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Differences in Disclosure Needs of Major

Users of Financial Statements
James J. Benjamin & Keith G. Stanga
Published online: 27 Feb 2012.

To cite this article: James J. Benjamin & Keith G. Stanga (1977) Differences in Disclosure Needs
of Major Users of Financial Statements, Accounting and Business Research, 7:27, 187-192, DOI:
10.1080/00014788.1977.9728702

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 S U M M E R 1977
Differences in Disclosure Needs of Major
Users of Financial Statements
James J. Benjamin and Keith G. Stanga
The primary purpose of financial accounting is to
provide information that will be useful in the making
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of economic decisions. There are many groups who
use external accounting information for making
such decisions. A partial listing of these groups
includes financial analysts, stockholders and potential
stockholders, bankers, bondholders and potential
bondholders, employees and labour organisations,
customers, suppliers and potential suppliers, tax
authorities and regulatory agencies, social action
groups, and the general public. As one might logically
expect, these groups have different objectives. As a
result, they may have diverse informational needs.
The traditional approach in financial accounting
has been to provide a single general-purpose informa-
tion set to a wide variety of information users.
APB Statement 4 states that ‘the emphasis in financial
accounting on general purpose information is based
on the presumption that a significant number of users
need similar information’.’ (Emphasis added.) If
the informational needs of the various user groups
are highly similar, then the idea of providing general-
purpose information is logically sound. On the other
hand, if the needs of the groups are distinctly different,
it will be difficult for one information set to satisfy
the diverse user needs. As a result, information
providers may wish to develop different information
sets for each important user group.
At the present time, the major justification for
issuing general-purpose information rests upon
certain assumptions about the informational needs
and decision processes of users. Unfortunately,
neither the informational needs of users nor the r61e
of corporate financial disclosures in the decision-
making process are known with any degree of
certainty. Consequently, a more complete specifica-
tion of the informational needs of the various user
‘Accounting Principles Board, Statement of the Accounting
Principles Board 4 (New York: American Institute of
Certified Public Accountants, I970), p. 20.
groups is necessary to determine whether general-
purpose information sets are adequate.
T o date, few attempts have been made to assess
and compare the informational needs of various user
groups. In 1970, Backer assessed the informational
needs of two user groups by conducting in-depth
interviews with a sample of bankers and financial
analysts.2 In a more recent study, Chandra used a
questionnaire to examine the question of consensus
between preparers (certified public accountants) and
users (security analysts) on the importance of various
information items in equity investment decisions.s
However, his study did not attempt to contrast the
informational needs of different user groups.
In light of the limited amount of prior research,
the objective of the study reported in this article is
to compare the perceived informational nee& of two
groups who are primary users of external accounting
information. The groups considered in this study are
commercial bank loan officers and professional
financial analysts.
Research methodology
To accomplish the objective as set forth above, the
accounting and finance literature was extensively
reviewed in order to gain insight into the informa-
tional requirements of these user groups. Based
upon this review, a questionnaire was formulated.
The questionnaire encompassed 79 kinds of informa-
tion that bankers and financial analysts might need
for decision-making purposes.
Most of the 79 information items selected for the
questionnaire were gleaned from a careful review of
many books and articles in the accounting and
finance literature. In addition, some of the items
ZBacker,M., Financial Reportitqg for Security Investment
and Credit Decisions (New York: National Association of
Accountants, 1970).
3Chandra, G., ‘A Study of the Consensus on Disclosure
Among Public Accountants and Security Analysts’,
Accounting Review, October 1974, pp. 733-742.
 188
resulted from a review of several recent annual
reports of industrial companies. The following two
criteria were used in selecting the questionnaire
information items :
I. On an a prim. basis, the information item must
have at least some expected importance to informed
users of external corporate information.
2. The information item must be either:
a. currently reported by at least some firms in
