Prospectus Earnings Forecasts: Evidence And Explanations

Philip Lee, Stephen Taylor, Conrad Yee and Mervyn Yee

Australian Accounting Review, 1993, vol. 3, issue 5, 21-32

Abstract: Recent changes to prospectus regulations have generated considerable controversy. While the legally enforceable definition of “required information” may be uncertain, it seems clear that earnings forecasts are expected to play an important role. However, we find that the accuracy of these forecasts is questionable, as are many of the explanations offered for differences with the actual results. This calls into question the methods used for estimating future earnings and, ultimately, the usefulness of such forecasts. Laws relating to liability for prospectus information make this an issue of some concern for investors, as well as accountants and other professional advisers.

Date: 1993
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