Which concept ensures financial information is relevant for decision-making?

Materiality is the concept that ensures financial information is relevant for decision-making by influencing what information is considered significant to stakeholders. In the context of financial reporting, materiality refers to the assessing of whether omitting or misstating information could affect the economic decisions of users taken on the basis of the financial statements. If information is deemed material, it should be included in the financial reports; if it is not, it can be omitted without affecting the overall understanding of the financial situation.

This relevance helps decision-makers, such as investors, creditors, and management, to assess the financial health and performance of an entity and make informed choices. The determination of materiality is subjective and often involves consideration of both qualitative and quantitative factors, emphasizing its importance in conveying the right information to users.

While the other concepts like historical cost, prudence, and cost-benefit analysis play significant roles in financial reporting, they do not specifically address the relevance of the information in the context of decision-making. Historical cost focuses more on how assets and liabilities are recorded, prudence refers to being cautious in financial reporting to avoid overstating assets or income, and cost-benefit analysis involves assessing the costs associated with the collection and presentation of information compared to the benefits derived from it. However,