Relevance or otherwise of accounting information

Definition[ edit ] "Something A is relevant to a task T if it increases the likelihood of accomplishing the goal Gwhich is implied by T. The basic understanding of relevance does not depend on whether we speak of "things" or "information". For example, the Gandhian principles are of great relevance in today's world. Epistemology[ edit ] If you believe that schizophrenia is caused by bad communication between mother and child, then family interaction studies become relevant.

Relevance or otherwise of accounting information

That is why FASB committed to making financial reporting relevant to the end users.

Relevance or otherwise of accounting information

A small abnormal expense is a good example of irrelevant accounting information. If the company suffers a small causality loss because someone threw a brick through the factory-building window, an investor will still invest in the company. However, the company suffering a causality loss because the factory burned down to the ground is a relevant piece of accounting information.

Examples FASB also identified three main characteristics of relevant accounting information: Financial information must have all of these characteristics in order to be considered relevant. Predictive Value Predictive value refers to the fact that quality financial information can be used to base predictions, forecasts, and projections on.

Financial annalists and investors can use past financial statements to chart performance trends and make predictions about future performance and profitability. Feedback Value Quality information has a feedback value when it can confirm or correct previous expectations.

The Relevance of Accounting Information |

In other words, users can examine financial information and confirm or adjust their predictions made on previous performance trends. Based on this feedback, users can make future decisions. Timeliness Timeliness is one of the most important factors in relevant information.

Out of date information does not do investors or creditors any good when they are trying to make current and future decisions. Financial reporting must be timely and current in order to be used by investors and creditors.Accounting relevance deals with the usefulness of financial information to users during the decision making process.

Fundamental Qualitative Characteristics

Obviously financial information that isn’t related to users decisions isn’t useful to creditors or investors. Without making any distinction of the applicable accounting standards, this paper investigates, firstly, the value relevance of accounting information from to in .

Relevance or Otherwise of Accounting Information to Investment Decisions in Nigeria Essay TOPIC: THE RELEVANCE AND OTHERWISE OF ACCOUNTING INFORMATION TO INVESTMENT DECISIONS IN NIGERIA SECTION 1: INTRODUCTION BACKGROUND TO THE STUDY. Jan 02,  · The accounting department typically monitors this closely by recording transactions, analyzing transaction patterns and dealing with things like payroll and taxes.

Overall, the accounting department can determine the health and efficiency of a business, and increase profitability just by studying this Brittani Sponaugle.

Relevance or otherwise of accounting information

In accounting, the term relevance means it will make a difference to a decision maker. For example, in the decision to replace equipment that has been used for the past six years, the original cost of the equipment does not have relevance.

In other words, the original cost is irrelevant or is not. Relevance and reliability are two characteristics of useful accounting information. but a lack of timeliness can rob information of relevance it might otherwise have had.

The primary decision-specific qualities that make accounting information useful are relevanceone of the primary decision-specific qualities that make accounting.

Introduction To Accounting Information Systems