Good accounting information is important for any organization. The attributes of timeliness, accuracy and integrity of financial record keeping are vital because many external and internal users rely on the accounting information presented. If the accounting data contains inefficiencies, this can result in problematic issues.
If information presented is lacking in any of the above three mentioned attributes is lacking, this can lead to bad decisions made by those parties who are either making organizational decisions or by those who have a vested interest in the financial health and success of the business. It can also result in legal, ethical or logistical issues.
Here are some of the primary reasons why good accounting information is important in each of these areas:
Managerial decision makers need to have accurate financial data in order to strategically plan and move forward with action. If accounting information is faulty or just plain wrong, this could be disastrous as the business decisions made won't be made based on accurate information; this could result in serious mistakes or poor judgment calls.
External decision makers, such as investors, would-be investors and creditors also have a vested interest in how the company is performing financially. Accurate financial statements and reports are essential to these interested parties to make their decisions.
Both external and internal users need to make decisions based on good accounting information. If any details are lacking or are calculated erroneously, poor decisions may be the result.
Thanks to the Enron, WorldCom and Tyco incidents, the ethics of companies have been called into question. As a result laws such as Sarbanes-Oxley (SOX) have been passed.
From a legal perspective good accounting information is vital because if any inaccuracies or poor handling of financial data occur, companies and their executives are now held responsible for any misrepresentations, mishandled or simply flawed financial data.
From an ethical perspective good accounting practices and presentation of data is also important. Decision makers, especially external parties such as investors and creditors, who are willing to put a financial stake in a company have the right to know what is occurring in the company from a fiscal perspective.
Bad accounting information can quickly ride a slippery slope and suddenly thousands of people lose money due to poor handling of financials. The importance of ethics in financial management ethics is not only the right thing to do, but in the long run can be valuable.
From a logistics perspective good accounting records are essential. In order to remain not only within the guidelines of legal constraints, there are taxes to be filed, day to day business operations needing to be fulfilled, loan applications, purchase agreements and collections of earned income; all of which require financial information to be up to date and accurate.
Good accounting information is both important and valuable to any organization. The timeliness, integrity and accuracy of data are crucial in order to remain afloat and continue to grow as a business. Bad accounting information can result in either a failed business or one that suffers financially because of bad management of accounting information.