Reliability and Relevance in Financial Information

Know the requirements with which you must comply with all financial information to be reliable and relevant.

The utility , being the fundamental characteristic of the financial statements , represents the quality of adapting to the common needs of the users in general.

Therefore, utility is the characteristic or origin from which qualitative characteristics derive, among which reliability and relevance stand out .

Reliability

Reliability

The financial information is reliable when it is in agreement with the transactions, internal transformations and events that occurred and when the user uses it to make decisions.

Requirements to be reliable

Requirements to be reliable

To be reliable, the information must cover the following aspects:

  • Truthfulness: Reflect all transactions, internal transformations and other events actually happened. The veracity accredits the confidence and credibility of the user in the financial information.
  • Representativeness: Have concordance between its content and what it is intended to represent.
  • Objectivity: Be free from bias or prejudice. It must be impartial.
  • Verification: That can be validated. It must be able to check.
  • Sufficient information: Contain all information that influences decision-making.

Relevance

 

Financial information is relevant when it influences the decisions of the user.

Requirements to be relevant

Requirements to be relevant

To be relevant, the financial information should cover the following aspects:

  • Possibility of prediction and confirmation: This occurs when the financial information serves as the basis for the preparation of predictions and their confirmation. Prediction and confirmation occur at different times, but are part of the same process, since without knowledge of the past, predictions can not be made and without an analysis of the projected, the estimated can not be confirmed.
  • Relative importance: This occurs when the financial information shows the most significant aspects of the entity, recognized in accounting. The relative importance of certain information not only depends on its amount, but also on the factors that surround it, that is where professional criteria are important.

 

Conclusions

Conclusions

Within the qualitative characteristics , reliability and relevance become more important, having secondary characteristics linked to them. You must remember that these qualitative characteristics directly affect the usefulness of financial information , so its knowledge and correct application in professional practice is important.