Relevance

“To be relevant to investors, creditors, and others for investment, credit, and similar
decisions, accounting information must be capable of making a difference in a decision by
helping users to form predictions about the outcomes of past, present, and future events or
to confirm or correct expectations” (Concepts Statement 2, paragraph 47).
That definition of relevance is more explicit than the dictionary meaning of relevance as bearing
on or relating to the matter in hand. As alluded to earlier, prior knowledge of information may
diminish its value but not its relevance and, hence, its usefulness, for it is information’s ability to
“make a difference” that makes it relevant to a decision.
Statements about relevance of financial statement information must answer the question
“relevant to whom for what purpose?” For information to be judged relevant, an object to
which it is relevant must always be understood:

Predictive Value And Feedback Value - To be relevant, information must have predictive
value or feedback value or both. Information can make a difference to decisions by improving
decision makers’ capacities to predict or by confirming or correcting their earlier expectations.
Usually, information does both at once, because knowledge about the outcome of actions already
taken will generally improve decision makers’ abilities to predict the results of similar future
actions. Without a knowledge of the past, the basis for a prediction will usually be lacking.
Without an interest in the future, knowledge of the past is sterile. To say that accounting
information has predictive value is not to say that in itself it constitutes a prediction. Predictive
value means value as an input into a predictive process, not value directly as a prediction.
It is the quality of information that helps users to increase the likelihood of correctly
forecasting the outcome of past or present events (Concepts Statement 2, glossary).
Timeliness - To be relevant, information also must be timely. Timeliness means “having
information available to a decision maker before it loses its capacity to influence decisions”
(Concepts Statement 2, glossary). Information that is not available when it is needed or becomes
available only long after it has value for future action is useless.

Reliability
Reliability is the quality of information that allows those who use it to depend on it with
confidence.
The reliability of a measure rests on the faithfulness with which it represents what it
purports to represent, coupled with an assurance for the user, which comes through
verification, that it has that representational quality (Concepts Statement 2, paragraph 59).

The hierarchy of qualities decomposes reliability into two components, representational

faithfulness and verifiability, with neutrality shown to interact with them:
Representational Faithfulness - Representational faithfulness is “correspondence or
agreement between a measure or description and the phenomenon it purports to
represent. In accounting, the phenomena to be represented are economic resources and
obligations and the transactions and events that change those resources and obligations”
(Concepts Statement 2, paragraph 63). The FASB’s conceptual framework emphasizes that
accounting is a representational discipline. It represents things in the financial statements that
exist in the real world. Therefore, the correspondence between the accounting representation and
the thing being represented is critical.