Question

Relevance of accounting information to users is a notion that underlies various conceptual frameworks of public reporting.

Considering yourself as a resident and voter of a territorial authority (e.g. Christchurch City Council, Waimakariri District Council), briefly discuss how relevant or irrelevant the following information reported each year by the council is to people whom you consider represent your interests and the interests of other residents:

-The surplus or deficit.

-Expenditure on infrastructure investment (or capital works) projects during the year.

-The distribution of operational expenditures across the council’s various activities (e.g., solidwaste, library and museums, community protection, roads and footpaths)

-The amount of long-term debt and changes therein.

Answer 1

Relevance of accounting information to users is purely depends upon the types of organisation, the information and also other factors relating to it. A decision whether an information is relevant or irrelevant is purely based on the factors as said above.

As per IFRS and GAAP, it is necessary and relevant to disclose the accounting information to the users of financial statements, the matters which are directly and indirectly related to the accounting information in the financial statements and also which will be more clearly explaining the accounting information which enable the users of reports to make necessary decisions.

In the present case:-

1. The surplus or deficit :

is a relevant information that the organisation is earning a surplus or deficit for the year and it will be useful for making decisions.

2.Expenditure on infrastructure investment (or capital works) projects during the year:

It is a relevant information as for the decision making purpose the whether the organisation expended money for the year includes any infrastructure or capital works projects and analysing whether it is feasible or not. Also arriving the total amount of such investment and time taken for completion. It is also analysed from information outside sources whether the such amount invested is genuine or not.

3. The distribution of operational expenditures across the council’s various activities (e.g., solidwaste, library and museums, community protection, roads and footpaths) :

is a relevant information as the council will be formed for some particular activities and purposes. Hence the amount spend for operational activities should include the basic essential purposes of council.

4. The amount of long-term debt and changes therein:

is a relevant information as the amount of long term debt each year to be analysed the changes in its structure also. Debt is compulsory meeting liability and cannot able to avoid. A decision making should be done the outstanding debt and its duration of repayment along with interest and other charges as applicable to be analysed. For analysing this is a relevant information.

In the present case of Council, the above accounting information are relevant for decision making and hence required to be disclosed in the financial statements and framework of public reporting