their published annual reports, or
b. seriously offered by writers in the accounting
and finance literature as a proposed extension
in annual report disclosure.
The most valuable single source of information items
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was a comprehensive study reported more than a
decade ago by Cerf.“
The bankers’ questionnaire and the financial
analysts’ questionnaire consisted of a covering letter, a
set of instructions, and the collection of 79 informa-
tion items for the respondents to evaluate. The
respondents were asked to judge the importance of
each information item on a five-step numerical
scale. Using the scale, a respondent could assign a
value of o (unimportant), I (slightly important),
2 (moderately important), 3 (very important), or
4 (essential)to each information item. The importance
judgements of the responding bankers were made
within the framework of a term loan decision(maturity
between 3 and 5 years). In contrast, the importance
judgements of the responding analysts were made
within the framework of a common stock investment
decision, i.e., a decision to buy, sell, or hold a small
(noncontrolling) number of a company’s common
shares. The bankers and the financial analysts were
asked to make their decisions with reference to a
publicly held industrial firm. Also, all respondents
were instructed to assume that the dollar amounts of
all information items were material or significant.
In total, 600 commercial bank loan officers and
600 chartered financial analysts were selected at
randoni and asked to participate in the study. The
loan officers were selected using the banking section
of Dun and Bradstreet’s Million Dollar Directory,
while the analysts were selected from the current
membership directory of the Institute of Chartered
Financial Analysts. Of the 1200 questionnaires
mailed, usable responses were received from 208
bankers and 207 financial analysts, an overall response
rate of 34.6 percent.
We hypothesised that there was no difference
between the perceived importance of information to
commercial bank loan officers making a term loan
‘Cerf, A. R., Corporate Reporting and Inoestment Decisions
(Berkeley, California: University of California, 1961).
A C C O U N T I N G A N D B U S I N E S S RESEARCH
decision and the perceived importance of information
to CFAs making a common stock investment decision.
T o test our overall hypothesis, we formulated a
series of individual null hypotheses for each of the
79 information items included in the questionnaire,
and we tested each hypothesis at a significance level
of 0.05 using the chi-square test.
Results
The null hypothesis was rejected for 51 of the 79
information items included in the questionnaire.
The mean values, importance rankings, and standard
deviations for each information item for which the
null hypothesis was rejected are shown in Table I.
The means for each item represent overall measures
of the degree of importance that the respondents in
each group assigned to that item within the context
of a term loan decision or a common stock investment
decision. Higher means, of course, are associated
with higher degrees of importance. The means
facilitated numerical rankings of the information
items according to relative importance within each
respondent group. The standard deviations for each
item are measures of the variability in importance
ratings assigned to the item within each respondent
group. Larger standard deviations indicate rhat the
respondents within a group are in less agreement
regarding the perceived importance of an information
item.
Table I also reveals the individual chi-square
values and their associated significance levels (alphas)
computed using the responses of the bankers and
those of the financial analysts. Because of the relatively
small number of o responses, the o and I categories
were combined within each respondent group when
computing the X2 statistics to ensure that the expected
frequencies within the contingency tables would be
large enough for the x2 test to be meaningful. For,
as Siege1 has pointed out, ‘the x2 test is applicable to
data in a contingency table only if the expected
frequencies are sdciently large’. The combining
of two response values tends to make the test of
significance slightly more conservative - that is,
statistically it makes it even more difficult to reject
the null hypothesis. However, since there were very
few o responses, this technique would not be likely
to have a material effect on the test results.
From the results presented in Table I, it is apparent
that the perceived informational needs of the two
user groups are different for a majority of the
questionnaire information items. The hypothesis
5Siegel, S., Nonparmetric Statistics for the Behavioral
Sciences (New York: McGraw-Hill Book Company, 1956)’
p. 109.
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TABLE 1
Differences in informational needs of Bankers and Financial Analysts
Subject Group

