CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Listed companies use financial statements as one of the major medium of communication with their stakeholders. Therefore, stock market regulators and accounting standards setters try to improve the quality of financial statements in order to increase the transparency level in financial reporting. (Vishnani 2008). Accounting plays a significant role within the concept of generating and communicating wealth of the companies. Financial statements still remain the most important source of externally possible information on companies Financial information is essential in making sound investment decisions and it will reduce the informational irregularity problem between the firm’s managers and the investors. (Hossain 2004).
Though the investors use non financial information in order to make investment decisions, still conventional investors give more weight to financial information. According to the survey done by the Bosten College (2007), 62% of respondents favour financial information and only 38% favour the use of non financial information for investment decisions. Until approximately 42 years ago no arguments were encounter on relevance of Accounting Information. (Dung 2010). But, recent empirical studies explored that Accounting Information in published financial statements lost their relevance over the period of time. (Ball and Brown, 2009). An understanding of the accounting information is that it covers information that is used to prepare financial statements which report the results and financial position of a business to the decision makers. (Dung 2010). Owners and management use this information to judge about the results of business operations and make decision about their management. External users like creditors, suppliers, tax authorities also use accounting information for their decision making, i.e. judging whether the business will be able to return loans, pay for goods sold, whether taxes are paid correctly, etc.
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