An overview of the use of corporate financial reports information disclosed in annual reports by external users in Malaysia

摘要

The primary purpose of preparing financial statements is to provide udinformation that will be useful for a wide range of users in making udbusiness decisions. Users of corporate financial information such as udshareholders, bankers, securities brokers and governments normally uduse annual reports together with other sources of information to udevaluate the performance or creditworthiness of a company. A udfinancial statement is prepared in order to communicate economic udmeasurement and information about the resources and performance udof a reporting entity. According to Epstein and Freedman (1994), the udusefulness of annual reports to individual shareholders is not only on udthe financial part, but they are also interested on certain aspects of udsocial responsibility such as product safety, quality and environment udactivities.ud Starting from January 2006, Malaysian companies are required udto implement all the Financial Reporting Standard (FRS) that have udbeen issued by the Malaysian Accounting Standard Board (MASB) udin the preparation and presentation of financial statements. The move udby MASB to adopt International FRS is a reflection of Malaysia’s udcommitment to align with global accounting standards in order to converge to one common set of standards for the entire developed udworld in this age of cross-border trading (PricewaterhouseCoopers, ud2005). Through convergence, financial statements will become more udrelevant, credible and more transparent, all of which are critical udto the effectiveness of Malaysian capital markets. Since FRS is udstill new and in a transition process, it is expected to have many udproblems and issues, thus this study focused on the annual reports udprepared by Malaysian listed companies to shareholders prior to FRS udimplementation.udThe annual report is seen by the accounting profession as an udimportant device for financial communication between management udand shareholders (Bartlett and Chandler, 1997). Stanton and Stanton ud(2001) contended that even if users of annual reports are assumed udto be knowledgeable, the information itself could be in different uddegrees of comprehensibility. Hence, the quality of understandability udis a characteristic influenced by both users and preparers of annual udreports.