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An investigation of perceptions of company annual report users in Sri Lanka
Anura De Zoysa and Kathy Rudkin
School of Accounting and Finance, University of Wollongong, Wollongong, Australia
Abstract
Purpose – The purpose of this paper is to report on a study of how users of company annual reports in the emerging market of Sri Lanka view those reports. Since limited studies exist that examine financial reporting practices in emerging markets, little is known about the user perceptions of company annual reports in these markets. This paper contributes to filling this gap by examining the views of a wide spectrum of users on the usefulness of corporate annual reports in Sri Lanka. Design/methodology/approach – The data reported in this study were collected through a questionnaire survey, covering seven user groups – accountants, executives, bankers, tax officers, academics, financial analysts, and investors. The 264 responses received were analysed using the Kruskal-Wallis one-way ANOVA test. Findings – The results reveal that most use annual reports for obtaining information for share transactions. Despite the long delay in publishing many annual reports and lack of availability of these reports to the general public, the majority of users view annual reports as the most important source of company information. The paper also reveals that, in comparison with developed markets, Sri Lankan users depend more on annual report information than on information provided by stockbrokers, newspapers, and other media reviews. Originality/value – This paper provides information about the usefulness of annual reports in an emerging market, Sri Lanka. No prior research on this aspect of Sri Lankan companies is reported in the literature. Keywords Financial reporting, Annual reports, Emerging markets, Sri Lanka Paper type Research paper

Company annual report users in Sri Lanka 183

Introduction This study describes the perceptions of users of company annual reports in the emerging market of Sri Lanka. General purpose financial reports are expected to provide decision useful information required by their various informed users. In producing corporate annual reports, it is assumed that meeting the information needs of investors who provide risk capital will also satisfy the information needs of other user groups (Deegan, 2007). Consequently, the corporate annual report provided to investors is the major source that provides information on the effectiveness of the accomplishments of managers in meeting their fiduciary duties and carrying out their stewardship functions (Anderson, 1998). However, users are not a homogeneous group and the same information cannot equally satisfy them all as they have differing financial skills, interests, and purposes (Rudkin, 2007). Also, new user expectations are created by the continuing sophistication of business practices and technology (Rohan, 1996). Technology differs with the level of market development and infrastructure of the jurisdiction. The decision usefulness of

International Journal of Emerging Markets Vol. 5 No. 2, 2010 pp. 183-202 q Emerald Group Publishing Limited 1746-8809 DOI 10.1108/17468801011031810

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financial disclosures within the prevailing constraints of an emerging market such as Sri Lanka is better understood by evaluating the perceptions of various users. The examination of user perceptions on the usefulness of corporate annual reports empirically has been the subject matter of a large number of studies conducted in many countries during the past few decades. A closer look at these studies reveals that while the majority of them have been conducted in countries with developed capital markets, the studies conducted in countries with emerging capital markets are extremely sparse. Since the conclusions of the studies conducted in developed capital markets cannot be considered as applicable to emerging capital markets due to the large differences in political, cultural, economic, and social factors between the two markets ( Jaggi, 1975; Perera, 1989), little is known about the way in which users of corporate annual reports in emerging markets view those reports. Another feature of the previous research on this aspect is that most of these studies were confined to the examination of information needs of a very few user groups – in most cases one or two (Table I). Because of this limitation, relatively a little is known about the views of various user groups. The purpose of the current study, therefore, is to fill this gap by examining the views of a large number of diverse user groups on the usefulness of corporate annual reports in one of the emerging markets, Sri Lanka. A questionnaire survey was conducted covering seven user groups of corporate annual reports in Sri Lanka. Since no prior research covering such a diverse group of users has been reported in the literature, this study while contributing to the literature on corporate disclosure practices in an emerging market, can provide valuable insights to policy makers in Sri Lanka and other countries with similar capital markets for improving the quality of their corporate disclosure practices. The following section two of this paper describes the unique financial reporting environment in Sri Lanka. Section three outlines the research design including the selection of the questionnaire sample and section four describes the research questions investigated. Section five presents the results of the study and a discussion. The final section six offers a conclusion of the findings. Financial reporting environment in Sri Lanka Sri Lanka is an island nation in the Indian Ocean with a multicultural society, an open economy with a free capital market, and a parliamentary system of government headed by an executive president. It was a British colony until gaining independence in 1948, with a colonial economy directed mainly towards the plantation-based export sector. Businesses were set up by British investors following the British model. As a result, the prevailing legal and accounting systems in Sri Lanka were largely influenced by British systems. Despite having a long history of corporate culture in Sri Lanka, the importance of improving the quality of corporate disclosure practices has become a focus only recently. It is noted “there has been no tradition of financial reporting to the public in the history of accounting practices in Sri Lanka” (Perera, 1975). However, this is not surprising, considering the nature and ownership of companies, especially in the pre-independence period. Perera (1975) argues that during this period, there was only a small group of investors who used accounting reports, and that most information came from the investors’ private bankers and other creditors, and that these trust relationships were more important than printed company annual reports. In the pre-independence period,

Market Individual investors Shareholders Institutional investors Individual investors Individual shareholders 1,025 850 300 2,682 46.4 37.5 63.1 36.0

Author (year)

User groups

Sample

Response %

Developed Australia

Hong Kong New Zealand

UK

Chenhall and Juchau (1976, 1977) Winfield (1978) Anderson, A. (1981) Anderson, R. (1981) Anderson and Epstein (1995) and Anderson (1998) Ho and Shun-Wong (2001) Wilton and Tabb (1978) Courtis (1979) McNally et al. (1982) Lee and Tweedie (1975) Firth (1979) 2,359 1,145 300 280 187 1,594 Firth (1979) Baker and Haslem (1973) Buzby (1974) Chandra (1974) Buzby (1974) Chandra (1975) Benjamin et al. (1977) Chandra and Greenball (1977) Stanga and Tiller (1983) Robbins (1984) Malone et al. (1993) Anderson and Epstein (1986) Financial analysts Investors Shareholders Finance directors and financial analysts Private shareholders Companies Financial editors, stock exchange members Shareholders Financial directors, accountants, financial analysts, and loan officers Financial analysts Individual investors Financial analysts Accountants and security analysts Financial analysts Financial analysts Financial analysts and bank loan officers Financial executives and security analysts Bank loan officers Bond analysts and finance officers Financial analysts Individual shareholders 750 120 1,623 500 1,000 150 400 1,200 1,200 400 400 694 5,718 700 2,648 1,334

18.9 16.6 55.0 45.0 44.4 23.5

USA

40.3 38.3 52.4 26.2 49.8 21.3 45.0 34.6 41.1 57.5 40.3 16.6 16.3 45.7 50.1 20.0 (continued)

