurements. In accounting, they use things like financial statements and ratios to measure how a business is performing. The finance industry also uses ratios as well as interest and share prices. Other business professionals use such things as labor costs, price, and sales to measure performance. These tools allow managers and other decision makers to evaluate how the business is performing, and to make changes based on this information. In accounting, there are qualitative characteristics that are used to make sure that the information being provided on financial reports is relevant and reliable to decision makers and others that have a stake in the performance of a company. Without proper measurements, this information would be difficult to interpret, would be subject to the whim of each individual organization, and would become useless.
This is a chart of the qualitative characteristics used in accounting practice:
This chart and more information regarding it can be found at the
McGraw-Hill Online Learning Center (text book site for Intermediate Accounting).
These characteristics were developed by the Financial Accounting Standards Board (
FASB), and are part of their seven Statements of Financial Accounting Concepts (more specifically,
SFAC #2). The other
SFAC sections also deal with accounting measures and how they should be handled.
