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

Decent Essays

"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 …show more content…


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 that show the ability to pay for the liabilities as they fall due, just as how lenders will search for these specific information. Governments and their agencies is another specific group of users interested in abstracting information with a different objective of monitoring and regulating an entity's activities, performance and profits, since this will affect the nation's employment level and aids in determining the taxation policies they should be implementing to best suit the given situation.

There has to be

Get Access