Australia, New Zealand, and USA Canada, USA, European Union Belkaoui et al. (1977) USA and Australia Baker et al. (1977) USA and New Zealand Chang and Most (1977)

Company annual report users in Sri Lanka 185

Table I. Annual report studies with user input

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Market Chang and Most (1981) Nicholls and Kamran (1995) Karim (1995) Joshi and Abdulla (1994) Mirshekary (1999) Abu-Nassar and Rutherford (1995) Abu-Nassar and Rutherford (1995) Rahman (1999) Chow and Wong-Boren (1987) Wallace (1988) and Wallace and Cooke (1988) Firer and Meth (1986)

USA, UK, and New Zealand

Emerging Bangladesh

India Iran

Jordan

Malaysia Mexico Nigeria

South Africa

Table I. Author (year) User groups Individual investors, institutional investors, and financial analysts Sample 5,800 Response % 26.0 1,000 651 850 500 463 112 300 106 1,200 595 44.6 45.5 25.5 49.0 48.4 74.0 45.0 63.2 39.2 31.1 Practising accounts, non-practising accountants, bank loan officers, and financial analysts Bankers, accountants, stock brokers, academics, tax officers, and financial analysts Chartered accountants and investors Bank loan officers, academics, stock brokers, bank investment officers, institutional investors, auditors, and tax officers Individual shareholders, institutional shareholders, bank loan officers, stockbrokers, and academics Preparers of financial statements mainly finance directors and chief accountants Accountants and financial analysts Bank loan officers Chartered accountants, investors, senior civil servants, managers, financial analysts, and other professionals Investment analysts and financial directors

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investors and creditors were experienced and had access to personal sources of knowledge. They did not rely on corporate annual reports. Athukorala and Rajapatirana (2000) argue that during the first decade after independence Sri Lanka had a liberal trade regime but by the mid-1970s it had become highly regulated. This situation changed dramatically in early 1970s with the emergence of a new social class who had an investible surplus of income, alongside new lending institutions including state banks (Manoharan, 1972). In response to these changes, companies slowly acknowledged the demand for information by this new class of people. During this time, ownership structures of business changed in complexity and new lending institutions emerged, and a new generation of manager came into government agencies, that were less experienced. At this time “greater reliance is placed on the information provided by accounting statements in making judgements regarding creditworthiness, efficiency, etc. of various undertakings” (Perera, 1975, p. 87). With the establishment of the Institute of Chartered Accountants of Sri Lanka (ICASL) in 1959, the reporting practices in Sri Lanka took a significant turn. While advising their members to comply with the provisions of the Companies Ordinance, the ICASL, following the recommendations of the Institute of Chartered Accountants in England and Wales, introduced more progressive reporting requirements and auditing standards (Perera, 1975). However, these requirements did not have any legal backing. Only the Companies Ordinance continued to maintain legal control over accounting and accountants in the country. The Company Ordinance required every firm to maintain certain records and have them audited by a qualified auditor every year. However, the requirements specified by the Companies Ordinance had many limitations. For example, although the rules applicable to the preparation of the balance sheet were specified in the ordinance no such rules were given in respect of the profit and loss account. By 1977, the ICASL had issued seven Sri Lankan Accounting Standards (SLAS), of which SLAS 7 “Information to be disclosed in financial statements” provided specific information with regard to the preparation of financial statements. Five years after the introduction of SLAS 7, the existing Companies Ordinance No. 51 of 1938 was replaced by the Companies Act, No. 17 of 1982, which specified the reporting requirements in greater detail. Effectively, most of the requirements recommended by the ICASL through the SLAS 7 were included in the 1982 Act. Unlike the Companies Ordinance No. 51 of 1938, the Companies Act 1982 included specific requirements for both the balance sheet and the profit and loss account. Under the 1982 Act, the directors were required to prepare and present profit and loss accounts, balance sheets, group accounts (if any) and other necessary reports in accordance with the provisions of Sections 144, 146, and 152. Further, Part I of the fifth schedule of the Act explicitly detailed the information that should be disclosed in these statements (Parliament of the Democratic Socialist Republic of Sri Lanka, 1982). The enactment of the new Companies Act No. 2007, which replaced the 1982 Act, introduces tougher penalties for non-compliance with respect to disclosure requirements. The Colombo Stock Exchange (CSE) also provided greater details of these disclosure polices in its publications and web site. The directors of the companies listed on the Exchange are obligated to follow the listing requirements based on these policies on a continuing basis. If a company listed on the Exchange violates these requirements, it is subject to various sanctions imposed by the CSE. An extreme or continuing violation of these requirements by a company may result in removing the

Company annual report users in Sri Lanka 187

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listing to a Default Board. An ultimate penalty is de-listing of its name from the exchange. Securities listed on the Default Board as at June 12, 2007 numbered 24 (Daily News, June 13, 2007). Registration on the Default Board is an ineffective penalty, because those listed on the board were still able to trade on the stock exchange. The CSE were reluctant to de-list these companies for fear that it would hurt the minority shareholders (Lanka Business Online, May 7, 2007). The new Companies Act 2007 is stricter because it imposes fines for not complying with rules such as not filing annual a report within six months of the close of the financial year. The new Companies Act is anticipated to enforce compliance and help to clean up the Default Board. La Porta et al. (1998) argue that common-law countries (such as Sri Lanka) have the strongest laws protecting investors. They suggest the greater the legal protection received by investors, the greater the likelihood of enforcement. La Porta et al. (1998) infer if shareholders have greater powers in corporate voting, that there is incentive for managers who produce annual reports and present them to the users to ensure they are more decision useful, so that shareholders do not invoke sanctions. In addition to the listing rules and regulations, several other laws directly or indirectly emphasize the requirements of immediate disclosure. These laws are embodied in the Securities and Exchange Commission of Sri Lanka (SEC) Act 1987, the Takeovers and Mergers Code, and the insider dealing provisions of the SEC Act. While the Companies Act and the CSE’s listing regulations stipulate mandatory disclosure requirements, the ICASL has regularly adopted, with necessary modifications, several accounting standards and auditing guidelines set out by some international bodies for the improvement of reporting practices in Sri Lanka. Until 1995, these standards mainly served as guidelines for accountants and auditors to prepare and audit accounts. However, after the enactment of the Sri Lanka Accounting and Auditing Act 1995, the compliance of the SLASs formulated and issued by the ICASL became mandatory for all public companies in the preparation of their financial statements. The Act also included a provision for the setting up of an Accounting Standards Committee, with half of its members representing different user groups. They placed equal responsibility for ensuring compliance with the standards on the management of the entity, and also on its auditors, who are required to report specifically on whether the entity has complied with the relevant SLASs. The application of SLASs is mandatory for all companies listed on the CSE (ICASL, 2006). In recent years, the ICASL has developed a conceptual framework for the preparation and presentation of financial statements. This framework sets out the concepts that underline the preparation and presentation of financial statements for external users. Although the framework is not an SLAS and does not override any specific SLAS, it greatly assists the Council of the ICASL in reviewing and developing accounting standards, and helps various other parties, such as the preparers and auditors of financial statements, to apply SLASs. The framework outlines the following: the objective of financial statements; the qualitative characteristics that determine the usefulness of information in financial statements; the definition, recognition and measurement of the elements from which financial statements are constructed; and concepts of capital and capital maintenance (ICASL, 2006). Athukorala and Reid (2002) report that Sri Lanka’s accounting and auditing services compare favourably to those of other countries, both emerging and developed for the private sector.

