- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 17. Financial Reporting Standards
- Subject 4. General Requirements for Financial Statements
CFA Practice Question
Accounting information can be useful in decision-making if it possesses high degrees of either relevance or reliability, not necessarily both. True or False?
Correct Answer: True
Historical cost measurements may result in information that is less relevant but more reliable. For example, the book value of a plant asset may be highly reliable, but a more relevant measure for users would be its projected discounted future cash flows. However, the uncertainty of projected discounted future cash flows makes the measurement less reliable.
User Contributed Comments 5
| User | Comment |
|---|---|
| anricus | How can accounting information which is relevant but unreliable or reliable but unrelevant be useful for decision making? I would have to disagree with the statement! Other opinions? |
| maithori | its the reality of a/cing information: that its historical so it may not be relevant for current decisions; but reliable since its accurate. i believe its a balancing effect of two issues. |
| emsharas | yes, but his point is sound - the question regards (future) Decision-Making... it may be reliable, but if it is not relevant it is not useful for decision making. |
| Bibhu | Importance is on high degree. Information can be reliable and relevant. But when one is high other cant be high. Else that become an ideal scenario. The example detailed in study notes. |
| boydag | this question can have an ideal scenario. |