Bankers Analysts
Chi-Squareb
Std. Std.
Information Item Meana Ranking Dev. Meana Ranking Dev. Value Probabilityc

1. Comparative statement of retained earnings for the

past t w o years 3.630( E) 1 .639 3.295(V) 11 ,937 19.645 .ooo
2. Historical summary of long-term debt for at least the most
recent five-year period 3.558( E) 2 ,603 3.464 (V) 4 .775 7.880 .048
3. Information on contingent liabilities 3.490(V) 3 .637 3.277(V) 12 .730 12.574 .006
4. Historical summary of net sales for at least the most recent
five-year period 3.481 (V) 4 ,702 3.621 (E) 2 .721 14.310 .003
5. Nature and dollar effects of all major accounting changes
made during the past year 3.425(V) 5 .678 3.699( E) 1 .565 22.303 .ooo
6. Projected earnings for the next fiscal year 3.330(V) 6 ,721 2.558(V) 31 1.1 45 53.009 .ooo
7. Amount of each subsidiary's earnings for the past year and
the parent company's share of each amount 3.290(V) 7 .765 3.024( V) 19 .913 10.033 .018
8. Information on major purchase commitments made
by the company 3.279 (V) 8 ,754 2.869 (V) 25 ,831 28.279 .ooo
9. Projected sales for the next fiscal year 3.241 (V) 9 ,749 2.61 2(V) 30 1.066 37,291 ,000
10. Historical summary of capital expenditures for at least the
most recent five-year period 3.1 97(V) 10 .758 3.400( V) 6 ,796 17.551 .001
11. Summary of the ageing of accounts receivable at the
balance sheet date 3.149(V) 11 .864 2.251 (M) 43 .973 82.026 .ooo
12. Information on major labour contracts 3.144(V) 12 .728 2.860(V) 27 .833 15.627 ,002
13. Current resale value of finished goods inventory 3.086 (V) 13 ,841 2.357(M) 40 1.109 52.579 .ooo
14. Information on accounting methods in use when
alternative methods exist 3.068 (V) 14 ,856 3.396 (V) 7 ,793 19.169 .ooo
15. Names and addresses of major subsidiaries 3.067(V) 15 .849 2.053( M ) 47 1.089 92.724 .ooo
16. Names of company officers and directors 3.034(V) 16 ,975 2.473m) 37 1.144 284 34 so00
17. Breakdown of total inventory into major categories 3.01 4 (V) 17 ,893 2.459( M) 38 .989 33.606 .ooo
18. Historical summary of earnings per share of common
stock for at least the most recent five-year period 2.952 (V) 18 1.025 3.595CE) 3 .765 60.443 .ooo
19. Backlog of product orders expressed i n sales dollars 2.952(V) 18 ,722 3.198(V) 14 .707 1.3.882 .003
20. Market value of marketable securities 2.91 8(V) 20 .889 2.539(V) 32 1.028 17.818 -001
21. information on the major details of convertible securities
outstanding 2.91 8(V) 20 .999 3.401 (V) 5 -762 29.408 .ooo
22. Current resale value of plant and equipment 2.903(V) 22 ,919 1.860( M) 49 1.086 91.01 4 .ooo
23. Breakdown of total plant and equipment into
major categories 2.894(V) 23 ,916 2.1 84(M) 45 .968 57.073 .ooo
24. Information on policy to ensure continuity of management 2.885(V) 24 ,872 2.354( M) 41 1.000 32.41 3 .ooo
25. Brief narrative history of the company 2.884(V) 25 ,958 2.188(M) 44 1.060 53.063 .ooo
26. Amount of annual Compensation paid to officers and directors 2.841 (V) 26 -879 1.937( M ) 4a ,966 89.1 49 ,000
27. Historical summary of dividends per share of common stock
for at least the most recent five-year period 2.81 7(V) 27 1.005 3.356(V) 8 .894 35.01 9 .ooo
28. Information on major products sold by the company 2.81 3(V) 28 ,905 3.1 21 (V) 17 .848 15.346 .002
29. Information on the major details of warrants or
rights outstanding 2.803( V) 29 1.042 3.266(V) 13 .849 22.71 8 .ooo
30. Information on the major details of stock issues outstanding 2.795(V) 30 1.01 3 3.1 93(V) 15 .898 19.424 .OOO
 Downloaded by [Australian National University] at 12:50 16 January 2015