Research design The data reported in this study were collected through a questionnaire survey. Since one of the main purposes of this study was to examine the views of a wide spectrum of users, an attempt was made to cover all major users of annual reports in Sri Lanka. Table I shows that out of 41 studies of users of financial reports, 32 (78 percent) limited their enquiry to one or two user groups, being investors and financial analysts. These studies investigate the importance of individual line items, for example sales, in annual reports to one or two user groups. This study contributes to the dearth of literature by focusing on wider range of seven user groups. After having carefully examined the various user groups used in other studies and the Sri Lankan situation, seven user groups were chosen for this study. The questionnaire was administered to 150 accountants, 100 executives and managers, 50 bankers, 35 tax officers and assessors, 50 academics, 40 financial analysts, and 150 investors. The sample was drawn from the population located in the Colombo District, this being the major commercial and industrial city. A total of 575 copies of the questionnaire were distributed to the home or office addresses of the prospective respondents, along with a letter of request addressed personally to each. The questionnaire consisted of two sections and had 94 questions (14 in Part I and 80 in Part II). The first section dealt with the questions on the user profile and the usage patterns of annual reports in Sri Lanka; while the second section dealt with questions on items that should or could appear in corporate annual reports. The analysis of this paper is based on the responses received for Part I of the questionnaire. The applicable part of this questionnaire is shown in the Appendix. The breakdown of the response rates under each user group is shown in Table II. The user groups chosen are: . accountants (ACC); . executives/managers (EXE); . bankers (BAN); . assessors/tax officers (TAX); . academics (ACA); . financial analysts (FA); and . investors (individual, institutional, and stock broking) (INV). The sample was drawn from the population located in the Colombo District. Considering the difficulties faced by previous researches in getting a high response to

Company annual report users in Sri Lanka 189

User Accountants (ACC) Executives/managers (EXE) Bankers (BAN) Assessors/tax officers (TAX) Academics (ACA) Financial analysts (FA) Investors (INV) Total

Sample 150 100 50 35 50 40 150 575

Response 53 74 32 16 22 24 43 264

Percentage 35.3 74.0 64.0 45.7 44.0 60.0 28.7 45.9

Table II. Survey response by category of users

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questionnaire surveys in Sri Lanka and other emerging markets, as a possible strategy to avoid this problem, it was decided to adopt two methods for the distribution and collection of the questionnaire. The first method employed was to deliver and collect the questionnaire by the first author himself and through a number of persons with whom he had personal contacts. All the persons who delivered the questionnaire to the people known to them were briefed properly about the objectives and the nature of the questionnaire. Based on this method, 243 copies of the questionnaire were distributed during August and September 2000. The second method employed was a mail survey in which 332 copies were mailed to the home/office addresses of the prospective respondents along with a letter of request addressed personally to each of them. The questionnaire and the letter of request were provided only in English. A stamped envelope was also sent for easy returning of the completed questionnaire. The sample of accountants was drawn from the Directory of Members and Firms 1999 issued by the ICASL. Since 32 of the 150 accountants included in the sample were personally known to the researcher, they were handed over the questionnaire personally. The questionnaire for the other 118 accountants was mailed to their addresses. The sample of the executives/managers (100) was drawn from the students’ registry of the Master of Business Administration degree program of the Postgraduate Institute of Management (PIM) and randomly selected public and private companies located in Colombo. All questionnaires for this category were distributed personally either by researcher himself or through PIM. The sample of 50 bankers (senior managers) was drawn from two leading commercial banks (the Sampath Bank and the Bank of Ceylon) as well as from bank managers enrolled in the MBA program of PIM. The sample of 35 tax officers (assessors) was taken from those working in the Department of Inland Revenue, Colombo. The questionnaires for these two categories, bankers and tax officers, were distributed personally. The sample of academics consisted of 12 senior lecturers/lecturers from the Department of Accounting of the University of Sri Jayewardenepura (USJ) and randomly selected 38 senior lecturers from the commerce and management faculties of the Colombo, Kalaniya, and Peradeniya universities. While the questionnaires for the 12 lecturers of the USJ were handed over personally, they were mailed to the other 38 lecturers through their respective universities. Because of the non-availability of a formal list of financial analysts in Sri Lanka, the researcher had to draw the sample of financial analysts (40) from two indirect sources. First, 14 financial analysts who were personally known to the researcher were included in this group and the questionnaire was given to each of them personally. Then, the next 26 members for this group were randomly chosen from the chartered accountants who were listed as “financial consultants” in the ICASL’s Directory of Members and Firms 1999, and the questionnaire was mailed to all of them. Finally, a list of 150 investors was prepared with the information obtained from the CSE and the questionnaires were mailed to their home addresses. Every attempt was made to obtain a high response rate for the questionnaire with a view to minimising the effect of non-response bias. As for the 243 copies of the questionnaire distributed personally, researcher himself visited the respondents to collect the completed questionnaire. While some respondents returned the completed questionnaire as expected at the researcher’s first visit, others sought extra time to complete it. In such cases, visits had to be repeated. However, even after several visits some respondents did not return the questionnaire stating that they could not find the time to fill it. Also, a number of respondents could not

