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Discuss: "Arguably the Annual General Reports are a poor aid to economic decision making".

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Introduction

Discuss: "Arguably the Annual General Reports are a poor aid to economic decision making" By Catherine Syder "Arguably the Annual General Reports are a poor aid to economic decision making" The annual report is the most important way of communicating with the share-holders to let them know the financial situation of the company. It is also used by management and employees to help decision making about the strategic goals of the firm. The annual report usually consists of a Profit and Loss account and a Balance Sheet, but can also contain other reports and items of financial information that the users may find helpful. It is governed by the Accounting Standards Steering Committee to make sure that the Standard Accounting Processes (S.A.P.'s) are adhered to and there is the possibility of disciplinary action if these are not followed strictly. This is to standardise each company's reports and eliminate bias as much as possible. Specific groups of people will use the reports for different purposes. Share holders will use the reports to help them make investment decisions on whether to buy, hold or sell the shares of a particular company. ...read more.

Middle

The reports are unlikely to be biased if they adhere to the above-mentioned S.A.P.'s, but it is possible for a company to make the figures look slightly more favourable using certain techniques. For example, they may lease a vehicle instead of buying it, so that they do not need to show it as a fixed asset on the Balance Sheet. In this way the annual report may not necessarily be an accurate indication of a company's financial situation. Shareholders who are intending to use the report to compare to another firms report will therefore not be comparing like for like and so the best decision may not be made. However, in Paul F. Williams' article, The Legitimate concerns with Fairness (Pergamon Articles Ltd.), the author states that "Decision usefulness possesses conceptual problems that make it not wholly proper as a principal for organizing accounting research and practice" and that "accountants cannot avoid making certain judgements characterized as fairness judgements". He is saying that there is too much room for the accountants own personal judgement and that the Standard Accounting Practices should be updated to leave less for variation. ...read more.

Conclusion

To conclude the essay, it is possible to say that there are several groups of users of the annual reports and that each of the groups may use them to assist their decision making in different ways. The shareholders (in particular those with large investments) who wish to use the information to aid their economic decisions may find them the most useful and according to the survey conducted by Bryan Carsberg, Anthony Hope and R.W. Scapens, these are the parties that are expected to use them the most. Managers may use the reports for economic decision making in terms of the future of the company, but they have to be aware that the reports may be biased. All groups must be aware that the past is not necessarily an accurate indicator of the future as society is constantly changing and that predictions no matter how similar the situation is, will never be totally accurate. Annual reports are a good aid to economic decision making, but must be taken context and should not be used in isolation. Decision makers should look at a range of sources of information as there is a great deal of company information, which will not be shown. ...read more.

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