Finding out what users need

To set good accounting standards, standard-setters need to understand deeply how users of financial statements use and process financial information.

One very useful report on this topic area was an academic literature review The use of information by capital providers produced in 2013, by a team of 6 academics: Stefano Cascino, Mark Clatworthy, Beatriz García Osma, Joachim Gassen, Shahed Imam and Thomas Jeanjean. The report was commissioned and published by the Institute of Chartered Accountants of Scotland and EFRAG.

The authors presented on the report to the IASB at an educational meeting in 2014. The report can be found at

The slides are at

Apart from the detailed analysis, I found 2 things about the report particularly valuable:

  • it discusses the different needs of different categories of users of financial statements.
  • it identifies the competitive advantage that financial reporting has over other sources of information.

Different users have different needs

Different users of financial statements have different objectives and different needs. They use and process financial information in different ways. For that reason, the report looked separately at 6 categories of users:

  • outside professional equity investors
  • private/retail equity investors
  • inside equity investors
  • public debt investors
  • private debt investors
  • trade creditors

The report also looks at the roles played by intermediaries, such as buy-side and sell-side analysts, credit bureaus, factors and credit insurer.

Competitive advantage of financial reporting

The authors note that financial reporting information coexists with other information sources. They say that financial reporting ‘provides recurring, standardised, regulated and audited data and these features set it apart from other information sources’.  

The authors suggest that ‘standard setters should focus on the competitive advantages of the financial accounting process when developing standards. They say that standard-setters should design financial reporting information to co-exist with competing information sources with other inherent weaknesses’. They suggest that financial reporting information should focus on reliable, verifiable data.’


I agree with the authors’ suggestion that standard-setters should focus on the properties of financial reporting information that distinguishes it from other information used by investors.

Users of financial statements use information from many sources. Of the data they use, the proportion coming directly from financial statements is declining as other and larger pools of financial and non-financial data become available. As a result, some people say that financial statements are becoming less relevant. Going further, some people suggest broadening the scope of financial statements, to restore the ‘market share’ held by financial statements in the information market.

In my view, standard-setters should view those suggestions with extreme caution. The information in financial statements has particular properties. The report sketches out some of those properties and underlines their importance. Information with those properties is becoming a smaller proportion of the total set of information used by investors, but that doesn’t mean its role is becoming any less vital. Standard-setters shouldn’t just bring different types of information into financial statements in a futile attempt to chase the ‘market share’ held by financial statements in the information market.

A better strategy is to build on the real strengths of the information that needs to be in financial statements. By doing that, standard-setters can help that information to keep playing its still vital role as well as possible.      

Financial reporting databases

Some types of user consume financial information indirectly from databases, rather than directly from financial statements. Accounting standard-setters may need to give more attention to this development.

Other implications

The authors list some other implications for standard-setting, and a follow-up short discussion paper The Use of Information by Capital Providers: Implications for Standard Setting (2014) by EFRAG explores additional implications for standard-setting.  

Need for more research

Much more research is needed on how users use and process information in financial statements. The report discusses some topics that deserve more research and also discusses broadening the range of research tools that could be used.


I believe all accounting standard-setters would benefit from reading the literature review The use of information by capital providers.

Leave a comment

Your email address will not be published. Required fields are marked *