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Critically Examine the Role of “Relevance and Reliability” in the Conceptual Framework.

In: Business and Management

Submitted By jimk
Words 1059
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Topic – Critically examine the role of “Relevance and Reliability” in the conceptual framework.

Conceptual framework can be described as ‘a set of interrelated concepts which define the nature, subject, purpose and broad content of general-purpose financial reports’ (Carnegie, et. al. 2008). The conceptual framework is made up of four qualitative characteristics: relevance, reliability, comparability and understandability (Hoggett, et. al. 2009). These qualitative characteristics allow the general-purpose financial reports to be constructed for interpretation by a particular user(s) so they may make informed decisions about certain aspects of their organisation. Although all four qualitative characteristics are important in the accounting processes, this essay will focus on the role of relevance and reliability in the conceptual framework.
When general-purpose financial reports are constructed, the information used, among other things, must be relevant. Hogget, et. al. (2009) defines relevance as a quality of financial information that influences economic decisions by helping users to form predictions, to confirm or correct past evaluations and to assess the rendering of accountability by preparers. For all information to be used accurately and appropriately, the information used must be relevant to the task it is used for. The relevance of information is affected by its nature and materiality. In some cases, the nature of information alone is sufficient to determine its relevance, such as stock loss via broken or missing stock (Hoggett, et. al. 2009). But this is not always the case. Materiality refers to information that can possibly cause users to make unfavourable decisions based on misstating or leaving out information resulting in inaccurate general-purpose financial reports (Hogget, et. al. 2009). For example, if you were a catering company and you...

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