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The Primary Objectives of Financial Reporting

The Primary Objectives of Financial Reporting. How Are We Doing?. So, how are we doing?. Results of a survey by the Chartered Financial Analysts (CFAs) (1994). Survey. The CFA survey was sent to 1,300 CFAs in the United States.

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The Primary Objectives of Financial Reporting

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  1. The Primary Objectives of Financial Reporting How Are We Doing?

  2. So, how are we doing? Results of a survey by the Chartered Financial Analysts (CFAs) (1994)

  3. Survey . . . • The CFA survey was sent to 1,300 CFAs in the United States. • Completed questionnaires were returned by 508 members. • The majority of respondents had 11 years or more of experience.

  4. Sample members were told • “Your frame of reference should be that of a financial analyst evaluating a common stock in a manufacturing firm.”

  5. The annual report is your only source of information for decision-making. Sample members were told

  6. Members were asked . . . • To evaluate the adequacy of the information disclosed in annual reports for investment decisions.

  7. If information is lacking What information would you like to see included? Hmm!

  8. Balance Sheet Income Statement Stmt of CF Stmt of OE Notes Comparative Summary Assign a score to . . . + That reflects the usefulness to investment decisions. +

  9. 1. No usefulness, 2. Slightly useful, 3. Moderately useful, 4. Average usefulness, 5. Very useful, and 6. Extremely useful Scores Assigned . . .

  10. So, what were the results?

  11. 53% Said information in annual reports is adequate for investment decisions. 10 10 10

  12. 3% Said information in annual reports is excessive (overkill) for investment decisions. 4 3 5

  13. 44% Said information in annual reports is deficient (more is needed). 5 6 3

  14. A Company’s Competitive Position 93.0 Industry Trends 91.6 Long-Term Corporate Goals 78.0 Plant Capacity 58.4 Dividend Policy 49.5 Budgeting For Next Five Years 42.5 Pricing Policies 39.3 Quality of Management 37.9 Forecasts of Sales 31.8 Forecasts of Earnings Per Share 29.4 Additional Information Desired

  15. The Results . . . • Other items requested by ten percent of those responding . . .. • Detailed cost data; • New products; • Environmental litigation; • Additional cash flow data, and • Segment breakdowns.

  16. The Results . . . • Other disclosures desired . . . • Variances from budgeted amounts; • Product life cycle; • Debt policies • R&D goals; • Operating problems; • Capital projects

  17. Income Statement 5.93 Cash Flow Statement 5.34 Balance Sheet 5.31 Notes to the Financial Statements 4.42 Comparative Summary of Data 3.66 Stockholders’ Equity Statement 2.04 Average Usefulness of Annual Report Sections

  18. The primary financial statements fall into this area of the continuum . . . Not Moderately Average Very Extremely Slightly Level of Adequacy

  19. The notes to the financial statements fall into this area of the continuum . . . Not Moderately Average Very Extremely Slightly Level of Adequacy

  20. Individual financial statement lineitems and notes . . . Not Moderately Average Very Extremely Slightly Level of Adequacy

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