Relevance: The third Principle of International Financial Reporting Standards (Part 3 of 4)

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Accountants certainly have a challenge to meet when it comes to applying the IFRS principle of relevance.

IFRS says that an item is relevant if the information about that item has the potential to influence significantly the decisions of lenders, investors, and other users of the financial statements.

The IFRS principle of relevance corresponds to the GAAP principle of materiality. Although many accountants and audit firms start with a dollar amount as a minimum guideline, many accounting professionals are already following a standard already very close to IFRS.

In other words, the GAAP materiality principle means that information which could make a difference in the decisions of lenders, investors, and other users of the statements, should be included at least in the notes, if not in the body of the financial statements.

The IFRS requirement that only relevant information should be included means that the accountant must decide the level of detail to be included in the notes. Therefore, given that IFRS also demands clarity, the notes to the financial statements must be capable of being understood by the users of the financial statements. It is important that the notes add value to the financial statements by adding clarity. If, instead, they just add confusion, lenders and investors will not feel confident and hesitate to provide much needed capital. They need to believe the story the company is telling them through the financial statements. Accountants must be skilled communicators by providing relevant, clear, concise notes to the financial statements.

Accounting professionals must always be prepared to meet the challenge of defending their decisions concerning relevance to management and the auditor.

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