Читать книгу Financial Accounting For Dummies - Maire Loughran - Страница 21

Relevance is a hallmark of good evidence; it means the information directly relates to the facts you’re trying to evaluate or understand. The inclusion or absence of relevant information has a definite effect on a user’s decision-making process.

Relevant information has predictive value, which means it helps a user look into the future. By understanding and evaluating the information, the user can form an opinion as to how future company events may play out. For example, comparing financial results from prior years, which are gleaned from the financial statements, can give investors an idea as to the future value of a company’s stock. If assets and revenue are decreasing while liabilities are increasing, you have a pretty good indicator that investing in this company may not be such a hot idea.

Relevant information also has feedback value, which means that new relevant information either confirms or rebuts the user’s prior expectations. For example, you review a company’s financial statements for 2021, and your analysis indicates that the company’s sales should increase two-fold in the subsequent year. When you later check out the 2022 income statement, the company’s gross receipts have, indeed, doubled. Woohoo! With the relevant information in hand, you see that your prediction came true.

Timeliness goes hand in hand with relevance. The best and most accurate information in the world is of no use if it’s no longer applicable because so such time has elapsed that facts and circumstances have changed. Look at it this way: If you were in the market to replace your flat-screen TV, and you found out about a killer sale at the local electronics store the day after the sale ended, this information is utterly useless to you. The same thing is true with financial information. That’s why the SEC requires publicly traded companies to issue certain reports as soon as 60 days after the end of the financial period. (See Chapter 16 for more about this reporting requirement.)