What Is Meant By Saying That Accounting Information Should Be 'Decision Useful'?

"The Framework states that the objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions."

What is meant by saying that accounting information should be 'decision useful'?

As stated in the AASB Framework, financial statements play an utmost important role to a variety of users, which mainly consist of the investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies, as well as the public, in making vital financial decisions. For accounting information to be 'decision useful' to this groups of people, the financial information selected has to fulfill the qualitative characteristics of relevance and reliability, while the subsequent presentation of the financial information should be both understandable and comparable (Henderson et al., 2006). The basic attributes of what quantifies the information as useful is illustrated in Figure 1: Qualitative Characteristics of Financial Reporting.

While the financial statements are made up of the same information, it is being viewed and utilized in different ways by the different groups of users. For one, investors and shareholders extract the necessary information from the financial statements to assess how much risk they might get involved in by placing their capital into an entity for investment purposes. As supported by Alijarde (1997), the information provided on its viability and performance is the most important to investors and creditors. In this case, of all the items presented in the financial information, the debt level and ability of entity to meet its obligation is the most relevant to this particular group (Alijarde, M., 1997). Relevant information selection is based on the criteria of how appropriate it is in helping them to "evaluate past, present or future events relating to an entity" - predictive value, and those which aids in "confirming or correcting past evaluations they made" - feedback value (Alfredson et al., 2005, p. 64).

Lenders are only willing to fund loans when they have the knowledge that there is an ability to repay this principal debt at the end of the specific period and make interest payments periodically as they fall due. As the lenders, such as the banks, are concerned with earning returns and for a secured investment, they will in particularly look at the amount of assets - cash and those that will soon be converted to cash, and to "compare it against the liabilities falling due in the future" ( Kloot et al., 1992, p. 28). For a 'protection buffer' for the bank should there be any losses in the entity that borrows, the bank will notice the amount of ownership capital (Kloot et al., 1992).

Suppliers and other trade creditors use the financial information to rate the ability to achieve their objectives of maximising the 'rate of return on funds supplied' (Whittred et al, 2004). Thus, they will be interested in reports