TABLE 1 (Continued)
Subject Group

Bankers Analysts

Chi-Squareb
Std. Std.
Information Item Mean" Ranking Dev. Mean' Ranking Dev. Value Probabilityc
-
31. Breakdown of expenses for the past year into fixed and
variable components 2.779(V) 31 .916 2.51 7(V) 35 .999 12.809 ,005
32. Information on the major details of stock options
outstanding 2.740(V) 32 1.036 3.048 (V) 18 .896 11.758 .008
33. Planned research and development expenditures for the next
fiscal year 2.683(V) 33 .810 2.850(V) 28 .912 8.457 .037
34. Description of major plants, mines, or other properties 2.663(V) 34 1.003 2.382( M) 39 963 13.654 .004
35. Separate disclosure of research and development
expense for the past year 2.644(V) 35 .889 2.956(V) 21 .939 21.039 .ooo
36. Rate of growth i n earnings per share for at least the
most recent five-year period 2.61 5(V) 36 1.110 2.481 (M) 36 1.287 13.608 .004
37. Breakdown of net income for the past year by major
product lines 2.6 04 (V) 37 ,934 3.338(V) 9 a662 81.755 *ooo
38. Breakdown of total sales for the past year by major
product lines 2.536 (V) 38 .891 3.309(V) 10 .690 90.308 .ooo
39. Information on major industry trends 2.534(V) 39 .862 2.947( V) 22 ,922 30.468 *ooo
40. Information on major research activities during
the past year 2.459(M) 40 .780 2.928(V) 23 .818 36,597 .ooo
41. Approximate share of the market for each major >
product sold 2.375(M) 41 .960 3.010(V) 20 .794 47.846 -000 n
42. Summary of significant financial statistics for the industry 2.329(M) 42 .897 2.61 8(V) 29 ,987 17-315 .001 n
2.277(M) 43 .865 2.1 12(M) 46 1.037 9.41 8 0
43. Planned advertising expenditures for the next fiscal year .024 c
44. Information about the company's pension plan 2.264(M) 44 1.087 3.1 50(V) 16 .849 73.403 .ooo 2:
45. Historical summary of the price range of common stock for at 4
least the most recent five-year period 2.183(M) 45 1.123 2.536(V) 33 1.169 15.758 -001
46. Breakdown of total sales for the past year by customers
2.1 55(M) 46 973 2.903(V) 24 .961
z
0
served or industry served 63.022 ,000
47. Breakdown of net income for the past year by customers 9
served or industry served 2.146(M) 47 .962 2.865(V) 26 .981 60.535 .ooo 2:
48. Information on corporate social responsibilty 2.106(M) 48 1.016 1.754(M) 50 .910 17.985 .001
tJ
49. Relationship of the company's business with key m
economic indicators 2.000( M) 49 1.050 2.531 (V) 34 1.083 27.795 .ooo C
v)
50. Historical summary of the number of employees for at least w
the most recent five-year period 1.995(M) 50 1.010 2.261 (M) 42 1.093 10.463 *015 2:
51. Breakdown of amount expended on human resources
m
v)
during the past year 1.726(M) 51 .996 1.500(M) 51 .857 13.302 .004 v,
P
aFor the benefit of those readers who may desire to verbally classify the information items according to relative importance, we have assigned each of the items to one of m
v)
three broad categories within each respondent group. Those items having means of 3.500 or above are labelled E (Essential), those items having means ranging from 2.500 M
to 3.499 are labelled V (Very Important), and those items having means ranging from 1.500 to 2.499 are labelled M (Moderately Important). Because considerable 9
abstraction and loss of information occurs when the information items are grouped into broad categories, the reader is cautioned against the potential danger of placing too P
much emphasis on the verbal categories when evaluating the relative importance of the various information items. n
3:
6Each chi-square test was made with 3 degrees of freedom.
CProbabilitv of .OOO (rounded) indicates a n actual probability of less than -0005.
 SUMMER 1 9 7 7
that there is no difference between the perceived
importance of information to commercial bank loan
officers making a term loan decision and the perceived
importance of information to financial analysts
making a common stock investment decision was
rejected for 51 of the 79 information items included
in the questionnaire. Thus, significant differences
were found to exist for 64.6 percent of the information
items.
An analysis of the test results for which the null
hypothesis could not be rejected indicated that a con-
sensus apparently exists between the two groups on
the following major classes of information: (I) certain
basic and supplementary financial statements (specifi-
cally, the comparative income statement, the compara-
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tive balance sheet, the comparative funds statement,
and financial statements that have been adjusted for
changes in the dollar’s purchasing power); (2) break-
downs of sales and net income by division or
individual companies; (3) separate disclosure of
various expense items (specifically, advertising,
maintenance and repairs, depreciation and depletion,
amortisation of intangible assets, taxes other than
income taxes, rents, and royalties); (4) certain
specific information regarding physical production
volume, dividend policy, types of common stock-
holders, long-term debt, leases, subsequent events,
advertising programmes, capital projects (nature and
method of evaluation),foreign investments,planned
capital expenditures, and planned financing; and
( 5 ) historical summaries of total assets, stockholders’
equity, and number of common stockholders. The
results showed a lack of consensus between the
bankers and analysts on the remaining 51 disclosure
items included in the questionnaire. (These 51 items
are presented in Table I.)
An item-by-item examination of Table I should
give the reader some insight into the relative import-
ance that the bankers and the analysts attribute to
the various information items for which significant
differences were noted in the study. Also, the reader
should be able to acquire more understanding con-
cerning the extent of agreement that exists within
each group regarding the perceived importance of
each information item. For example, one of the most
controversial issues in the financial community today
is the reporting of forecasted information. An
examination of Table I reveals that, in general,
bankers seem to attribute more importance to fore-
casted information than do analysts (see items 6,g, 33
and 43). This Snding is particularly evident in regard
to projected earnings information (item 6). Specifi-
cally, of the 51 information items considered in
