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Faithful Representation

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A critical review of the trade-offs between the concepts of relevance and reliability in financial reporting

Theme: Financial Accounting

Classification: M41

Author: Prof D Coetsee

Affiliation: Department of Accountancy, University of Johannesburg, South Africa

Contact address: Department of Accountancy R-Ring 607 University of Johannesburg PO Box 524 Auckland Park Johannesburg South-Africa 2006

Telephone: +27-11-559-3047

Fax: +27-11-559-2777

E-Mail dcoetsee@uj.ac.za
A critical review of the trade-offs between the concepts of relevance and reliability in financial reporting

|Abstract |
|In an information orientated system of financial reporting the move from historical cost to fair value |
|accounting has created numerous debates surrounding the trade-offs of the concepts of relevance and |
|reliability. This article contributes to the debate by critically reviewing the current developments of |
|these trade-offs to determine whether current financial reporting guidelines are appropriate to deal with |
|the difficulties and uncertainties of financial reporting. The article found that the proposals of the joint|
|framework discussion paper goes a long way in resolving the issues around the trade-offs of relevance and |
|reliability. Changing the concept of reliability to faithful representation will not negatively impact on |
|resolving the issues. Some recommendations are made to enhance the trade-off concepts. |

Keywords:
Faithful representation
Financial reporting
Framework Discussion Paper
Qualitative characteristics
Relevance
Reliability

1. Introduction

The current international move from historical cost to fair value accounting has

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