Activity 1.16 a) One of the fundamental qualitative characteristics of the financial report is relevance. What does relevance mean with regards financial reports?

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BlackTom AI · Accepted Answer

The question asks about the meaning of relevance as a fundamental qualitative characteristic of the financial report and what it implies for financial reporting.
Option a: 'Financial report should help users in making and evaluating economic decisions.' This aligns with relevance, which means information that has the capacity to influence decisions of users by helping them evaluate past, present, or future events. It emphasizes decision-usefulness and the core purpose of relevant information.
Option b: 'Financial report should be complete, natural and free from error.' While completeness and freedom from error relate to other qualitative characteristics (completeness, neutrality, freedom from error), this option mixes terms incorrectly and does not define relevance. In particular, 'free from error' is not a requirement for relevance alone, and 'natural' is not a standard descriptor in this context.
Option c: 'Financial report should include all information which is material.' Including all material information is associated with materiality and completeness, which are important, but simply stating that material information should be included does not capture the broader decision-usefulness focus of relevance. It’s an aspect of relevance but not its full definition.
Option d: 'Financial report should be understandable to the users.' Understandability is another qualitative characteristic (clarity and understandability), which supports relevance by making information usable, but it does not define relevance by itself. The statement describes a separate attribute that aids relevance rather than defines it.
In summary, option a accurately expresses that relevance is about information that helps users make and evaluate economic decisions, capturing the essence of decision-usefulness. The other options discuss related concepts or attributes but do not encapsulate the core meaning of relevance by themselves.

MCD2150 - T2 - 2025 Week 1 Workshop 2 Quiz

Activity 1.16 a) One of the fundamental qualitative characteristics of the financial report is relevance. What does relevance mean with regards financial reports?

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