Relevance in Accounting Information

Relevance⇒ means that the information can infuence the economic decisions made by users.

For example, the information may help users to predict future events, such as future cash fows, from the alternative courses of action under consideration.

Furthermore, information is relevant if it is able to help decision makers evaluate past decisions.

The information may confrm that a previous decision was correct, or it could show that the results of a previous decision were undesirable and that a new decision is necessary to correct or minimise the mistakes of the past. Thus, information that is relevant is said to have a predictive role and a confrmatory or feedback role.

A further aspect of relevance is that the information must be presented by the accountant to the user (internal or external) in time for a decision to be made. It is a waste of time and effort for the accountant to prepare detailed fnancial statements if they don’t reach users before they make a decision.

Users may be satisfed with receiving less detailed information as long as the information is provided on time. Thus, timeliness of information is an important factor in ensuring that information is relevant. Just as important as relevance is faithful representation