Decision-Usefulness in Financial Reports: Research Report No.3: The effect of industry on the relevance of financial reports for investor decision making

The first two reports in this series highlighted that, while financial reports have been criticised for increasingly not meeting the needs of users, recent Australian evidence indicates they are still of relevance to investors. While the results suggest there is room for improvement, the findings do not mark the end of accounting as we know it, as has been the call from some industry and academic writers. In this report, we examine the effect of industry on the relevance for investor decision making in Australia. It has been argued that an increase in importance of a knowledge-based economy is a reason why financial reports may not be as useful for investor decision making purposes. Our results show that financial reports remain relevant for investors, and that financial reporting is consistently relevant over time, regardless of industry. This is demonstrated by archival findings and supported by evidence from field interviews. Our archival findings demonstrate that only two of eight industries experienced a decline in financial reporting relevance, namely the energy and financial industries. Of the remaining industries, information technology (IT) and telecommunications firms experienced the most dramatic increase in financial reporting relevance, despite being intangibles-intensive. While telecommunications firms experienced greater volatility in the relevance of their financial reports than IT firms, overall the findings indicate that financial reporting remains decision-useful in intangibles intensive industries.