Table I, projected earnings information is ranked 6th
in overall importance by the bankers and only 31st
191
in overall importance by the analysts. It is interesting
to note that a relatively large standard deviation
(1.145) is associated with the analysts’ responses to
the projected earnings item. This indicates that
relatively little agreement exists among the analysts
regarding the perceived importance of this informa-
tion. An interesting question, of course, is why did
the financial analysts assign considerably less import-
ance to projected earnings figures than did the
bankers? Perhaps the financial analysts are more
accustomed than bankers to developing their own
projected earnings data. Also, the analysts may be
relatively more sceptical than bankers concerning
the merits of forecasts because of the lack of audit
and reporting standards in this area.
As another example of the kind of insight that an
interested reader may gain from Table I, consider
information on corporate social responsibility (item
48). Both the bankers and the analysts attributed
relatively little importance to this information.
Empirical research in the area of corporate social
reporting has indicated that many bankers and
financial analysts feel that in disclosing information
on social responsibility in annual reports today,
corporate managers tend to limit the disclosures
made to those items that make the firm appear
favorable from a social standpoint. This feeling may
help to account for the relatively low importance
ratings assigned to this kind of information by the
respondents in the present study.
Perhaps the most interesting information item for
which no significant differences were noted between
the responses of the bankers and those of the analysts
was general price-level financial statements. Since no
significant differences were found, this item is not
presented in Table I . However, the desirability of
reporting general price-level financial statements has
long been one of the most debated issues in the
financial community. Thus, it should be pointed out
that neither the bankers nor the analysts attributed
much importance to this information. In fact, of the
79 information items included in the questionnaire,
the bankers rated general price-level financial state-
ments as only 71st in overall importance, while the
financial analysts regarded these statements as 72nd
in overall importance. It is also interesting to note,
however, that relatively large standard deviations
were associated with this information item. This
indicates that relatively little agreement exists within
each respondent group concerning the importance
of this information.
6Keim, Gerald, Stanga, K. G. and Strawser, R. H.,
‘The Usefulness of Social Responsibility Disclosures in
Published Annual Reports’, Proceedings of the 197s Western
Regional Meeting of AIDS, pp. 42-44.
 192
Conclusion
The null hypothesis we tested was that there is no
difference between the perceived importance of
information to commercial bank loan officers making
a term loan decision and the perceived importance
of information to CFAs making a common stock
investment decision. An analysis of the questionnaire
returns provided a basis for rejecting the null
hypothesis and for accepting the alternative hypo-
thesis that differences between the bankers and the
analysts do exist. Specifically, the hypothesis that the
perceived informational needs of the two user groups
were the same was rejected (as evidenced by significant
x2 statistics) for 51 of the 79 disclosure items included
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in the questionnaire.
Thus, the overall conclusion drawn in this study is
that bankers, when making term loan decisions, do
not seem to value information in the same manner as
financial analysts do when making common stock
investment decisions. The differences noted in this
study may be the result of fundamental differences
in the two types of decisions considered (credit vs.
equity investment). On the other hand, the differences
may also be the result of differences in sophistication
levels between the groups surveyed. The Institute of
Chartered Financial Analysts has a number of
education, experience, and examination requirements
that individuals must satisfy to gain admission.
Interestingly, accounting is one of the basic subjects
that extend throughout the examination series that
CFAs must pass. In accounting, an examination
candidate is expected to have the equivalent of at
least two years of exposure to academic accounting
principles. In general terms, the examinations cover
(I) principles and construction of accounting state-
A C C O U N T I N G A N D B U S I N E S S RESEARCH
ments, (2) analysis of accounting statements, and
(3) current accounting principles and practices.
Collectively, the Institute’s requirements help to
ensure that members of the CFA profession are
highly sophisticated consumers of external account-
ing information. As a group, the commercial bank
loan officers surveyed had not been subjected to
similar stringent requirements. Thus, it is possible
that the analysts may be more sophisticated than the
bankers in dealing with external accounting informa-
tion.
Although the results of this study are not general-
isable to all users of financial statements, either
individually or as groups, the findings do cast some
doubts regarding the ability of information providers
to satisfj the needs of diverse user groups with a
single general-purpose information set. The results
of this study may be construed as lending some
support to those who argue that information providers
should develop different information sets for each
important user group. However, our study has not
attempted to demonstrate that developing different
information sets would be better from a cost-benefit
standpoint. This issue was beyond the scope of the
present investigation, and it may be a fruitful area
for further research.
As a final caveat, it must be noted that this study
was exploratory in nature. As a result, caution must
be exercised in generalising the results to the total
population of the user groups. However, we hope
that this study contrasting the informational needs of
two important user groups is valuable because of
the limited amount of empirical research on this
topic that has been published to date.