Question

Explain in brief

Why does the trade-off between relevance and reliability exist?

Answer 1

Relevance and reliability are the qualitative characteristics of Financial accounting.

Relevance requires the accounting Information to the users and helps in their decision making.

Reliability requires the accounting information to be true and fair.

Relevance and reliability are both important for the quality for the financial information.but both of these related to such that one emphasis may hurt the other and vice versa. Hence we have trade off between them.

Accounting information is relevant when it is provided in time, but at early stages information is not certain so less reliable. But when information gains reliability it's relevance will be lost.

Hence trade off between reliability and relevance will exist.

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