The Importance of Educating Users of Financial Reports

The importance of educating users of financial reports

From the foregoing discussion of the problem of defining users' needs as a pre-condition to developing a normative theory of financial reporting, it is clearly important that a successful resolution of this problem lies in part in educating users of financial reports. This need is urgent in two respects. First, sophisticated decision makers know the nature of the information which is required. This perception is necessary to the definition of the information input to the decision models used. Second, educated users of financial reports know how to use the information which they contain. According to Sterling (2000), 'the accounting profession ought to devote some of its efforts and resources to the education of the receivers. The profession ought to tell the receivers which decision theories are correct and then supply the data specified by those theories.'

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Read on: Reporting Realizable Values

The ideal method of reporting mentioned earlier also suggested that estimates of the realizable values of assets should be disclosed. According to the Trueblood Report, 'of primary importance for predicting the risk associated with the firm's cash flows (but also for assessing returns) is the degree of flexibility and manoeuvrability that the management possesses in employing its resources.'

One alternative way of using a firm's resources is to dispose of them. This alternative may be quantified by using market exit values. Clearly, the more convertible into cash are the firm's resources... see: Reporting Realizable Values