be contacted after the first visit. As for the mailed questionnaires, considering the cost factor, it was decided to limit the number of reminders to one. Accordingly, reminders were sent to those who had not responded within the first two weeks after mailing the questionnaire. Since the mailed questionnaires were pre-numbered before they were posted, it was possible to identify the non-respondents by their names. The total response rate of 45.9 percent compares favorably with those of the previous studies (Table I). The analysis of the profiles of respondents revealed that the majority of respondents (82 percent) had gained a tertiary qualification, indicating that they have a high level of education. This is also true in respect of their knowledge in accounting, with over 95 percent of the respondents having studied accounting at some level. Only 4.3 percent of the users did not have any education in accounting. The level of experience of the user groups was also very high, with 73 percent of them had over five years working experience in their present capacity and 13.8 percent had over 20 years working experience. The majority of respondents (83.7 percent) also owned shares in companies. Overall, the demographics of the respondents indicate that they are well educated, knowledgeable in accounting, highly experienced and interested in investments in shares of companies. Research questions In order to examine the user responses pertaining to the usefulness of annual reports for their needs, this study addressed the following research questions: RQ1. What is the major purpose of using annual reports in Sri Lanka as perceived by their users; and is there any significant difference between the perceptions of various users in relation to the purposes of using annual reports? RQ2. How important is the annual report for various users as an information source; and is there any significant difference between the perceptions of various users in relation to the importance of various sources of information? RQ3. Is the information provided in annual reports adequate for user needs; and is there any significant difference between the perceptions of various users in relation to the adequacy of information provided in annual reports? RQ4. What section of the annual reports do users perceive as important; and is there any significant difference between the perceptions of various users in relation to the importance they attach to the different parts of annual reports? RQ5. How frequently are annual reports used by users; and is there any significant difference between the perceptions of various users in relation to the degree of use of annual reports? RQ6. What are the problems that restrict the use of annual reports and is there any significant difference between the perceptions of various users in relation to the problems that restrict the use of annual reports in Sri Lanka? RQ7. Can the time lag between the end of the financial year and the issue of annual reports be avoided; and is there any significant difference between the perceptions of various users in relation to the reduction or avoidance of this time lag?

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Results and discussion The analysis of the survey results is reported under seven sections: purpose of using annual reports, sources of information, adequacy of information, importance of different parts of annual reports, frequency of using annual reports, factors restricting the use of annual reports and finally, the time lag of publishing annual reports. Purpose of using annual reports Company annual reports are used by several different parties to obtain information for various purposes, such as investing, lending, administrative, research, and academic. In order to examine whether there were any significant differences between the seven user groups with regard to the purposes of using annual reports, the respondents were asked to indicate their major purposes in using company annual reports. Seven probable purposes were listed in the questionnaire, with a request to choose one or more appropriate items from the list. Additional space was also provided for indicating any other purposes. When the survey results were analysed using Kruskal-Wallis one-way ANOVA test, it was revealed that the differences between the user groups with regard to their purposes of using annual reports were significant at the 1 percent level for all the seven purposes listed in the questionnaire. This suggests that the purposes for which annual reports are used vary significantly across different user groups. This finding is consistent with a study in Bangladesh done by Karim (1995). Since 47.7 percent of respondents indicated that they use annual reports for obtaining information to buy, hold or sell shares, this can be considered to be the major purpose of using corporate annual reports in Sri Lanka. When analysed by the user groups, three groups (ACC, FA, and INV) indicated this as the mostly used purpose, while three other groups (BAN, TAX, and ACA) viewed it as the second-most used purpose. According to the other group (EXE), however, making decisions was the main purpose. This ranking of executives (managers) is quite reasonable, because the information provided in annual reports is very important to them in their decision making. Overall, the view that buying, holding or selling shares was the most-used purpose by all respondents suggests that most of the user groups are interested in share investments. Karim (1995) found that buying, holding or selling shares in a private capacity was the second most favoured reason for using annual reports, while making decision on behalf of a client was given as the most common reason for using annual reports. This was to be the third most important reason in this study. The item “general review/academic purposes” was identified by 38.3 percent of respondents as the second most-used purpose. While it was ranked second by four of the seven user groups (ACC, EXE, TAX, and INV), three other groups (BAN, ACA, and FA) ranked it third, first, and fifth, respectively. The wide use of annual reports for general review and academic purposes is understandable because these purposes are generally applicable to all user groups. Sources of information In addition to the annual reports, one can occasionally obtain information about financial and non-financial aspects of a company from several other sources. Stock brokers’ advice, investment advisory services of accounting firms, and newspaper reports are some examples of these other sources. Depending on the information needs of users, the importance they attach to various sources of information may significantly vary among various users. Thus, in order to examine the importance of

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various sources of information for each of the seven user groups, the respondents were asked to indicate the importance they attach to ten possible sources of information that could be used to gather information on financial and non-financial affairs of a company. A Likert scale ranging from one (least important) to five (most important) was used for indicating the user importance on the given items. The mean score received for each source in individual user groups and all groups is shown in Table III. The results of the Kruskal-Wallis test carried out to determine whether there were statistically significant differences between users groups in respect of the sources listed in the questionnaire revealed that users’ perception varied significantly in relation to eight of the nine items listed in the questionnaire. As per the ranking of the sources, four of the seven user groups (EXE, BAN, ACA, and INV) ranked annual reports as their primary source of information, with ACC and FA rating it as the second most important source. Only one user group (TAX) ranked two other sources ahead of annual reports as their primary sources of information, making the annual report as the third most important source. Overall, annual reports were cited as the primary source of information, with mean values across user groups ranging from 30.25 to 4.49, leading to an overall mean value of 4.30. Apart from annual reports, personal information and knowledge about the company was viewed as the next-most important source of information on overall rankings, with a mean value of 4.06. In addition to the three user groups (ACC, TAX, and FA) which cited this as their primary source, the other four groups also ranked it within the top three sources of information. While “stock market publications” and “communication with the company management” enjoyed third and fourth rankings, with mean values of 3.85 and 3.44, respectively, “advice of friends” and “tips and rumours” were perceived as the least-used sources, with mean values of 2.36 and 2.55, respectively. The above rankings also show that despite the increased number of companies disclosing more information on the internet, it is still not regarded by many users as a very important source of information for the purposes discussed above. This is consistent with the findings of Lane et al. (2004) who found that while in Colombo internet and electronic commerce capability are relatively sophisticated, in regional Sri Lanka basic internet infrastructure is either non-existent or unreliable and relatively expensive (Lane et al., 2004). Similarly, “newspaper reports and other media reviews” were not seen as very useful, despite recent efforts taken by the SEC to provide periodic information on company affairs through this media. The findings of this research are consistent with
Source Advice of friends Stockbrokers’ advice Advisory services of accounting firms Communication with company management News paper reports and other media reviews Company annual reports Stock market publications Tips and rumours Personal information and knowledge about the company Information provided on the internet ACC EXE BAN TAX ACA 1.87 3.13 3.62 3.28 3.55 4.19 3.89 2.72 4.38 3.09 2.74 3.24 3.26 3.35 3.34 4.42 3.65 1.96 4.05 2.92 2.41 2.78 3.06 3.28 3.38 4.44 4.13 3.06 3.91 3.31 3.00 2.50 2.75 3.63 2.31 3.25 3.00 3.00 3.75 1.75 2.41 3.32 2.91 3.32 3.41 4.36 4.27 1.73 3.64 3.41 FA 2.75 3.08 2.67 3.58 3.42 4.29 3.75 3.42 4.50 1.50 INV Total 1.79 3.53 2.70 3.79 3.81 4.49 4.12 2.72 3.86 2.79 2.36 3.16 3.10 3.44 3.41 4.30 3.85 2.55 4.06 2.82

