Relevant financial information can affect a reader's assessment or decision. It has predictive value when readers can use it to form expectations about future outcomes. It has confirmatory value when it helps them assess an earlier expectation. The same information can do both.
For example, a manufacturer's current sales can help an investor estimate future sales and compare actual results with an earlier forecast. The sales amount does not have to be a forecast itself to have predictive value.
The decision need not change
A reader may retain the same decision after receiving relevant information. The new information might confirm the earlier reasoning or narrow the range of plausible outcomes. A decision that remains unchanged does not prove the information was irrelevant.
Combining items can hide useful differences
A company might combine product returns and service cancellations in one customer-adjustments total. That total can be correct while hiding a distinction important to a reader assessing product quality or demand for services. Whether separate presentation is needed depends on the facts and applicable requirements.
More detail is not always better. Information should be organized so readers can identify the distinctions that matter. It must also faithfully represent what it describes; relevance does not justify a biased estimate.
Put the concept to work
Understand this concept
- Explain how information helps readers form expectations or check earlier judgments, and how materiality depends on the company.
Analyze this concept
- Assess how leaving out, combining, delaying, or separately presenting information affects the reader's stated decision.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Decision usefulness — Understand
To understand this concept: Required. Relevance is meaningful only in relation to a user assessment or decision.
- Materiality — Understand
To analyze this concept: Required. An entity-specific omission or misstatement question requires materiality analysis rather than a generic size rule.
- Relevance — Understand
To analyze this concept: Required. The learner must identify the information-decision link before assessing an omission or aggregation.
Lessons
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Practice
Common mistaken ideas
Sources
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Related concepts
Use this idea next
- Decision usefulness — Analyze
Required level here: understand. Required. Information must be capable of affecting the decision under review.
- Materiality — Understand
Required level here: understand. Required. Materiality applies the relevance question to information about a particular reporting entity.
- Relevance — Analyze
Required level here: understand. Required. The learner must identify the information-decision link before assessing an omission or aggregation.
Used in these readings
These chapters explain or apply this concept. The label states how the chapter uses it.