Accounting’s “relevance and faithful representation” concept states that financial data must be both truthfully represented in line with generally accepted accounting standards and relevant to users’ decision-making needs (GAAP). This rule is crucial because it makes sure that financial data is provided in a way that is consistent with how similar transactions and occurrences are generally presented and that users can use it to make choices.
Examples of relevance and faithful representation in accounting include:
- Presenting financial information in a manner that is understandable to users
- Ensuring that financial statements are free from material misstatements
- Disclosing all relevant information that could impact a user’s decision-making
- Refraining from presenting information in a way that would mislead users
- Compiling financial statements in accordance with widely recognized accounting rules.