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CHAPTER 1
INTRODUCTION TO ACCOUNTING
While there is evidence that accounting reports are seen as useful and are used for deci-
sion-making purposes, it is impossible to measure just how useful they really are to users.
Do you think that what is material for one business will also
be material for all other
businesses?
No, it will normally vary from one business to the next. What is material will depend on fac-
tors such
as the size of the business, the nature of the
information and the amounts
involved.
Activity 1.5
Can you figure out why it is impossible to measure this?
Accounting reports will usually represent only one input to a particular decision. The weight
attached
to them by the decision maker,
and the resulting benefits, cannot normally be
accurately assessed.
Activity 1.4
We cannot say with certainty, therefore, whether the cost of producing these reports repre-
sents value for money.
It is possible, however, to identify the kinds of qualities which accounting information must
possess in order to be useful. Where these qualities are lacking, the usefulness of the infor-
mation will be diminished. This point is now considered in some detail.
PROVIDING A SERVICE
One way of viewing accounting is as a form of service. The user groups identified in Figure 1.1
can be seen as the ‘clients’ and the accounting (financial) information produced can be seen
as the service provided. The value of this service to the various ‘clients’
can be judged
according to whether the accounting information meets their needs.
To be useful to users, particularly investors and lenders, the information provided should
possess certain qualities, or characteristics. In particular, it must be relevant and it must faith-
fully represent what it is meant to represent.
These two qualities,
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