A study of the suitability of the local reporting requirements for financial statement interpretation

Abstract

Financial statements are to have inherent qualities that provide users with decision-useful information. This study aims to finds out whether users are in a position to perform an interpretation of published accounts through the use of accounting ratios. The first chapter serves as an introduction to the study. It identifies the major disclosure requirements for private companies classified as exempt and non exempt. The second chapter reviews the literature available on the subject. It distinguishes and describes the different categories of ratios. Chapter three describes how the research was conducted. It explains how the samples of companies, consisting of small exempt, large exempt, and small non-exempt were found. Following this, financial statements were obtained and the relevant ratios for each type of company were calculated. Chapter four discusses the results and issues that were found when conducting ratio analysis. It revealed that large company disclosure requirements enable one to make a full ratio analysis. On the other hand, small companies do not provide enough information to allow for one to work out enough ratios to assess and analyse financial information. Finally, the last chapter reveals that disclosure requirements for small companies as against large companies do not provide relevant information to users. Recommendations for small company developments are made.