Prioritising Disclosures in the Annual Report
Forthcoming in Accounting and Business Research 2013
Posted: 11 Jul 2013
Date Written: July 10, 2013
Drawing upon information economics, this paper presents a relative assessment of twenty-four 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=288) and preparers of annual reports (n=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 policymakers and can be used for setting priorities.
Keywords: annual report, cost-effectiveness analysis, disclosure, management commentary, IFRS, notes
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