The Nature of Accounting Information Reliability: Inferences from Archival and Experimental Research

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.