What does relevance refer to?


Relevance is one of the qualitative characteristics of financial information, as outlined in the conceptual framework for financial reporting. Relevance refers to the ability of financial information to influence the economic decisions of users by providing information that is timely, predictive, and confirmatory.

In order to be considered relevant, financial information must have the following characteristics:

  1. Timeliness: Financial information must be available to users in a timely manner, so that it can be used in making economic decisions. Information that is too outdated may no longer be relevant.
  2. Predictive value: Financial information must be able to provide users with information that can be used to make predictions about future events or trends. For example, information about sales growth or market trends can be useful in making predictions about future sales.
  3. Confirmatory value: Financial information must be able to confirm or refute prior expectations or predictions. For example, if a company reports better-than-expected earnings, this can confirm prior expectations of the company's financial performance.

Overall, relevance is important in ensuring that financial information provides users with information that is useful for making economic decisions. Financial information that is relevant can help users make informed decisions about investing, lending, or other economic activities.

Complete and Continue