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The Primary Objectives of Financial Reporting. How Are We Doing?. So, how are we doing?. Results of a survey by the Chartered Financial Analysts (CFAs) (1994). Survey. The CFA survey was sent to 1,300 CFAs in the United States.

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So how are we doing

So, how are we doing?

Results of a survey by the Chartered Financial Analysts (CFAs) (1994)


Survey
Survey . . .

  • The CFA survey was sent to 1,300 CFAs in the United States.

    • Completed questionnaires were returned by 508 members.

    • The majority of respondents had 11 years or more of experience.


Sample members were told
Sample members were told

  • “Your frame of reference should be that of a financial analyst evaluating a common stock in a manufacturing firm.”


Sample members were told1

The annual report is your only source of information for decision-making.

Sample members were told


Members were asked
Members were asked . . . decision-making.

  • To evaluate the adequacy of the information disclosed in annual reports for investment decisions.


If information is lacking
If information is lacking decision-making.

What information would you like to see included?

Hmm!


The primary objectives of financial reporting

Balance Sheet decision-making.

Income Statement

Stmt of CF

Stmt of OE

Notes

Comparative Summary

Assign a score to . . .

+

That reflects the usefulness to investment decisions.

+


Scores assigned

1. No usefulness, decision-making.

2. Slightly useful,

3. Moderately useful,

4. Average usefulness,

5. Very useful, and

6. Extremely useful

Scores Assigned . . .


The primary objectives of financial reporting

So, what were the results? decision-making.


The primary objectives of financial reporting

53% decision-making.

Said information in annual reports is adequate for investment decisions.

10

10

10


The primary objectives of financial reporting

3% decision-making.

Said information in annual reports is excessive (overkill) for investment decisions.

4

3

5


The primary objectives of financial reporting

44% decision-making.

Said information in annual reports is deficient (more is needed).

5

6

3


The primary objectives of financial reporting

A Company’s Competitive Position decision-making.

93.0

Industry Trends

91.6

Long-Term Corporate Goals

78.0

Plant Capacity

58.4

Dividend Policy

49.5

Budgeting For Next Five Years

42.5

Pricing Policies

39.3

Quality of Management

37.9

Forecasts of Sales

31.8

Forecasts of Earnings Per Share

29.4

Additional Information Desired


The results
The Results . . . decision-making.

  • Other items requested by ten percent of those responding . . ..

    • Detailed cost data;

    • New products;

    • Environmental litigation;

    • Additional cash flow data, and

    • Segment breakdowns.


The results1
The Results . . . decision-making.

  • Other disclosures desired . . .

    • Variances from budgeted amounts;

    • Product life cycle;

    • Debt policies

    • R&D goals;

    • Operating problems;

    • Capital projects


The primary objectives of financial reporting

Income Statement decision-making.

5.93

Cash Flow Statement

5.34

Balance Sheet

5.31

Notes to the Financial Statements

4.42

Comparative Summary of Data

3.66

Stockholders’ Equity Statement

2.04

Average Usefulness of Annual Report Sections


The primary objectives of financial reporting

The decision-making.primary financial statements fall into this area of the continuum . . .

Not

Moderately

Average

Very

Extremely

Slightly

Level of Adequacy


The primary objectives of financial reporting

The decision-making.notes to the financial statements fall into this area of the continuum . . .

Not

Moderately

Average

Very

Extremely

Slightly

Level of Adequacy


The primary objectives of financial reporting

Individual financial statement decision-making.lineitems and notes . . .

Not

Moderately

Average

Very

Extremely

Slightly

Level of Adequacy