Majority of investors, lenders, regulators want more from financial reports: survey

Wednesday 2nd March 2016

A majority of investors, lenders and regulators want to see additional information provided by companies in their financial reports, according to research commissioned by the External Reporting Board.

The research undertaken by Massey University shows the most useful supplementary information would be more on business strategies, risks and future prospects and narratives that explain the financial performance and position of a reporting entity. A summary table of changes users wanted broader context for performance included, along with more non-financial information and simplified language.

They also suggested the inclusion of five-year summaries, key performance indicators and forecasts, and improved disclosure of contingencies, guarantees, obligations and related party transactions. Intermediaries, such as analysts, advisers, brokers and fund managers were happy with the current level of information provided.

Changes in financial reporting over the past 10 years have responded to user needs, but must continue to evolve, said XRB chief executive Warren Allen.

“The research we commissioned shows that the hard work has been worthwhile. Reports are being valued by users," Allen said. "However, there is still room for improvement.”

The XRB is an independent Crown entity responsible for developing and issuing accounting, auditing and assurance standards in New Zealand. Its survey found that financial reports were well used by 79 percent of those surveyed while 21 percent relied more on information from advisers and analysts. Financial reports were cited by 31 percent as their primary source of information, ranking behind the 35 percent who relied most on analyst and adviser reports.

Of the 76 percent that found all financial information provided to be useful in helping build a picture, the statements of financial performance and financial position were ranked most useful, followed by the statement of cash flows and the notes. The least useful information was the statement of changes in equity.

The Massey researchers got 145 respondents to its online survey and conducted 10 in-depth interviews.

The findings appear to be somewhat at odds with evidence given at a finance and expenditure select committee hearing this morning by the Auditor-General, Lyn Provost, on her report into the quality of government financial statements.

Her office's advice to government entities was that financial reports should be "smaller and have less clutter."

"They should just contain important information," she said, while conceding that detailed disclosure was justified in some circumstances, such as the range of material uncertainties that continued to surround the accounts of agencies affected by the ongoing costs of the Canterbury earthquakes, such as the Earthquake Commission, government-owned Southern Response insurance entity, and the Christchurch City Council.

BusinessDesk.co.nz

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