Usefulness of annual reports : perceptions from Sri Lankan investors and lenders

Abstract

Both the 2010 and 2018 version of International Accounting Standards Board’s (IASB) Conceptual Framework for Financial Reporting recognise investors and lenders as the main user groups of financial reports since they are the capital providers of reporting entities. The main objective of the IASB is to set a reporting environment that ensures reporting entities provide useful information to both user groups. In general, investors decide to invest or disinvest in business, while lenders are concerned about the capacity of the business to meet debt obligations. Further, the information needs of these two groups can be significantly different when analysed jointly (e.g., Benjamin and Stanga, 1977) and individually (e.g., Naser et al., 2003; Alattar and Al-Khater, 2008; Chatterjee et al. 2010; De Zoysa and Rudkin, 2010).

Whereas previous studies do not treat investors and lenders separately, this study considers both the aspect ‘usefulness to whom?’ and ‘usefulness for what decision?’ Different users who make different decisions should not be aggregated together to assess the usefulness of annual reports. For example, an accountants or financial analyst may engage in investment-type decisions or in lending-type decisions, or both. If their opinion is not quizzed explicitly in association with investment decisions or lending decisions, biased inferential conclusions may be drawn. How then can studies that include accountants, academics, investors and lenders into the same survey target populations demonstrates the usefulness of the information in annual reports for major capital providers?