Corporate Governance

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By having predictive value in practice, it helps the users to form an expectation about the entity future performance and outcome. It does not mean that the information itself needs to be expressed as a prediction. However, the information about the entity currents asset performance that inflow into their organization, present obligations that outflow from the entity embodying the resources and its past performance can provide a better expectation for the future forthcoming. Moreover, financial information also has a predictive value if it can be used to predict the future outcomes, such as, analyst forecasts. For example, a Company has disclosed an increase in Earning per Share (EPS) from RM10.00 to RM15.00 since the last reporting period. This information is very valuable to the investors because it enable them to forecast the future trend that the company might experience in the earning.

On other hand, it provides feedback to confirm or correct prior predictions and expectations that have been made by the users if it has a confirmatory value. In other words, users can observe or evaluate the information and confirm or adjust accordingly with their predictions that they have been made on previous performance trends. “Information about the outcomes from a company’s previous action, transaction or events (such as feedback) normally will improve a decision maker’s ability to predict the future outcomes that arise from the similar actions incur”. For example, current year sales volume is relevant if it helps users to confirm or correct their sales volume expectations for the current year, and based on these it will help the users to forecast the future sales volume.

A related aspect of relevance is materiality. Materiality often refers to the nature and size of an omission or misstatement of accounting information that would influence the economic decision or judgment of a reasonable user taken on the basis of accounting information. In simple, same information may be relevant for users of one entity but it might not be in another entity. A company may disclose certain information because the importance of the information to the users (it is relevant) and also because the amount is too large enough to make a difference in users decision (it is material). Alternatively, another company will not disclose certain information since it does not give a large impact on the decision of users (it is not relevant) and because the amount is too small to capture and make difference (not material). For example, without taking into consideration on its size, information relating to loans to the director of the company it may be considered as material and important for the users in decision making because the position of the director in the entity although the amount is too small. In other case, minor items that would result from routine transaction, for example, it not necessary to record the liability for the wages separately from the accrued payroll taxes on those wages.

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