Under non-ideal conditions, it is necessary to trade off between Essay

Under non-ideal conditions, it is necessary to trade off between relevance and reliability when estimating future cash flows. Critically appraise this statement - Essay Example In this regard, the reliability of accounting information as an apparatus for forecasting future cash flows require accreditation from the actual source to ascertain its relevance to the study of future trends concerning cash flows (Gandevani 74). For accounting information to be relevant in the estimation of future cash flows, it must be in accord with the established international accounting principle. Financial analysts argue that accounting transactions that are not supported by the reality in contextual market are defective and misleading, and their reliability is irrelevant in predicting future cash flows (Gandevani 73). In fact, failure to incorporate both reliability and relevance in decision making will always lead to unprofitable returns. For instance, unreliable information might lead to overestimation or underestimation of future cash flows, and this may result in poor planning of activities. It is important to recognize that accounting conservatisms is pro relevance at the expense of reliability which means that relevance of accounting figures and transaction is a vital tool for estimation of future cash flows. In summary, both reliability and relevance must be put into consideration when estimating future cash f lows for an