Q.2-28Q - Intermediate Accounting (Kieso)

Question

Question: Describe the major constraint inherent in the presentation of accounting information.

Step-by-Step Solution

Answer

Answer

Accounting information is liable to the cost constraint. Information is not beneficial till its advantages of it surpass the cost of arranging it.

 

Step 1: Meaning of Accounting Information

Accounting information is defined as the medium used by the entities for communicating with the internal and external parties. Users of accounting information comprise employees, shareholders, banks, creditors and government agencies.

Step 2: Major constraint inherent in the presentation of accounting information

The major constraints on displaying accounting information include: 

• The principle of materiality indicates that only similar items should be displayed in the financial statements, but the full disclosure principle states to display all the considerable items in the financial statements.
• The principle of timeliness states that every bit of information is to be given time, whether the information is accurate or not.
• The principle of cost-benefit analysis indicates that each element of the accounting record must be identified by its cost and advantage, but the inspection of cost-benefit becomes tedious when the element cannot be evaluated.
• Another constraint of accounting information is industry practices, as industry practices occasionally do not tally with the accounting principles.