Studies Focusing on Preparers’ Perceptions

Although the literature on the perceptions and attitudes of users has developed during the last decades, the literature on the perceptions and views of preparers remains limited, particularly in developing countries. It is worth mentioning that a few limited studies were conducted trying to examine the perceptions and views of preparers of CARs in developing countries (e. g. Abu-Nassar & Rutherford, 1995; Ho & Wong, 2003; Mirshekary & Saudagaran, 2005; Stainbank & Peebles, 2006). Therefore, this section aims to provide an overview of the studies that investigated preparers’ perceptions regarding corporate reporting.

4.2.2.1Studies in Developed Countries

In the US, Chandra (1974) targeted a sample of public accountants and security analysts using a questionnaire survey including six types of information items namely: balance sheet items, income statement and statement of retained earnings items, other statement items, ‘derived information’ or trends, ratios, components, percentages, etc., developed from information in the financial statements themselves, items concerning accounting methods and items concerning projections and budgetary disclosure. Chandra’s study clearly asked the respondents whether they valued information items as “users” of information or as “preparers” perceiving the user’s information requirements. Chandra found that accountants did not rate information in the same way as security analysts for the purpose of equity investment decisions, even though they tended to have equivalent preferences in their dual roles as preparers and users of information. The principal null hypothesis of Chandra’s (1974, p. 737) study was that “there is no difference between the value of information to security analysts as perceived by accountants and the value of information to security analysts for equity investment decisions”. A t-test was used to test each of the fifty-eight information items. The results of the t-test rejected the null hypothesis for 35 of the total 58 items reaching 60.3%. Chandra attempted to provide a reasonable justification for such findings citing “lack of consensus” referring that to the lack of communication between the preparer and user groups, or the time lag existing between what user groups needed and what the preparers could provide. Chandra and Greenball (1977) attempted to explain the management’s reluctance to disclose information. The authors examined the information needs of preparers represented by financial managers against security analysts as users. The study found that preparers “managers” differed significantly for 46 out of the 58 items in terms of their perceived value of the information items, from users “security analysts”.

Kung and Lambert (1977) criticised the conclusion of Chandra (1974) claiming that the observed disparity between security analysts and accountants on the value of selected accounting information items for the purpose of equity investment decisions might not have been an indication of a lack of consensus on the value of those items, but rather might be more likely to be a result of differences in the way the targeted groups (accountants and security analysts) responded to the information items survey. Using Kendall’s and Spearman’s rank-order analysis, evidence was obtained suggesting that accountants and

security analysts may have implicitly utilized different value measurement scales. Although the values indicated by the two groups for the fifty-eight information items were different, in each group the relative importance of each item was not significantly different. Ho and Wong (2003) carried out a study to examine the views of preparers in Hong Kong listed companies regarding corporate reporting practices in China. A questionnaire survey was used to obtain the perceptions of 610 finance directors and chief finance officers (CFOs). The findings reported that the respondents ranked institutional shareholders as the primary users of annual reports of Hong Kong listed companies. Bankers and creditors, management/directors, and individual shareholders were perceived as the following most important users respectively, while academics and employees were last in importance. The study also revealed that CFOs or finance directors were considered to be the most influential group affecting corporate disclosure policies, followed by CEOs and board chairmen. With regard to external bodies affecting disclosure policies, Hong Kong Exchange (HKEx) and the Companies Ordinance were ranked as the most influential factors on corporate disclosure behaviour. With regard to preparers’ perceptions about disclosure adequacy, respondents indicated that the current disclosure practices were ineffective, suggesting voluntary disclosures as the way to improve the market efficiency.

4.2.2.2Studies in Developing Countries

In Jordan, Abu-Nassar and Rutherford (1995) carried out a study to examine the views and opinions of preparers of CARs. The authors targeted five respondent groups namely: boards of directors, financial directors, chairmen, chief accountants, and company accountants using a questionnaire survey. The findings of the study indicated that preparer groups perceived the directors and management of the company as the most important users of annual reports, followed by individual and institutional shareholders. Furthermore, their study revealed that the finance director was ranked as the most important factor affecting the preparation of financial reports, followed by the chairman and chief accountants respectively. The Companies Act was perceived as the most influential factor on accounting policy and disclosure behaviour. Finally, Abu-Nassar and Rutherford concluded that expenses associated with preparing CARs were ranked as the most significant barrier in disclosing information.

In South Africa, an investigation was conducted by Stainbank and Peebles (2006) to study the importance of sources of financial information used by preparers and users when making decisions. In this study, the preparers of annual reports were represented by financial managers, while the users were represented by institutional investors. The findings of the 172 questionnaires reported that the user group perceived communication with management as the most important source of information, while the preparers considered stockbrokers’ advice to be the first most important source. With regard to how thoroughly the respondents read each section of the annual report, while the preparers ranked the income statement as first, the section most thoroughly read by the users was the cash flow statement. With regard to the qualitative characteristics which were used to evaluate the usefulness of accounting information, the study also revealed that the preparers ranked fair presentation, understandability and relevance as the most important criteria, while the user groups emphasised comparability, faithful representation and relevance.