Mandatory, and useful


Are financial reports costly dust-gatherers, purely compliance documents or valuable sources of information? A team from Massey’s School of Accountancy found they can be an important tool in business decision-making.

Financial reports are a mandatory part of conducting business in New Zealand, but how useful are they to those who work with them?

In 2015, New Zealand’s External Reporting Board (XRB), an independent Crown entity responsible for the country’s financial reporting strategy and standard setting, commissioned a team from Massey University’s School of Accountancy to undertake research into the usefulness of the financial reports produced by New Zealand-listed companies.

Information Needs of Users of New Zealand Capital Markets Entity Reports was published in March 2016. Since then, results from this research have featured in the National Business Review and on Scoop, as well as internationally on the IASPlus global accounting news website.

Our study provides insights into whether financial statements meet user needs and what additional improvements users are seeking.


Trusted source

Professor Fawzi Laswad, Dr Warwick Stent, Dr Nives Botica Redmayne and Dr Lei Cai found financial reports are a well-used and trusted source of information for shareholders, professional advisors, creditors and regulators in New Zealand. Seventy-nine per cent of respondents used financial reports in making decisions, and most users were satisfied with the quality of the information.

“General-purpose financial reports are prepared to meet the information needs of external users,” Professor Laswad says. “Our study provides insights into whether financial statements meet user needs and what additional improvements users are seeking.

“Often financial reports are perceived as compliance documents, and anecdotal evidence suggests they are not useful and not used. Our findings certainly show that users use and rely on financial reports when making decisions.”

All components of financial reports were perceived, on balance, to be useful. In general, respondents ranked the statement of profit and loss and the statement of financial position as the two most useful categories, while the statement of changes in equity was considered to be least useful. Only a quarter of respondents indicated that financial statements contained information that was not useful.

The team developed an online questionnaire that attracted 145 respondents. The questionnaire explored the usefulness of financial statements and the other sources of information used in making decisions. To gain a deeper understanding of users’ information needs, 10 in-depth interviews were conducted with investors, lenders, intermediaries and regulators.

“We were able to survey the users and ask them their views and perceptions of whether the information provided in financial statements meets their needs,” Professor Laswad says. “Users are generally satisfied with the quality of information provided, but are looking for more.”

Changes suggested

Suggested improvements to financial reports included more detailed information about the entity, such as its strategies, risks, prospects and forecasts; simplified language; and standardising the presentation to enable easier comparison between companies. Users also sought five-year summaries, key performance indicators, dashboard reporting and sustainability information, plus broader context around performance.

Until the Massey study there had been little research relevant to user needs in New Zealand since the 1970s, and none of this type since New Zealand’s adoption of International Financial Reporting Standards in 2007.

“In this climate of increased accountability, companies have really had to step up and change their financial reporting to be in line with international standards and to respond to user demands,” XRB Chief Executive Warren Allen says. “The research we commissioned shows that the hard work has been worthwhile: reports are being valued by users. However, there is still room for improvement.”

The team also reviewed international research on user information needs and found New Zealand users are very similar to their international counterparts.

“The research confirms a lot of what we already suspected,” Mr Allen says. “It is good to see that these reports are read and valued, and for many users they are the most important source of corporate information. This research will help companies that want to improve their stakeholder communications to understand their key areas of focus.”

The School of Accountancy is working on a second report for the XRB — on the information needs of users of financial reports produced by entities that have no public accountability. The new research will also look at the assurance needs of those entities.

Project details

Funders External Reporting Board
Dates 2015 to 2016