Some theorists contend that companies that create pollution should report the social cost of that pollution in income statements. They argue that such companies are indirectly subsidized as the cost of pollution is borne by society while only production costs (and perhaps minimal pollution fines) are shown in the income statement. Thus, the product sells for less than would be necessary if all costs were included.
Assume that the FASB is considering a standard to include the social costs of pollution in the income statement. The process would require considering both relevance and faithful representation of the information produced by the new standard. Your instructor will divide the class into two to six groups depending on the size of the class. The mission of your group is to explain how the concepts of relevance and faithful representation relate to this issue.

To make a difference in the decision process, information must be relevant to the decision. Relevance in the context of financial reporting means that the information must possess predictive value and/or confirmatory value, typically both. It help decision makers to have a better picture of the net income if social costs of pollution is included as a part of the income statement.

Financial information is material if omitting it or misstating it could affect users' decisions. To consider if social cost of pollution is material or not, it is important that the cost be measured accurately. If production of a good or providing a service, seldom leads to pollution, then including the social cost in the income statement is immaterial because such a cost is negligible. If production of a good or providing a service has a major impact on the pollution caused to the nature, then including social cost as a part of the income statement is material.

The greatest challenge in considering to include social