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Table III. The importance of various sources of information

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the study undertaken by Abu-Nassar and Rutherford (1995) who examined sources of financial information most used in Jordan, another emerging economy. They found that the most favoured source of primary financial information was the annual report for four groups of users namely academics, stockbrokers, institutional shareholders and individual shareholders. Adequacy of information in annual reports In order to examine the sufficiency of the information in annual reports for different users, the respondents were asked to indicate whether the annual reports they used contained information adequate for their purposes by choosing either “adequate”, “not adequate” or “partially adequate” as the correct response. The survey data show that only 25.4 percent of all respondents perceived that the information provided by annual reports was adequate, while the majority of respondents (74.6 percent) viewed it as either partially adequate or not adequate at all. The group-wide responses were also very similar to the overall perceptions, with the exception of the ACA group, which viewed the information provided by annual reports as only partially adequate. The percentage of users viewing the amount of information provided by annual reports as completely inadequate varied from zero to 14 percent across all user groups. When the Kruskal-Wallis test was carried out seven times, excluding a user group at a time, in order to identify which group had an opinion significantly different from that of other groups, no statistically significant differences of opinion were found with regard to this issue when the ACC groups was excluded from the sample. This suggests that all groups, except ACC, hold a similar view on the adequacy of information content in annual reports. This finding is consistent with Abu-Nassar and Rutherford (1995) who found Jordanian users of financial reports regarded the adequacy of information provided insufficient for their purposes. Importance of different parts of annual reports The information is presented in annual reports under different sections. While some sections, such as profit and loss account and the balance sheet are mandatory, other sections such as the chairman’s report and value-added statements are voluntary items for an annual report. Moreover, some sections of the annual report present quantitative data while others provide only qualitative information. The importance of each section may vary significantly among user groups. Thus, in order to examine this issue, information was sought from the respondents in respect of their perceived importance on 11 sections that are usually found in annual reports. They were requested to indicate their degree of importance to each section on a five-point Likert scale ranging from the least important section (1) to the most important section (5). The results are summarised in Table IV. The balance sheet and the profit and loss account were perceived to be the most important sections of an annual report, both having almost similar mean scores of 4.51 and 4.50, respectively, on the overall rankings. The analysis of the survey results by Kruskal-Wallis test showed that the differences between user groups were significant at the 1 percent ( p , 0.01) level with regard to eight of the ten sections listed in the questionnaire. This suggests that the importance attached by the seven user groups to nine sections of an annual report significantly vary between groups. However, since the calculated p-values of the

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Section Balance sheet Profit and loss account Cash flow statement Accounting polices Notes to accounts Movement in shareholders’ funds Auditor’s report Chairman’s report Directors’ report Value added statements Statistical data/summary/history

ACC 4.89 4.43 4.25 3.87 4.06 3.49 3.81 1.96 2.15 3.09 4.02

EXE 4.28 4.54 4.42 3.18 3.09 3.86 2.59 2.45 2.30 2.76 3.89

Mean of responses BAN TAX ACA FA 4.38 4.47 4.06 3.78 4.25 3.75 3.94 2.81 2.94 3.09 3.47 4.19 4.13 2.25 3.63 4.13 2.75 3.88 2.75 3.75 3.50 2.50 4.64 4.41 4.23 3.82 4.09 3.91 3.82 2.09 2.23 4.00 3.91 4.58 4.67 4.33 3.50 4.08 3.21 3.08 3.17 2.17 2.50 3.64

INV 4.56 4.63 4.02 3.58 3.81 3.67 3.05 2.74 2.86 3.09 4.44

Total 4.51 4.50 4.12 3.56 3.78 3.62 3.30 2.50 2.51 3.05 3.85

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Table IV. Importance of different parts of annual report

Kruskal-Wallis for two sections of an annual report (profit and loss account and accounting policies) were greater than 5 percent ( p . 0.05), there is no significant difference, in statistical terms, between the user groups in respect of importance attached to these two sections of an annual report. A closer look at the mean values of the responses indicate that users generally perceive the balance sheet and the profit and loss account to be the most important sections in annual reports. Both these sections scored similarly, with means of 4.51 and 4.50, respectively, on the overall rankings. While six out of the seven user groups ranked these two statements as the most important, the other user group (EXE), while ranking profit and loss account as the most important section, chose the cash flow statement over the balance sheet as the second-most important section. Most studies in the literature focus on developed markets (Chang and Most, 1981; Anderson, 1998; Ho and Shun-Wong, 2001) and emerging markets (Karim, 1995; Abu-Nassar and Rutherford, 1995), observe that both the balance sheet and the profit and loss account are the most important sections in annual reports. While this study found auditors’ reports as the eighth ranked preferred source of information, this is inconsistent with a prior study undertaken by Wallace (1988) who claimed the auditor’s report to be of significance in developing countries, where it was given the highest ranking for importance across the surveyed user groups. Frequency of using annual reports The degree of use of annual reports varies between users. While some individuals or organizations use company annual reports quite frequently, others use them occasionally. The respondents were asked to indicate the frequency of using annual reports for making decisions by ticking one of the five possible frequencies given in the questionnaire. The proportion of respondents using annual reports very frequently (usually/always) was 41.2 percent. Conversely, the less-frequent users (rarely/sometimes) were 48.7 percent, with the total users of annual reports amounting to 89.9 percent. However, the results of the Kruskal-Wallis test (x 2 ¼ 26.47, df ¼ 6, p ¼ 0.00) showed that the frequency of using annual reports was significantly different among users. When these figures were analyzed in terms of user groups, it was found that financial analysts were the most frequent users of annual reports. This suggests that annual report analysis is an indispensable tool for financial analysts in Sri Lanka, despite their ranking of “personal information and

