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SYNOPSIS:
Reliability is an essential characteristic for accounting information to be useful for decision making. Reliability represents the extent to which the information is unbiased, free from error, and representationally faithful (FASB 1980). Despite the central role of reliability, it is a complex and elusive construct of accounting information. Reliability is difficult to specify precisely in accounting standards and practice, and it is difficult to examine directly with research. The primary goal of this paper is to better understand the nature of accounting information reliability by synthesizing archival and experimental research evidence within the context of a framework for accounting information usefulness. Greater understanding of the empirical literature on accounting information reliability should assist standard setters and regulators in establishing financial reporting standards, preparers and auditors in implementing standards, and financial statement users in evaluating accounting information reliability. Finally, greater understanding of reliability should assist academics in conducting research to produce new insights on reliability and in conveying the important role of reliability to students.
INTRODUCTION
In this paper, we discuss insights from empirical accounting research into the reliability of accounting information. Reliability denotes that accounting information is reasonably free from error and bias, and faithfully represents what it purports to represent (FASB 1980, glossary). While reliability is essential for accounting information to be useful, it is a complex and elusive construct in theory, practice, and research. Accordingly, our primary goal in this paper is to provide a better understanding of the nature of accounting information reliability by synthesizing empirical research findings within the context of a framework for accounting information usefulness.
We anticipate multiple benefits from greater understanding of the empirical literature on accounting information reliability. Such understanding should assist standard setters and regulators in establishing financial reporting standards, and preparers and auditors in implementing these standards, in a manner that increases the reliability of accounting information. Greater understanding also should help financial statement users to gauge accounting information reliability and, therefore, make better decisions based on that information. Finally, greater understanding of reliability should assist academics in conducting research to produce new evidence and insights on reliability, and to convey the important and complex role of accounting information reliability to students.
To build a foundation for our discussion of academic research, we...