Prioritising disclosures in the annual report

Abstract

Drawing upon information economics, this paper presents a relative assessment of 24 of the most common disclosure items in the management commentary and notes sections of the annual report. We design and conduct an Internet survey using a large representative sample of users with an investment focus (n ¼ 288) and preparers of annual reports (n ¼ 89). Using cost-effectiveness analysis, an evaluation method widely used in healthcare economics, the balance between preparation costs and user satisfaction, relative to user demand is assessed. Our main findings show that corporate social responsibility and corporate governance, the least demanded disclosure items in the management commentary, are also costly items to prepare. Further, preparers do not consider indirect costs (i.e. competitive position costs and potential litigation costs) of information provided in the management commentary to be a major concern. With regard to the notes, we find that business combinations (IFRS 3), financial instruments (IFRS 7) and impairment tests (IAS 36) are highly demanded but are also among the items most costly to prepare, and users are less satisfied with these notes. The findings have important implications for practitioners and policy-makers and can be used for setting priorities.

Derivatives disclosure in corporate annual reports: bank analysts' perceptions of usefulness

“…The analysts' responses to this question suggest that preparers may increase user satisfaction by making their existing disclosures less generic and more company specific. Given that concerns about the high cost of financial instruments disclosures have been identified (Johansen and Plenborg 2013), our research may serve to alleviate those concerns. Our interviews with analysts revealed little demand for nonbanks to increase quantitative disclosure or undertake more advanced modelling that would be complex and therefore costly.…”

“…Surveys of users are quite sparse and tend to provide more information about investors than lenders (see Beattie and Pratt 2002). However, in one recent study, Johansen and Plenborg (2013) provided evidence on the usefulness of 24 mandatory disclosures, including IFRS 7, by surveying 288 users (private investors, professional investors, sell-side analysts and bank analysts) and 89 companies (small, medium, large and state-owned) to obtain their views. They reported that IFRS 7 disclosures are highly demanded by all categories of user, that these are also among the items thought by companies to be most costly to prepare, and that users are comparatively less satisfied with these notes.…”

“…4 There are differing points of view as to what would improve the disclosure of derivatives. Johansen and Plenborg (2013), for example, recommended a reduction in the complexity of the notes required under IFRS 7. Others, in contrast, believed that complex transactions require more rigorous disclosure, not less (e.g.…”

“…More broadly, this type of research is unable to determine whether financial statements are the source of information used by the market or whether other, undisclosed information might have been more useful. Similarly, recent survey evidence from Johansen and Plenborg (2013), identified high user demand for derivatives disclosure coupled with comparatively low user satisfaction and pointed to a need for more research on why satisfaction is low, or how satisfaction could be increased. This study addresses these areas of limitation.…”

Evaluating the Provision of Information in the Financial Statements of Enterprises: Empirical Evidence From Vietnam

“…The studies including Al-Mubarak (1997), Al-Gareh (2001), Al-Fayyoumi (2003), Abuzarour (2005), Abdelkarim and Shahin (2007), and Abdelkarim, Shahim, and Arqawi (2009) focus on the investors' assessment of the information provided by the business. Johansen and Plenborg (2013) evaluated the level of priority in the publication of information on the financial statements of the companies in Denmark. Similarly, the annual professional organizations have surveys to assess the quality of information in the financial statements of the enterprises such as International Federation of Accountants (IFAC, 2013), ICAEW (2014), etc..…”