Summarise the research evidence examining the usefulness of reporting to investors and other providers of capital

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Title: Summarise the research evidence examining the usefulness of reporting to investors and
other providers of capital
Subject: Accounting
Type of Paper: Essay
Words: 927
The statement to members by a company chairman is an influential part of the annual
report and is widely read by shareholders. The essence of the statement offers an opportunity for
a chairman to report in unquantified and unaudited terms on the performance of a company
during the past financial period and on likely future developments. The statement should be used
to make political or social comments about government, taxation, accounting standards or other
exercises the chairman at the time of writing. The statements range in length from half a printed
page to more than seven or eight pages. If the statements is long, the contents will include a
reasonably thorough description of each of the main areas of activity. The Cadbury report
note(p.34) that' it is therefore of special importance that it should be provide a balanced and
readable summary of the company's performance and prospects and that it should represent the
collective view of the board.'
Lee and Tweedie (1981) found that professional institutional investment specialists
considered the chairman's statement to be an important part of the annual report. The most
important were the profit and loss account and the balance sheet, the next was the chairman's
statement. Their research has shown that out of 214 readers of annual reports, all except one read
the chairman's statement briefly or thoroughly. Of those readers, the great majority did not read
the auditors' report at all. Confirmation that the chairman's statement continues to be the most
widely read part of the annual report is provided by more recent surveys of private
shareholders.(Bartlett and Chandler,1997).
Investors, whether equity or preference shareholders, creditors and lenders, whether
debenture or mortgage holders, bank and many other stakeholders are affected by and are
properly interested in the activities and influences of the modern company. They access the
company information largely relies on the company reports.
FRS 1 provided an example that a significant decrease in cash in masked by an increase
in stocks or debtors. Companies might run out of cash while reporting increases in working
capital. The ASN feels that by concentrating on cash flows only, the cash flow statement will, in 
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conjunction with the balance sheet, provide information on liquidity, viability and financial
adaptability and the information will be easier to understand than are changes in working capital.
The Cadbury report considered there is a expectations gap between the public's
expectation of what the audit achieves or should achieve in terms of assurances about financial
statements and what the audit actually does achieve. They also provided some recommendations
such as encourage the expansion of the format and content of audit reports so that a description
of the key features of the audit process is provided together with a clear statement of the auditor's
responsibilities for reporting on the financial statements.
SOCIAL:With many countries place much emphasis on social and green issues,major
reservations increasingly being expressed over the impact of economic activity on the quality of
life, reflected in public concern over issues such as natural resource depletion, global warming
and deforestation amongst others, have given rise to a fundamental questioning of private profit
as an adequate measure of organizational success.The business community react to this through
their annual report amd accounts as an essential medium of communication to promote the green
dimension to a central position within the corporate decision-making process.
There are demand for environmental information comes from investors who are
interested not only in the short-term financial performance but also in its social impacts, and also
demand from pressure groups such as consumer organizations and environmental groups. An
example of special-interest reports of environmental reports is Norsk Hydro of Norway. The
corporation produced a special report in 1989 describing its domestic activities which was
increased in 1990 to a 34 pages report on its world-wide activities. The report includes an
environmental policy statement and environmental impact of its activities. While DSM of the
Netherlands provides social report for each of its divisions covering information on employee
matters such as training and pensions.
In the UK, 99% of FTSE listed companies made qualitative environmental disclosure in
their statutory annual report.(the based number is 458 companies). Reporting has improved
since