Conceptual Framework Relevance

Conceptual Framework Relevance

This post is part of all posts relating to the discussion regarding the Conceptual Framework for Financial Reporting issued in 2010. Use the link if you want to read the narrative from its start.

Conceptual Framework Relevance

Relevance is, in information science, a measure of how closely a given object matches a user’s search for information. One could also say that relevant means connected to the matter at hand.

In the Conceptual Framework this is presented by defining as a fact, that relevant financial information is able to influence decisions made by users of such information, whether a user decides to actual use the information or not.

The financial  information can be predictive, confirmative and (most of the time) both.

UnknownsIf information has a predictive attribute is can be used as input to a model used to forecast future developments in respect of the reporting entity. Such forecast models can be made by each external user, Employees of the reporting entity obviously have more comprehensive information available to build forecast models.

Confirmative information supports a user’s opinion or may change a user’s  opinion after the user has read, understood and/or analysed the presented information.

Materiality is a sub-set of relevance. It is of importance because it is about missing information (omisions or misstatements) in such a way, that if the information would have been included in the financial reporting, it could be that users would have made different decisions.

In auditing literature quantative thresholds are developed, however materiality is more of an entity-specific aspect based on the nature or magnitude, or both, within the context of each individual financial report.

Continue reading Faithful Representation

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