Accounting Information Qualitative Characteristics Gap: Evidence from Jordan

[Abstract] The general objective of financial reporting is to provide useful information to present and potential investors, creditors, and others to help them make investment, credit, and other decisions. The purpose of this paper is to find out whether there is an existing gap concerning the importance of accounting information qualitative characteristics from investors' and external auditors' perspective as they represent the independent part responsible for the fairness of financial reports. To achieve the purpose of this paper, a questionnaire was designed and administered to a sample of 25 investors and 29 auditors. The paper reveals that there is an existing gap between the external auditors and investors in terms of the qualitative characteristics of accounting information. [Keywords] Accounting information; qualitative characteristics; Jordan Introduction The principal role of financial reporting is to serve the interested parties by providing information that is useful in making business and economic decisions. Such information facilitates the efficient functioning of capital and other markets by promoting the efficient and equitable allocation of scarce resources in the economy. Each of the primary leaders of accounting standards, the International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB), developed its conceptual framework for financial reporting, which is a coherent system of concepts that flow from an objective. The objective identifies the purpose of financial reporting. The concepts provide guidance for identifying the boundaries of financial reporting, including: selecting the transactions, other events, and circumstances to be represented; identifying how they should be recognized and measured; and identifying how they should be disclosed. The purpose of the conceptual framework is to set forth objectives and fundamentals that will be the basis for the development of financial accounting and reporting standards. The objectives identify the goals and purposes of financial reporting. The fundamentals are the underlying concepts of financial accounting concepts that guide the selection of transactions, events, and circumstances to be accounted for, their recognition and measurement (Dahmash, 1995, p. 18), and the means of summarizing and communicating them to interested parties. Concepts of that type are fundamental in the sense that other concepts flow from them and repeated reference to them will be necessary in establishing, interpreting, and applying accounting and reporting standards. The conceptual framework consists of the following items: 1 . Obj ecrives of financial reporting. 2. Elements of financial statements. 3. Qualitative characteristics of accounting information. 4. Recognition and measurement concepts (assumptions, principles, and constraints). The primary objective of financial reporting is to provide useful information to interested parties. This information should have qualitative characteristics to be useful for decision making. Qualitative Characteristics The characteristics can be viewed as a hierarchy of qualities, as shown in Figure 1. Relevance and reliability are the two primary qualities that make the accounting information useful for decision making. If either is missing completely from a piece of information, the information will not be useful (Kieso, Waygandt &Warfield, 2005, p. 31). Other qualities include comparability, consistency, and cost-benefit relationship. Decision makers and Understandability Decision makers vary widely in the types of decisions they make, how they make decisions, the information they already possess or can obtain from other resources, and their ability to process the information. For information to be useful there must be a link between decision makers and the decisions they make. This link, understandability, is the quality of information that permits reasonably informed users to perceive its significance. …