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knowledge” ahead of the annual report as the primary source of information for decision making. On the other hand, in line with the lower ranking given by tax authorities for the annual report as a source of information for their decision making, tax authorities were the least frequent group of users of annual reports among the sample groups. Factors restricting the use of annual reports Several factors seem to restrict the use of annual reports, namely the delay in publishing annual reports, the difficulty of obtaining them and the lack of reliability in the information provided. Respondents were asked to indicate whether one or more of the five factors listed in the questionnaire restricted their use of annual reports. Additional space was also provided to supply any other factors. The survey showed the delay in publishing annual reports was viewed by a vast majority of respondents (71.7 percent) as the prime factor restricting the use of annual reports in Sri Lanka. This item was ranked the main limiting factor by four user groups and as the second major limiting factor by the other three groups, with percentages ranging within user groups from 54.2 to 92.5. This indicates the overall agreement of users on the seriousness of this limitation. The use of annual reports was constrained by the apparent difficulty of obtaining them, with 58.8 percent of all respondents indicating it as the second major limiting factor. Financial analysts and investors viewed this as the most serious limitation, ranking it ahead of “delay in publishing”, with percentages of 81.8 and 90.7, respectively. The results of the Kruskal-Wallis test showed p-values greater than 5 percent ( p . 0.05) for all five factors. This result suggests that there is no significant difference of opinion between user groups with regard to the factors that limit their use of annual reports. This result is consistent with a study done by Mirshekary (1999) who also found the delay in publishing is primary reason that restricts the use of annual reports in Iran. Time lag in publishing annual reports Publication delay was viewed as a major problem faced by the users of annual reports in Sri Lanka. This describes the time lag between the end of the accounting period and the date of publishing the annual report. Companies are required to present annual reports to both the shareholders and the Securities Exchange Commission no greater than six months after the close of the financial year (Securities Exchange Commission of Sri Lanka, 2006). Because of this time lag, it is perceived that the information provided in annual reports is outdated. In order to examine the opinions of the users about the delay in publishing annual reports, the respondents of this survey were asked to indicate their personal observations on this matter by stating in their opinion whether the time lag was unavoidable or whether it could be reduced. When the responses were statistically analysed using Kruskal-Wallis test (x 2 ¼ 40.20, df ¼ 6, p ¼ 0.00), it was found that the opinions with regard to this aspect differs significantly among the user groups. However, overall, an overwhelming majority (89.7 percent) of respondents thought that the existing time lag associated with the publication of annual reports in Sri Lanka could be reduced. This view was shared equally by all the user groups, except 50 percent of tax officers who indicated that the time lag was unavoidable. There is some evidence of the accuracy of these perceptions. In 1999, the Sri Lankan Department of Public Finance reported that there were still audited public corporation accounts outstanding for 1996 and 1997, and that no reports had been received for 1998

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(Asian Development Bank, 2000, p. 6, as cited by Athukorala and Reid, 2002). Also, as previously indicated in the second section, companies are put on the default list for failure to produce and distribute a corporate annual report, with 24 companies being listed as at June 12, 2007 (Daily News, June 13, 2007). It is noted this research does not attempt to report on the reasonableness of such delays or speculate on the causes (these are identified as areas for further research), but only on the perceptions of users in Sri Lanka. The finding of a perceived publication delay of annual reports is consistent with the findings of Abu-Nassar and Rutherford (1995) who found that users of financial reports in Jordan used alternative sources of information because they were more up to date than other sources, and gave information not found in annual reports. Similarly, Naser et al. (2003) in a study of users’ perceptions of various aspects of corporate reporting in Kuwait, regarded the timeliness of financial reports to be important, with users either strongly agreeing or agreeing that the annual report should be published no later than 30 days subsequent to the end of the accounting period. Owusu-Ansah and Leventis (2006) in a study on the timeliness of corporate annual financial reporting in Greece found that large companies, service companies, and companies that are audited by larger international accounting firms have a shorter final reporting lead-time. This is consistent with smaller companies in an emerging economy with a small accounting profession, such as is the case in Sri Lanka, being perceived to have a longer time lag in financial reporting. Summary and conclusions The major objective of this study was to examine the perceptions on the usefulness of annual reports in the emerging market of Sri Lanka, through a questionnaire survey covering a wide spectrum of user groups. The results of the survey reveal that the major purpose of using company annual reports in Sri Lanka is to obtain information needed for making decisions involving buying, holding or selling shares. The majority of users also indicated that they use annual reports frequently, indicating the important role annual reports play in their decision-making functions. Moreover, although the amount of information provided by annual reports is perceived to be inadequate, all categories of users considered annual reports to be primary source of information. The balance sheet and the profit and loss account are perceived to be the most important sections of the annual report. As indicated by the majority of respondents in this study, it is perceived that the delay in publishing annual reports is the major obstacle that constrains their use in Sri Lanka. Most respondents also indicated that they thought this delay can be reduced substantially. It is conjectured that the delay in the publication of company annual reports acts as a serious obstacle to the capital formation in the developing economy of Sri Lanka. This is identified as an area for further research to determine if authorities need to adopt suitable regulatory measures for reducing this time lag as a necessary step towards strengthening the emerging capital market in Sri Lanka. The results of this study were subject to the limitations commonly associated with all mail surveys in respect of the reliability and accuracy of information. Although this paper was based on a small part of a comprehensive study on corporate disclosures in Sri Lanka, for pragmatic reasons, it did not analyse the respondents’ perceptions on each of the information items presented in annual reports. However, the exclusion of

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such an analysis may have affected the usefulness of this paper. Almost all respondents who participated in the questionnaire survey had at least a fair knowledge of accounting and a reasonably high level of education. If persons without such an educational background were included in the sample, the results of the study could have been different. Therefore, it is important to replicate this study in the future by taking a larger sample consisting of individuals with different levels of educational background.
References Abu-Nassar, M. and Rutherford, B.A. (1995), “Preparers’ attitudes to financial reporting in less developed countries with moderately sophisticated capital markets: the case of Jordan”, The International Journal of Accounting, Vol. 30 No. 2, pp. 129-38. Anderson, A. (1981), “The usefulness of accounting and other information disclosed in corporate annual reports to institutional investors in Australia”, Accounting & Business Research, Autumn, pp. 259-65. Anderson, R. (1981), “The usefulness of annual reports”, in Courtis, J.K. (Ed.), Communication Via Annual Reports, Department of Accounting and Financial Management, University of New England, Armidale. Anderson, R. (1998), “Regulating corporate annual reports in Australia”, Business and Economic History, Vol. 27 No. 2, pp. 522-34. Anderson, R. and Epstein, M. (1986), The Usefulness of Corporate Annual Reports to Shareholders in Australia, New Zealand, and the United States: An International Comparison, JAI Press, London. Anderson, R. and Epstein, M. (1995), “The usefulness of annual reports”, Australian Accountant, April, pp. 25-8. Athukorala, O. and Rajapatirana, S. (2000), “Liberalization and industrial transformation: lessons from the Sri Lankan experience”, Economic Development and Cultural Change, Vol. 48 No. 3, pp. 543-72. Athukorala, S. and Reid, B. (2002), Diagnostic Study of Accounting and Auditing Practices in Sri Lanka, Asian Development Bank, Manila. Baker, H.K. and Haslem, J.A. (1973), “Information needs of individual investors”, The Journal of Accountancy, November, pp. 64-9. Baker, H.K., Chenhall, R.H., Haslem, J.A. and Juchau, R.H. (1977), “Disclosure of material information: a cross-national comparison”, The International Journal of Accounting, Fall, pp. 1-18. Belkaoui, A., Kahl, A. and Peyrard, J. (1977), “Information needs of financial analysts: an international comparison”, The International Journal of Accounting, Fall, pp. 18-27. Benjamin, J., Stanga, J. and Keith, G. (1977), “Differences in disclosure needs of major users of financial statements”, Accounting & Business Research, No. 27, pp. 187-92. Buzby, S.L. (1974), “Selected items of information and their disclosure in annual reports”, The Accounting Review, July, pp. 423-35. Chandra, G. (1974), “A study of the consensus on disclosure among public accountants and security analysts”, The Accounting Review, October, pp. 733-42. Chandra, G. (1975), “Information needs of security analysts”, The Journal of Accountancy, December, pp. 65-70. Chandra, G. and Greenball, M. (1977), “Management reluctance to disclose: an empirical study”, Abacus, December, pp. 141-54.

