The Usefulness of Financial Accounting Information: Evidence from the Field

Cascino, Stefano; Clatworthy, Mark; Osma, Beatriz Garcı́a; Gassen, Joachim; Imam, Shahed

doi:10.2139/ssrn.3008083

Cited by 7 publications

(9 citation statements)

References 76 publications

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“…Cascino et al . () interviewed 81 professional investors and similarly found that investors view financial reports as the most valuable information source for investment decisions. Interestingly, Cascino et al .…”

Section: Related Literature and Predictionsmentioning

confidence: 98%

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Is Financial Reporting Still Useful? Australian Evidence

Davern

Gyles

Hanlon

et al. 2019

Abacus

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There has been recent and growing criticism of the usefulness of financial reporting for investors, particularly the annual financial statements. In response, the IASB is pursuing several projects aimed at improving the relevance of financial information. To inform the IASB's work, we investigate, using a mixed-method approach, the extent and nature of the use of annual financial statements by equity investors. We examine the relevance of financial reporting for equity valuation in Australia across time. We find that financial reporting (specifically, reported net income, shareholders' equity, and operating cash flows) remains relevant for investment decisions. We further support this finding with evidence from field interviews that provide insight into how and why financial statements are used by equity investors. The field evidence also demonstrates that no one financial statement dominates in investor decision making. Given the increasing availability of more timely, forward-looking information from alternative sources, we examine the relevance of non-GAAP financial information and other non-financial information for investor decision making. We find that non-GAAP financial information (as proxied by EBIT and EBITDA) is more value relevant than statutory measures. We further find a broad range of non-financial information is utilized by investors in making investment decisions both as a 'screen' and for valuation purposes. Our findings inform regulators and other stakeholders as we provide evidence of the continuing relevance of financial statements and the complementary role of non-GAAP financial and other information. Our evidence provides a rebuttal to the recent criticism.

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Section: Related Literature and Predictionsmentioning

confidence: 98%

“…Interestingly, Cascino et al . () reported that their interviewees saw financial statements as more relevant for valuation than evaluating managerial performance. There was also evidence of a perception of greater relevance for income statement items, and for EBITDA over statutory profit.…”

Section: Related Literature and Predictionsmentioning

confidence: 99%

Is Financial Reporting Still Useful? Australian Evidence

Davern

Gyles

Hanlon

et al. 2019

Abacus

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“…However, this should not discourage academics to engage with the objectives and QCs. Recent research has started to use experiments to explore these topics (Anderson, Brown, Hodder, & Hopkins, 2015;Cascino et al, 2017) and has also begun to employ qualitative studies to address the question of what reliability means in the preparation (and audit) of accounts (Barker & Schulte, 2017;Huikku, Mouritsen, & Silvola, 2017). It is to be hoped that the IASBwhen it will start yet another CF revision at some pointcan build on more (empirical) academic insights that are able to speak to the standard-setters' conceptual challenges.…”

Section: Discussionmentioning

confidence: 99%

The Return of Stewardship, Reliability and Prudence – A Commentary on the IASB’s New Conceptual Framework

Pelger

2019

Accounting in Europe

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In March 2018, the IASB published its revised conceptual framework including notable changes to the chapters on the objective of financial reporting and on qualitative characteristics. The IASB put more emphasis on stewardship as part of the decision usefulness objective, reintroduced prudence as an aspect of neutrality and introduced a tolerable level of measurement uncertainty (as a successor to reliability) as part of faithful representation. The present paper discusses the substance of and reasons for these changes in light of the history of the IASB's work on conceptual frameworks. The paper also explores the possible impact of these changes on the IASB's future standard-setting by looking at the other chapters of the IASB's new framework. This paper finds that the more pronounced role of stewardship and the reintroduction of prudence do not seem to entail a revised conceptual thinking of the IASB in the other chapters, while the introduction of a tolerable level of measurement uncertainty provides the IASB with a conceptual tool with the potential to substantially affect future standard-setting debates. However, its positioning as part of faithful representation is questioned and an alternative arrangement of qualitative characteristics suggested.

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“…FASB’s influence over the IASB was evidenced in the later creation of a new, joint, CF for both the IASB and FASB, by 2010 where “reliability” as a fundamental QC was replaced by “faithful representation”, while “prudence” supporting “reliability”, was eliminated altogether. On these two bodies “divorce” in 2010, direct comparability diverged, the literature on financial reporting further showing that FASB were geared towards investors with a decision-useful aim, while the IASB required governance or stewardship to be financial reporting’s underlying main aim (Cascino et al , 2017; Cascino et al , 2016). The IASB’s stewardship stance is supported by Pirveli and Zimmermann (2019), along with Gassen (2008) who “revealed the controlling-usefulness is becoming more pronounced as the valuation-usefulness of accounting information declines.”…”

Section: Literature Reviewmentioning

confidence: 99%

“…"Transparency" may be an additional criteria of decision-useful financial reporting, not as some authors have proposed, a QC in its own right (Cascino et al, 2016(Cascino et al, , 2017Nobes and Stadler, 2014); and that if the chairperson of major UK banks and professors of accounting JFRA 20,2 were to be shown the recommended QCs outlined here (Figure 3), incorporating "transparency", that it may be accepted. "Transparency" appears more in the nature of a practical consideration or "criterion", rather than an enhancing QC; and as one of the criteria, may be more readily accepted by stakeholders.…”

Section: Completeness Of the Qualitative Characteristicsmentioning

confidence: 99%

Completeness of the qualitative characteristics using Foucauldian critical discourse analysis and content analysis paradigms: towards a revised conceptual framework

Evans

Lusher

Day

2021

JFRA

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Purpose The qualitative characteristics of decision-useful financial information (as set out in the revised March 2018 Conceptual Framework for financial reporting of the International Accounting Standards Board [IASB]) are fundamental for standard setting relied on by companies when making accounting policy changes and choices. However, there has not been an overarching universally agreed conceptual context of the qualitative characteristics. This paper aims to study the completeness of the qualitative characteristics towards suggesting a revision of the Conceptual Framework. Design/methodology/approach The present study evaluated the completeness of these qualitative characteristics using Foucauldian critical discourse analysis and content analysis paradigms to elucidate the inclusion conundrum. Foucauldian analysis allowed focus on power relationships, governmentality and subjectification in accounting society, as expressed through language and practices of the IASB who ultimately decide on the qualitative characteristics. Content analysis was used to analyse data collected via interviews with preparers and users of banks’ accounts, changes in banks’ accounting policies after the conceptual framework was published and comment letters from banks who wrote to the IASB. Findings Novel findings from this study revealed the potential significant omissions of the constraints of “materiality”, “transparency” and “regulatory/supervisory framework”. Also, surrounding the qualitative characteristics having been shown to be valid and includable, the adjective “decision-useful” reinstated in the chapter title and the IASB project team technical writers needing to show completeness of attention to all comments. Originality/value From these findings, a freshly formulated chapter in the conceptual framework on the qualitative characteristics can now be submitted for consideration by the IASB, with potential for international post-implementation review.

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The Usefulness of Financial Accounting Information: Evidence from the Field

Abstract: Please refer to published version for the most recent bibliographic citation information. If a published version is known of, the repository item page linked to above, will contain details on accessing it.

Cited by 7 publications

References 76 publications

Is Financial Reporting Still Useful? Australian Evidence

Is Financial Reporting Still Useful? Australian Evidence

The Return of Stewardship, Reliability and Prudence – A Commentary on the IASB’s New Conceptual Framework

Completeness of the qualitative characteristics using Foucauldian critical discourse analysis and content analysis paradigms: towards a revised conceptual framework

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