Decision-Usefulness in Financial Reports, Research Report No. 1: Are financial reports still useful to investors?

For decades, financial reports have been accepted by investors and other external stakeholders as the primary window into a company’s financial performance and position. In addition to being a critical information source of a company’s financial health, financial reports are also considered an important mechanism to maintain the integrity of capital markets around the world. Recently, however, questions have been raised around the continuing usefulness of financial reports to investors. Some academic studies point to evidence indicating a decline in usefulness of financial reports to investors over time. Other reports seek to explain a loss of relevance of financial information due to the increasing number of information sources available to investors, and others interested in corporate financial information. The views emerging about financial reports around the world also resonate within the Australian financial reporting environment. With this in mind, a team of academics from the University of Melbourne and Monash University have undertaken academic research, with the support of CPA Australia, to establish whether financial reports remain useful to Australian investors. Contrary to findings elsewhere, the Australian study establishes that financial reports remain useful to investors, and remain so over time. This report is the first in a series of reports commissioned by CPA Australia and provides a summary of key findings of whether and, if so, how, financial statements are useful for equity investors in Australia