Business Financial Information Secrets

CHAPTER 5Accuracy versus Reliability, Not to Be Confused

DO NOT CONFUSE THESE TWO CRITICAL AND INTERCONNECTED CONCEPTS

In Chapter 4, we touched on the importance of producing complete financial information as a critical component to the business evaluation and decision‐making process. What is important to remember about producing complete financial information is that it is 100% dependent on a properly functioning accounting information system that produces both accurate and reliable financial information. Or, stated differently, you cannot prepare complete financial information without having the assurance that your accounting system generates both accurate and reliable information.

As we dive further into our discussion on this topic, let's first provide definitions for both accuracy and reliability, starting with Webster's Dictionary and then expanding on the definitions within the context of an accounting environment.

• Accuracy: Webster's Dictionary defines accuracy as “freedom from mistake or error” and further “conformity to a truth or to a standard or model.” This is an excellent starting point, but to expand on this from an accounting perspective, the reference to “freedom from mistake or error” needs to be understood, keeping in mind the all‐important concept of materiality (discussed later in this chapter). In my travels of 35+ years, I have never seen an accounting and financial reporting system produce 100% accurate information, as there is always some number of ...