Final answer:
Accounting information must be reliable and relevant for external decision makers, ensuring trust and usefulness in economic decisions, which is crucial for proper allocation of scarce resources.
Step-by-step explanation:
Accounting information is incredibly valuable to external decision makers when it demonstrates two essential qualities: reliability and relevance. To be reliable, the information must be accurate, factual, and verifiable, providing specific facts, statistics, and examples. This means that external parties, such as investors and creditors, can trust the data presented when making decisions. Relevance refers to the information's usefulness in making economic decisions; for example, it should help in assessing a firm's future prospects by offering insight into its products, revenues, costs, and profits.
An example of the importance of reliable and relevant information can be found in the way a company's financial health and strategy become more significant as the company matures. Once widely available, this information allows investors like bondholders and shareholders who may not know the company management personally to feel confident enough to provide financial capital. In the context of scarce resources, accurate information about a firm aids in deciding the best allocation of such resources, substantial to the field of economics.