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Topics Page

1. Introduction 1

2. Background and Concept 2

a. Background & History 2

b. Feedback value and its features 3

3. Significance accounting Information 4

4. How to assess feedback value 5

5. Conclusion 6
₪ Feedback Value of Accounting Information

Introduction
According to the FASB & IASB, accounting information has to maintain some
qualitative characteristics, so that it serves it basic objectives. The basic objective of
all financial reporting is to help the user decision making. On the basis of this
financial reporting investor take the decision whether to invest or not, creditor decide
whether to grant credit or not, tax authority decides about the tax. That is why FASB
& IASB requires that accounting information must maintain some qualitative
characteristics so that it is useful to the user. According to the FASB & IASB the two
main qualitative characteristic of accounting information are relevance and reliability.
An information to be relevance and reliable, they have to maintain other sub-quality.
Feedback value or confirmatory value is one of them.

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₪ Feedback Value of Accounting Information

Background and Concept

Background and History:
The FASB (jointly with IASB) identified some characteristics of accounting
information. At first, FASB began the process of developing the qualitative
characteristics of useful financial information by reviewing its own framework and
concepts as well as those of other standard setters. In July 2006, the Board published
for public comment a Discussion Paper on this topic. That same paper also was
published by the IASB. The Board and the IASB received 179 responses. In its re-
publishing of the issues on this topic, the Board considered all of the comments
received and information gained from other outreach initiatives. In May 2008, the
Board and the IASB jointly published an Exposure Draft (Qualitative Characteristics
of Useful Financial Information)

The FASB Framework (1989) identified predictive value and confirmatory value as
components of relevance, and Concepts Statement 2 referred to predictive value and
feedback value. The Board concluded that confirmatory value and feedback value
were intended to have the same meaning. The Board and the IASB agreed that both
Boards would use the same term (confirmatory value) to avoid giving the impression
that the two frameworks were intended to be different.

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Feedback value and its features:

Feedback value is one of the qualitative characteristic of accounting
information. It is necessary for accounting information to be Relevance. Before going
to the definition of feedback value we have to know what is relevant. To be relevant
to investors, creditors, and others for investment, credit, and similar decisions,
accounting information must be capable of making a difference in a decision by
helping users to form predictions about the outcomes of past, present, and future
events or to confirm or correct expectations. Statements about relevance of financial
statement information must answer the question “relevant to whom for what
purpose?” Relevant financial information is capable of making a difference in the
decisions made by users.

To be relevant, information must have predictive value or feedback value or both.

Information can make a difference to decisions by improving decision makers’
capacities to predict or by confirming or correcting their earlier expectations. Usually,
information does both at once, because knowledge about the outcome of actions
already taken will generally improve decision makers’ abilities to predict the results
of similar future actions. Without knowledge of the past, the basis for a prediction will
usually be lacking. Without an interest in the future, knowledge of the past is sterile. It
is the quality of information that helps users to increase the likelihood of correctly
forecasting the outcome of past or present events.

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₪ Feedback Value of Accounting Information

Significance of accounting
information
Accounting information meet the information needs of particular types of users, such
as different kinds of equity participants. Accounting information is basically the
summarized version of all the accounting information that has been recorded in the
year. The accounting information is used by a number of people such as government
officials, investors and creditors. It is customary and by law compulsory for
companies to present an annual report before the public that carries accounting
information of the previous year. Such a report is often used as conclusive evidence
while calculating the tax liability of a business or a company. Apart from that,
creditors extend their credit on the basis of such information. In addition to that
investors conduct their routine balance sheet analysis on the basis of that information.
Significant of accounting information can be best understand by learning the general
purpose of accounting information, which are given below:

Users
General purpose financial reporting should provide information about the entity to the
external users, who lack the power to prescribe the information they require and
therefore must rely on the information provided by an entity's management.

Liquidity and Solvency

General purpose financial statements should provide information that is helpful to
users in assessing an entity's liquidity and solvency, which is consistent with the
overall objective of providing decision-useful information to a wide range of external
users

Accountability
Accountability is another objective of financial reporting by business entities. It
ensures that management’s responsibility not only for the custody and safekeeping of
assets entrusted to it but also for their efficient and profitable use. Accounting
information clarifies that financial information useful for making investment, credit,

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₪ Feedback Value of Accounting Information

and similar resource allocation decisions. The primary objective would include
financial information useful for assessing management’s accountability.

How to Assess Feedback Value

Information is capable of making a difference in one of those decisions only if it will

help users to make new predictions, confirm or correct prior predictions, or both.
Financial information has feedback value, if it provides feedback (confirms or
changes) about previous evaluations. For example, if net income and its components
confirm investor expectations about future cash-generating ability, then net income
has feedback value for investors. This confirmation can also be useful in predicting
future cash-generating ability as expectations are revised.

The predictive value and confirmatory value of financial information are interrelated.
Information that has predictive value often also has confirmatory value. For example,
revenue information for the current year, which can be used as the basis for predicting
revenues in future years, also can be compared with revenue predictions for the
current year that was made in past years. The results of those comparisons can help a
user to correct and improve the processes that were used to make those previous
predictions.

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₪ Feedback Value of Accounting Information

Conclusion
Accounting information plays an important role in decision making. To be useful,
accounting information must maintain some qualities. Feedback value is one of them.
Feedback value is necessary for accounting information to be relevant. Relevancy is
necessary, because it helps us in making difference in decisions. It helps us to predict
and confirm to our decision. So, when reporting in accounting information one should
be careful about the qualities. So, that it represents the feedback value and also others
information qualities like reliability (variability, neutrality & representative
faithfulness), comparability and consistency.