As relevant information must have predictive or confirmatory value.

As a future investor you seek a required level of return, in
the form of dividends and capital growth, at an acceptable risk. Financial
statements are a source of information for you and help you make decisions
about buying, holding and selling shares.  IASB Conceptual Framework provides a set of
concepts regarding financial information that make a difference to your
decisions so that you will receive the information needed and that the
information can be trusted.

There are two fundamental Qualitative characteristics that
must be achieved to make financial information useful, which include relevance
and faithful representation.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

In order make a difference to investment decisions relevant
information must have predictive or confirmatory value. Predictive value is
essential to you as it enables the use of past financial statements to evaluate
trends that assist with making predictions about future cash flow and therefore
making decisions on whether to invest. Evaluating earnings trends, estimating
dividends and analysing the ability of a company to meet its long-term debt
obligations by using past financial statements gives a basis for these
investment decisions. Your effective use of financial information ensures the information’s
predictive value which makes positive difference to your decisions. However, these
predictions are subject to assumptions, a model of behaviour and uncertainty. Financial
information holds confirmatory value if it confirms past judgements and estimates
or highlights changes that need to be made to these predictions, enabling more
accurate future predictions, which further makes a difference your decisions.

According to the conceptual framework information is useful if
it faithfully represents, in economic terms, events, outcomes and transactions
so that the financial information is complete, neutral and free from error
(faithful representation). Completeness means that that financial statements
contain all the information required (numbers, words and explanations) to allow
you to gain a clear understanding of it. Neutrality implies that the general-purpose
information has been presented with no bias that influences your understanding
and decision-making capability, meaning it’s capable of making a difference to
your decisions without distortion. Free-from error suggests that the
information, including words and numbers, within the financial statement
represents the economic reality of the events and transactions with confidence
and are free from material error. Rather than being perfectly complete, neutral
and free from error, which cannot happen, the information is materially so. Essentially,
faithful representation of information within financial statements enables your
judgements and predictions to be made with confidence, and therefore any
investment decisions based on them.

The conceptual framework highlights the fundamental
characteristics that must be achieved to make financial information in
statements useful. Although there are other enhancing qualitative
characteristics, as a future investor in equity shares it is necessary that
this information has relevance and is faithfully represented, as your decisions
of investment are ultimately based on it.