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The textbook provides three key qualitative characteristics of financial information (relevance, reliability, and consistency). Describe one...

The textbook provides three key qualitative characteristics of financial information (relevance, reliability, and consistency). Describe one of these three terms and explain its influence on the financial statements. Include a numerical example to prove your points.
Business   Accounting   
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Answer #1

Relevance refers to how helpful the information is for financial decision-making processes. For accounting information to be relevant, it must possess:

Confirmatory value – Provides information about past events

Predictive value – Provides predictive power regarding possible future events

Therefore, accounting information is relevant if it can provide helpful information about past events and help in predicting future events or in taking action to deal with possible future events. For example, a company experiencing a strong quarter and presenting these improved results to creditors is relevant to the creditors’ decision-making process to extend or enlarge credit available to the company.

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