The Balance Between Relevance and Materiality

Topics: Financial statements, Balance sheet, Annual report Pages: 4 (1063 words) Published: May 17, 2011


Relevance and reliability overview1

The balance between relevance and materiality2

Balancing relevance and reliability2

The balance between flexibility and timeliness3



Conceptual framework is a coherent system of interrelated objective and fundamentals that is expected to lead to consistent standards (Degaan 2007). There are four items in conceptual framework which are objective of financial reporting, qualitative characteristics of accounting information system, element of financial statement, and operating guidelines. One of the important items is qualitative characteristic because of that, this report focuses on qualitative characteristic which will discuss about relevance and reliability. Accounting information can be called as relevance if it can influences the economic decision of users by helping them evaluate past, present, and future events which is useful for confirming and correcting the past evaluations. In other side, reliability can be define as the characteristic of accounting information that is free from error and bias. Furthermore, the report will discuss and explain about the balance between relevance with materiality, flexible with timeliness, and relevance with reliability

Relevance and reliability overview

Relevant information can be either predictive or feedback or both (Weygandt et al. 2002). Predictive is where the information can help users to forecast future events. For example, a company issues financial statement that can be use as basic information in predicting future earnings. Feedback is where there is correction prior expectation. For example, a company issues financial statements, it confirm prior expectation about financial health of the company. Relevance factor also closely connected with time because when the accounting report issued every 10 years it is become useless.

Reliability is the characteristic of...
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