The usefulness of IFRS-compliant reports: perceptions of Sri Lankan investors and lenders

Saman Bandara and Michael Falta

Asian Review of Accounting, 2021, vol. 29, issue 4, 525-557

Abstract: Purpose - This paper aims to examine differential perceptions of lenders and investors on (1) the use, perceived usefulness, importance and adequacy of annual reports, (2) the importance of qualitative characteristics (QCs) and (3) the perceived impact of International Financial Reporting Standards (IFRS) on financial reporting quality (FRQ) in Sri Lanka. Design/methodology/approach - A questionnaire survey study of practising professionals consisting of Sri Lankan investors (N = 214) and lenders (N = 235). Findings - In relation to (1), lenders and investors rank three out of ten information sources ahead of the remaining seven: both include annual reports and personal knowledge. However, the highest average response for lenders is direct communication with clients, and for investors, it is stock market publications. Within annual reports, both decision-makers identify financial statements as the most useful part. Concerning (2), they both identified understandability as the most important QC followed by timeliness. Relevance ranked last, surprisingly. In relation to (3), both groups perceived that the new IFRS reporting environment improved the FRQ compared to the previous Sri Lanka Accounting Standards regime. Practical implications - Ranking understandability as the most important QC in terms of decision usefulness contradicts IASB's categorisation. The authors provide empirical data on the perceived degree of success of adopting IFRS in a developing economy. Originality/value - The authors design a decision-oriented (lending vs investing) and context-specific (IASB's financial reporting framework) questionnaire to examine the perceptions of key capital providers separately on the issues mentioned above in “Purpose” within a developing economy. The survey fits into two aspects of the decision-useful theory: useful to make what decisions and useful to whom.

Keywords: Usefulness of annual reports; Investment and lending decisions; Qualitative characteristics; IFRS; Sri Lanka (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-03-2021-0058

DOI: 10.1108/ARA-03-2021-0058

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