Chang, L.S. and Most, K.S. (1977), “Investor uses of financial statements: an empirical study”, The Singapore Accountant, Vol. 12, pp. 83-91. Chang, L.S. and Most, K.S. (1981), “An international comparison of investor uses of financial statement”, The International Journal of Accounting, Fall, pp. 43-60. Chenhall, R. and Juchau, R. (1976), “Information requirements of Australian investors”, Journal of the Securities Institute of Australia, No. 2, pp. 8-13. Chenhall, R.H. and Juchau, R. (1977), “Investor information needs: an Australian study”, Accounting & Business Research, Vol. 7 No. 27, pp. 111-19. Chow, C.W. and Wong-Boren, A. (1987), “Voluntary financial disclosure by Mexican corporations”, The Accounting Review, Vol. 62 No. 3, pp. 533-41. Courtis, J.K. (1979), Annual Report Disclosure in New Zealand: Analysis of Selected Corporate Attributes, Department of Accounting and Financial Management, University of New England, Armidale. Daily News (2007), “Colombo Stock Exchange stack market statistics”, Daily News, June 13, available at: www.dailynews.il/2007/06/14/ShareMarket.asp (accessed January 11, 2008). Deegan, C. (2007), Financial Accounting Theory, 2nd ed., McGraw-Hill, Sydney. Firer, C. and Meth, G. (1986), “Information disclosure in annual reports in South Africa”, OMEGA, Vol. 14 No. 5, pp. 373-82. Firth, M. (1979), “The impact of size, stock market listing, and auditors on voluntary disclosure in corporate annual reports”, Accounting & Business Research, Autumn, pp. 273-80. Ho, S.M. and Shun-Wong, K. (2001), “A study of corporate disclosure practice and effectiveness in Hong Kong”, Journal of International Financial Management and Accounting, Vol. 12 No. 1, pp. 73-102. ICASL (2006), Sri Lanka Accounting Standards, Institute of Chartered Accountants of Sri Lanka, available at: www.icasrilanka.com (accessed June 7, 2006). Jaggi, B.L. (1975), “The impact of the cultural environment on financial disclosures”, The International Journal of Accounting, Fall, pp. 75-84. Joshi, P.L. and Abdulla, J. (1994), “An investigation into the information requirements of Indian private investors within annual reports”, Accounting Forum, September, pp. 21-5. Karim, A.K.M. (1995), “Provision of corporate financial information in Bangladesh”, unpublished PhD thesis, School of Business and Economic Studies, University of Leeds, Leeds. Lane, M., van der Vyver, G., Delpachitra, S. and Howard, S. (2004), “An electronic commerce initiative in regional Sri Lanka: the vision for the central province electronic commerce portal”, The Electronic Journal on Information Systems in Developing Countries, available at: www.ejisdc.org (accessed January 14, 2008). Lanka Business Online (2007), “New Sri Lanka company law seen cleaning up stock exchange ‘default board’”, Lanka Business Online, available at: www.lankabusinessonline.com/ fullstory.php?newsID¼823908678&no_view (accessed January 10, 2008). La Porta, R., Lopez-de-Silanes, F. and Vishny, R. (1998), “Law and finance”, Journal of Political Economy, Vol. 106 No. 6, pp. 1113-55. Lee, T.A. and Tweedie, D.P. (1975), “Accounting information: an investigation of private shareholder usage”, Accounting & Business Research, Autumn, pp. 280-91. McNally, G.M., Eng, L.H. and Hasseldine, R. (1982), “Corporate financial reporting in New Zealand: an analysis of user preferences, corporate characteristics and disclosure practices for discretionary information”, Accounting & Business Research, Vol. 13 No. 4, pp. 11-20.

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Malone, D., Fries, C. and Jones, T. (1993), “An empirical investigation of the extent of corporate financial disclosure in the oil and gas industry”, Journal of Accounting, Auditing and Finance, Vol. 8 No. 3, pp. 249-73. Manoharan, M. (1972), “Professional and business ethics in an era of social change”, The Accountancy Journal (Sri Lanka), Vol. 2, p. 30. Mirshekary, S. (1999), “An empirical investigation of the quality of disclosure in corporate financial reports in developing countries: the case of Iran”, unpublished PhD thesis, Department of Accounting and Finance, University of Wollongong, Wollongong. Naser, K., Nuseibeh, R. and Al-Hussaini, A. (2003), “Users’ perceptions of various aspects of Kuwaiti corporate reporting”, Managerial Auditing Journal, Vol. 18 Nos 6/7, pp. 599-617. Nicholls, D. and Kamran, A. (1995), “Disclosure quality in corporate annual reports of non-financial companies in Bangladesh”, Research in Third World Accounting, Vol. 3, pp. 149-70. Owusu-Ansah, S. and Leventis, S. (2006), “Timeliness of corporate annual financial reporting in Greece”, European Accounting Review, Vol. 15 No. 2, p. 273. Parliament of the Democratic Socialist Republic of Sri Lanka (1982), Sri Lanka Companies Act No. 17, Government Press, Colombo. Perera, M.H.B. (1975), “Accounting and its environment in Sri Lanka”, Abacus, June, pp. 86-96. Perera, M.H.B. (1989), “Accounting in developing countries: a case for localized uniformity”, British Accounting Review, Vol. 21, pp. 141-58. Rahman, A.B. (1999), “A study of the consensus on disclosure of selected items in corporate annual reports”, The 11th Asian-Pacific Conference on International Accounting Issues, Melbourne, November 21-24. Robbins, W.A. (1984), “Consensus between preparers and users of municipal annual reports: an empirical analysis”, Accounting & Business Research, Spring, pp. 157-62. Rohan, R. (1996), “New expectations in financial reporting”, Management Accounting, July, p. 50. Rudkin, K. (2007), “Accounting as myth maker”, Australasian Accounting Business and Finance Journal, Vol. 3, pp. 13-24. Securities Exchange Commission of Sri Lanka (2006), Annual Report, SEC of Sri Lanka, Colombo. Stanga, K.G. and Tiller, M.G. (1983), “Needs of loan officers for accounting information from large versus small companies”, Accounting & Business Research, Winter, pp. 63-70. Wallace, R.S.O. (1988), “International and national consensus on the importance of disclosure items in financial reports: a Nigerian case study”, British Accounting Review, Vol. 20, pp. 223-65. Wallace, R.S.O. and Cooke, T.E. (1988), “Corporate financial reporting in Nigeria”, Accounting & Business Research, Vol. 18, pp. 352-62. Wilton, R.L. and Tabb, J.B. (1978), “An investigation into private shareholder usage of financial statements in New Zealand”, Accounting Education, Vol. 18 No. 1, pp. 169-75. Winfield, R.R. (1978), “Shareholder opinion of published financial statements”, in Courtis, J.K. (Ed.), Corporate Annual Report Analysis, Department of Accounting and Financial Management, University of New England, Armidale.

