FINANCIAL DISCLOSURE AND ITS IMPACT ON COMMON INVESTORS OF BANGLADESH

Topics: International Financial Reporting Standards, Financial statements, Annual report Pages: 26 (7363 words) Published: December 11, 2013
CHAPTER 1
INTRODUCTION

1.0BACKGROUND OF THE STUDY
Accounting information becomes relevant if it is capable of influencing a decision maker. It helps decision maker by providing predictions about the outcomes of past, present, and future events. Before taking final decisions, users get confirmation or correction on prior expectations through information’s relevancy, timeliness, and accuracy. Based on this reliable and timely information decision makers assess the timing and uncertainty of current and future cash flows for making prudent, effective and efficient decisions for maximizing their value and making other investment decisions such as choosing a portfolio of securities. Basically, financial reports are published to serve various users like, shareholders, employees, suppliers, creditors, financial analysts, stockbrokers, management, and government agencies. Firms satisfy this demand in part by supplying accounting information, thereby enabling them to raise capital on the best available terms. An efficient financial reporting and disclosure system is crucial to country’s development of economically efficient public corporations and public securities markets, as well as the development of the economy. The financial report of an organization is much more than just the financial statements; because it reflects the overall scenario of that organization by providing financial statements along with additional information. This additional information is known as the financial disclosures. The extent and quality of disclosure within these published reports vary from company to company and also from country to country.

Economic phenomena are presented in annual reports. Specially, the conditions of uncertainty of economy have a shadow on this report; for this reason it can never be completely free from biasness. Many estimates and assumptions are included in the annual report. Completely biased report cannot be achieved, because a certain level of accuracy is necessary for financial reporting information to be useful on decision making (IASB, 2008). Therefore, financial disclosures are provided with abundance of information to the decision makers. Financial disclosures are important because it helps to examine the arguments provided for the different estimates and assumptions made in the annual report (Jonas and Blanchet, 2000). If valid arguments are provided for the assumptions and estimates made, they are likely to represent the economic phenomena without bias. Accounting information is reliable to the extent that users can depend on it to represent the economic conditions or events that it purports to represent. Reliability has the qualities of neutrality, representational faithfulness and verifiability.

However, financial statement has to be free from misleading or ambiguous information, so that users can understand the information presented without undue effort according to International Accounting Standards (IAS) 1. To achieve this, the annual reports should contain full disclosure and higher level of transparency. As Thompson and Yeung (2002) stressed that for a company to be transparent, disclosure means providing a full and frank account of a company’s activities. In addition, as far as corporate transparency is concerned, it should be defined as the widespread availability of relevant, reliable information about the periodic performance, financial position, investments opportunities, governance, value and risk of publicly traded firm (Bushman and Smith, 2003).

The business environment has witnessed changes over the years, mainly influenced by globalization and technological innovation. In recent years, there has been substantial increase in trading activities at the Stock Exchanges worldwide and Bangladesh is not left out. At present Bangladesh have two stock exchanges: 1.Dhaka Stock Exchange.(Number of Registered Trading Members/Brokers is 195) 2.Chittagong Stock Exchange.(Number of...
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