The Relationship Between Relevance and Reliability
Accounting information provided by accounting entity must reach a certain quality standard, so that it can meet the users’ needs of accounting information. Financial accounting information quality has four basic characteristics, can be understandability relevance, reliability and comparability. Two of the greatest impacts on the accounting of the main accounting policies are relevance and reliability.
When we compare and contrast any two subjects, the first and the most important thing is to make a clear scene of the two. Only we analyzed the definitions of them, could we find the relationships between them. First of all, let us learn what exactly relevance is and what is reliability.
Relevance, which known as one of the basic principles of financial accounting means accounting information refers to associated with the user’s economic decision-making. In another words, people can use accounting information to make some relative decisions. If the accounting information will affect the user's decision-making by helping users assess past, present or future events, or correct the user’s evaluation of the past, we can say the information is relevant. Relevant principles are intended to enhance the user's abilities of decision-making and predictive.
Relevant accounting information is considered an important quality characteristic in some countries. Generally speaking, whether a set of information is relevant, it will depend on its predictive value, feedback value and timeliness. If a message can help users predict the results of future events, then this information has predictive value, the user can predict the likely outcome, to make the best choice. The predictive value of information could change the decision-making, so it is an important factor of relevance. If a message can make the user confirm or correct prediction of actual results over the past feedback to decision makers, compared with the...
Bibliography: Todd, J, 2005, ‘Relevance and Reliability’, FASB Report, February 28, 2005
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