Further reading Central Bank of Sri Lanka (1998), Economic Progress of Independent Sri Lanka, Central Bank of Sri Lanka, Colombo.

Appendix. Questionnaire
1. Please indicate [ ] your occupation. Partner/Accountant in an audit firm Accountant in a company Manager/Executive in a company Manager/Executive in the Govt. Employee of a company/ Govt. Banker 2. Highest Educational qualification (Tick one box) Primary G.C.E (Ordinary level) G.C.E (Advanced level) Diploma Bachelor's Degree Master's Degree Doctor's Degree Other (Please specify):………….. 4. How long have you been in your present profession? Less than one year 1 - 5 years 5 - 10 years 10 - 15 years 15 - 20 years Over 20 years

Assessor/Tax officer Lecturer/Researcher Financial analysts/consultant Stock broker Other (please specify):……………………… 3. Accounting Knowledge/Qualifications (Tick appropriate box[s]) None G.C.E (Ordinary level) / (Advanced level) Diploma Bachelor's Degree ICA / CIMA parts, MAAT/SAT Master's Degree/ Doctoral Degree ICMA/ CIMA / ACCA membership ICA membership Other (Please specify):………………………. 5. In how many companies have you purchased shares? None One company 2 - 5 companies 6 - 10 companies 11 - 20 companies Over 20 companies

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6. Do you use information given in company annual reports for making a decision? [Decision may be to buy, sell, or hold shares; to approve a loan to a company; to advise a client; to evaluate the performance of a company, etc.] (Please tick only one box.) Never Rarely Sometimes Usually Always 7. For what purpose(s) do you use company annual reports? (Please tick appropriate box or boxes.) to decide whether to buy, hold or sell shares to grant a loan / trade credit to a company to advise a client to make decisions for a client or employer to evaluate income tax liability to make decisions in managing the company to know about the company for academic purposes Other (Please specify):………………………………….. 8. To know about the financial position and operating performance of a company, how important, in your opinion, are the following sources of information? Least important [Please circle only one.] Most important Advice of friends 1 2 3 4 5 Stockbrokers' advice 1 2 3 4 5 Advisory cervices of accounting firms 1 2 3 4 5 Communication with company management 1 2 3 4 5 News paper reports and other media reviews 1 2 3 4 5 Company annual reports 1 2 3 4 5 Stock market publications 1 2 3 4 5 Tips and rumours 1 2 3 4 5 Personal knowledge about the company 1 2 3 4 5 Information provided on the Internet 1 2 3 4 5 Other (Please specify)…….……………………………..… 1 2 3 4 5 9. Do you think that the company annual report(s) that you use contain adequate information necessary to serve your purpose of using them? Yes No Partially adequate 10. What ranking of importance would you give to the following parts of a company annual report? Least important [Please circle only one.] Most important Balance sheet 1 2 3 4 5 Profit and Loss Account 1 2 3 4 5 Cash flow statement 1 2 3 4 5 Accounting polices 1 2 3 4 5 Notes to accounts 1 2 3 4 5 Movement in shareholder's funds 1 2 3 4 5 Auditors' Report 1 2 3 4 5 Chairman's Report 1 2 3 4 5 Directors' Report 1 2 3 4 5 Value added statements 1 2 3 4 5 Statistical data/summary of operations/historical data 1 2 3 4 5 12. As a user of company annual reports, in your opinion what problems restrict their use? ( Please tick appropriate box or boxes.) Difficulty of obtaining annual reports Lack of reliable information in annual reports Delay in publishing annual reports Lack of simplicity in the contents and presentation of information Lack of adequate financial info in annual reports Other (Please specify):…………………………………………… 13. There is a time lag between the end of an accounting period and the date of publishing an annual report. What is your personal observation of this time lag? (Please tick only one box.) This time lag is unavoidable. This time lag can be reduced

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About the authors Anura De Zoysa is a Senior Lecturer in Accounting at the University of Wollongong, Australia. He received his PhD (Accounting) from the University of Wollongong and has an MEc (Hons) from the Wakayama University in Japan. Before joining the University of Wollongong, he worked at universities in Japan and Sri Lanka and also served as a Goodwill Ambassador of the Nagoya International Centre in Japan from 1997 to 1998. He is also a CPA and a CMA in Australia and a FCA in Sri Lanka. He has had articles published in international journals including, The International Journal of Accounting, Journal of Small Business Management, Journal of Industrial Management and Data Systems, Journal of Management Development, and Journal of Accounting and Finance. He has also presented papers in a number of international conferences held in the USA, the UK, Australia, Japan, Brazil, Spain, Thailand, and Italy. His research interests are financial reporting, accounting practices in small enterprises, small business management, cost and management accounting. Anura De Zoysa is the corresponding author and can be contacted at: anura@uow.edu.au Kathy Rudkin is a Senior Lecturer in Accounting at the University of Wollongong, Australia. She has worked in business as a corporate accountant and has been involved in the governance of educational institutions in the community. Her publications include Critical Perspectives on Accounting Journal and the Australasian Accounting Business and Finance Journal. She has presented papers in a number of international conferences held in the USA, Australia, New Zealand, and Spain. Her research interests are financial reporting, accounting theory, accounting history, and accounting education.

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