Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 2 - Conceptual Framework for Financial Reporting - Review and Practice - Questions - Page 61: 4


Relevance and faithful representation are two fundamental qualities that make accounting information more useful for decision making. For any information to be relevant, it should be in a position to make a difference in the process of decision making, that is; helping users to make rational inferences and at the same time form prediction concerning the outcome of past, present as well future events or to confirm or correct expectations. On the other hand, faithful representation of a measure rests on whether the numbers as well descriptions match what really existed or happened.

Work Step by Step

Notably, financial accounting information is very useful when it can be used to make a difference when it has a predictive value, confirmatory value or even both when it comes to relevance. Faithful representation is also very crucial when representing financial information since many users have neither time nor the expertise to evaluate the factual content of the information; in other words faithful representation translates that the numbers and description match what really existed or rather happened and therefore; information must be complete, free of material error and neutral.
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