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According to FASB Statement of Financial Accounting Concepts No. One, the primary objective of financial reporting is to provide useful information so that investors, creditors and other users can make rational decisions. Are the financial statements and disclosures currently required by GAAP fulfilling this objective?
Since 1973, the FASB has issued 119 Statements of Financial Accounting Standards. The trend toward more disclosure in annual reports is likely to continue. At the same time, complaints of information overload can be heard from the corporate sector, members of the accounting profession and some financial statement users. Recently, the Financial Executives Institute and the Securities and Exchange Commission proposed the dissemination of summary annual reports.
Are there too many disclosures in annual reports? Should more be added? Are the financial statements and notes useful to financial statement users? Are all the financial information items reported useful to financial statement users? Should some items be removed? To address these issues, a survey was designed and sent to Chartered Financial Analysts(CFAs), prime users of the annual report.
Sample
The survey was sent to a random sample of 1300 CFAs in the United States. CFAs have a large influence on investment decisions. Sample members who did not regularly make investment decisions about common stocks were asked to return the survey uncompleted. Uncompleted surveys were received from 372 sample members, reducing the sample size to 928. After three mailings, completed surveys were received from 508 sample members for an effective response rate of 54.7 percent. Statistical tests were carried out to test for nonresponse bias, and no such bias was detected.
Respondents represented an experienced group of investment analysts and, thus, were expected to be cognizant of the usefulness of the information utilized in investment decisions. The majority (63 percent) of the respondents had 11 or more years of investment experience. Twenty-eight percent of the respondents had six to 10 years of experience, and 9 percent had three to five years.
Survey
Before starting the questionnaire, sample members were told: (1) their frame of reference should be that of a financial analyst evaluating a common stock in a manufacturing firm and (2) the annual report was the principal source of information for decision-making.
Sample members were...