Timeliness of accounting information
/What is the Timeliness of Accounting Information?
The timeliness of accounting information refers to the provision of information to users quickly enough for them to take action based on this information. The timeliness concept is of particular importance in four areas of a business, which are noted below:
Timeliness of financial statements. The issuance of financial statements cannot be so delayed that company managers realize too late that there is a serious performance or liquidity problem that must be rectified. Consequently, the concept of timeliness in this area means that the controller should use fast close techniques to close the books and distribute accurate financial statements as quickly as possible.
Timeliness of variance analysis. There are many cost accounting variances in the areas of sales, purchasing, materials usage, overhead, and direct labor. The accounting department typically compiles and reports these variances following the end of the month. This delayed reporting is much too late for managers to take corrective action. Consequently, it is generally better to adopt real time variance reporting on the shop floor, rather than having the accounting staff deal with it at longer intervals.
Timeliness of responsibility reporting. The revenue and expense results of a business can be subdivided and assigned to various responsible parties throughout the organization. If so, the timeliness concept may mean that information is being pushed out to users on a daily basis, rather than the monthly schedule that is usually followed for the issuance of financial statements.
Timeliness of regulatory reporting. A publicly held company must make certain reports at quarterly or annual intervals. If not, the company will not be compliant with the requirements of the supervising government entity.
Based on these examples, we can see that the accounting department should adjust its reporting schedule to meet the varying needs of users for different types of information. In some cases involving variance reporting, it may not be possible for accounting information to be provided in a timely manner, in which case this type of reporting should be discontinued.
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Problems with the Timeliness of Accounting Information
An inherent problem with the timeliness of information concept is that it may cost more to compile, analyze, and report information at a more rapid pace. This is because more people must be assigned to the task of working on the closing procedure within a short period of time, which may include the payment of overtime. Another issue is that there is less time to uncover and correct errors, so there is a greater risk of releasing inaccurate information. In essence, a very short closing process requires the use of more estimates, while a lengthier process requires fewer estimates, if any.
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