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Proactive - Use of Financial Statements



In June 2011, the EFRAG PRC launched a pro-active project on understanding how capital providers use financial statements. The aim of the project was to shed light on how various types of European capital providers use financial information for decision making, and how they manipulate and analyse this information. The IASB Conceptual Framework states that the objective of financial reporting is to provide information that is useful to capital providers and other users in making economic decisions. The project was aimed at providing insights into how financial information is used in practice. It was expected to provide useful supplementary guidance about what types of financial information is most useful, and why different users may express at times contradictory needs.

Project history

Research phase

Step 1

​EFRAG decided that the first step in the project should be a review of the existing literature dealing with the issue. EFRAG agreed to co-sponsor such a review with the Institute of Chartered Accountants of Scotland (ICAS). In January 2012, EFRAG and ICAS invited expressions of interest to undertake the review. A team consisting of academics from different parts of Europe was selected. The draft literature review was finalised by the end of 2012 and the preliminary results were presented to EFRAG CFSS in December 2012. 

The literature review was published on 26 December 2013.

Step 2

The use of information by capital providers - implications for standard setting.JPG​As a second step in its proactive project, EFRAG decided to publish a short paper  summarising the implications for standard setting following from the findings of the academic literature review.

The findings indicate, among other things, that it is not possible to meet the needs of all types of users simultaneously and that not much is known about all types of capital providers' use of financial statements. To some extent standard setting will therefore have to be based on beliefs and assumptions. The findings may, however, provide some directions for, for example, measurement; other comprehensive income; the objective or assessing stewardship versus estimating future cash flows; information on recurring earnings; the importance of the statement of profit or loss; use of intermediaries; use of communication channel and costs of amending standards.

Step 3

Professional investors and the decision usefulness of financial reporting.JPG

​As a third step, EFRAG agreed to co-sponsor an empirical study of how financial information is used. This study involved interviews of users that had experience with investment decisions, for example as buy-side analyst or fund manager.

The participants were interviewed based on a short case.

The study was published on 9 March 2016. 

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