Abstract:
Since 2007, several studies have been conducted by international and national role players to
establish whether the recent efforts to improve financial reporting have been successful. The
respondents to the surveys used as part of these studies have indicated that more concise and less
complex financial reports would be more understandable to users of financial reports.
In view of the call for shorter and simpler financial reports, the fact that the understandability of
financial reports appears to be a problem, as well as the fact that a limited amount of research on
the understandability of interim financial reports has been done thus far, it was decided to
investigate whether individual shareholders understand the context and content of interim
financial reports which, per se, are supposed to be more concise and less complex financial
reports presented by companies.
The study entailed using a postal questionnaire in a survey of a sample of individual shareholders
of three large South African listed retail companies to determine whether individual shareholders
understand the context and content of interim financial reports, and whether they use these
reports, among other sources, to make investment decisions. The study is based loosely on the
high profile studies of Lee and Tweedie in respect of individual shareholders performed in the
late 1970s.
The primary research objective of the current study was to determine whether individual
shareholders of South African listed retail companies understand the context and content of
interim financial reports. It was found that understanding of these reports was generally limited.
However, there is evidence that experience and training in the field of financial accounting
improve shareholders’ understanding of the content of interim financial reports.
Apart from questions on the demographics and investment objectives of individual shareholders,
a number of other questions were also included in the questionnaire to address several secondary
research objectives. The questions relating to the secondary research objectives were designed to
gather information, inter alia, on how individual shareholders make investment decisions,
sources of information used by individual shareholders when making investment decisions,
additional information that should be included in interim financial reports, as well as the medium
of communication through which individual shareholders would prefer to receive interim
financial reports. The study has shown, amongst other things, that the majority of respondents to
this study initiated their own investment decisions, that articles in the financial press are the most
popular source of information when making investment decisions, and that individual
shareholders still prefer to receive interim reports by post.
