What is Relevant Information?

Relevant information is data that can be applied to solve a problem. This is a particular issue when determining the format and content of an entity's financial statements, since the proper layout and level of detail of information can adjust the opinions of users regarding the future direction of a business. For example, the controller of a business chooses to add information to the financial statement disclosures regarding the cash flows being generated by its newest retail stores. This information is relevant to the decisions of the investment community, because it clarifies for them how well the entity is performing.

Changes in Relevant Information

The relevance concept can mean that an organization will strip away less-useful information from its financial reports on a regular basis and add other information. These changes are based on variations in the ongoing performance and strategic direction of a business, as well as the types of new information requests coming from lenders and investors.

Immaterial Information

Immaterial information is not considered to be relevant, since it does not have a noticeable impact on the financial performance of the reporting entity, or the decisions made by financial statement users. However, the designation of immateriality can be difficult, since the readers of financial statements may consider small changes in some values to be more important than others. For example, if the reported earnings per share figure of a public company is just one penny less than the consensus value derived by analysts, then this small amount may trigger a massive sell-off of the company’s stock. Consequently, you need to be careful in deciding whether something is immaterial, and so should not be reported.