Situations where relevance conflicts with accuracy.

Expert Solution

The accuracy refers to undistorted complete accounting information which is free from errors. To be relevant it is important that the accounting information is capable of having its impact on the decisions made by its users such as comparability, timeliness, and understand ability. However if the data is not accurate it might not be relevant for certain decisions. Example: In the sales journal the record of the sales should be accurate as to price and quantity. On the other hand, sales reported for the analysis of sales need not be so accurate

There are situations when relevance conflicts with accuracy. For example in the accounting for oil and gas reserves, the method of reserve recognition accounting (RRA), allows the companies to recognize the proven reserves at the present value in their net income. It will be a more relevant technique compared to the historical cost information, because the future earning power of the company from operations is linked with the sale of proven reserves. However due to the fluctuations in proven new reserves, the price and information on the cost, the net income the company should recognize today from proven oil and gas reserves (PV method) can be very volatile, and specifically dwarfs a company's current earnings from operations; thus making it to be less accurate

ekkarill92 answered 1 year ago

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