Adequacy or Inadequacy of Accounting Informaton in Annual Financial Reports : Methodological Analysis

IntroductionThe Accounting profession essentially involves the supplying of information to decision-makers. Hence, it is no surprise that accountants have always been involved in many information-related problems. The need for this involvement is underscored by the avowed aim of accounting which, according to the American Accounting Association's Committee to prepare A Statement of Basic Accounting Theory (ASOBAT) , is the provision of relevant economic information to permit informed judgements and decisions by users of the information1. The attainment of this objective necessarily requires both the identification as well as the disclosure of an 'adequate' amount of information items considered relevant by the users. Consistent with this goal, ASOBAT has predicted that, in future, accounting may well merge with other disciplines with the result that a new information profession will evolve. For this transition to occur, and to enable the accountant to maintain his/her present relative position, San Miguel2 notes the need for research into the following areas:* information needs of (groups of) individuals and organizations both in terms of what is and what should be (emphasis added). Such needs, he advised, must be discovered and analyzed if the services rendered by information reporting are to be improved;* Impact of (accounting) measurements on human factors; and* improvement of measurement and communication techniquesAlthough research to date has produced evidence bearing on the last two areas3*4 no research evidence has, to these writers' knowledge, been reported in respect of the first suggested area.The importance of research in this area become obvious if one realizes that an ability to provide information relevant to decision-making requires an identification of the users' felt needs. This will, of course require an assessment of how well the existing information structure is satisfying the users' needs, as well as the identification of the information items considered important for decision tasks. It is on these that attention would then be focused regarding efforts at evolving the most appropriate measurement and communication techniques. Hence, research evidence relating to this area will enhance an efficient management of the information supplying function.The need for evidence bearing on this issue in the Nigerian environment is underscored by the concern expressed by some observers to the effect that in its present form, the published annual financial reports (AFRs) of public companies in Nigeria contain less than adequate information required for the users' needs. Consequently, they have advocated the disclosure of additional accounting information considered relevant to the users' needs. However, there is as yet no established procedure either for measuring information adequacy, or for the determination of the incremental value of any additional information item being considered for disclosure to enhance this adequacy. This article reports the preliminary findings of a suggested framework aimed at filling this gap. Specifically, the paper employs the Burnswick's Lens Model5 to provide evidence bearing oni) the extent of adequacy of information, andii) the nature and extent of redundancies, contained in published AFRs of public companies in Nigeria in their present form.For example, in the Nigerian context, Inanga6 indicated that the information content of published AFRs of public companies are inadequate for the users' needs. He has, therefore, suggested the disclosure of other information such as protected cash flow and future dividend levels.The discussion above suggests that mere additional disclosure may not always be the only or even the best, solution towards efforts aimed at providing an adequate information set for users needs. Instead, it would be desirable to evolve a well managed information disclosure process based upon the users' felt needs. …