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ItemIs Financial Reporting Still Useful? Australian EvidenceDavern, M ; Gyles, N ; Hanlon, D ; Pinnuck, M (Wiley, 2019-03-01)There has been recent and growing criticism of the usefulness of financial reporting for investors, particularly the annual financial statements. In response, the IASB is pursuing several projects aimed at improving the relevance of financial information. To inform the IASB’s work, we investigate, using a mixed‐method approach, the extent and nature of the use of annual financial statements by equity investors. We examine the relevance of financial reporting for equity valuation in Australia across time. We find that financial reporting (specifically, reported net income, shareholders’ equity, and operating cash flows) remains relevant for investment decisions. We further support this finding with evidence from field interviews that provide insight into how and why financial statements are used by equity investors. The field evidence also demonstrates that no one financial statement dominates in investor decision making. Given the increasing availability of more timely, forward‐looking information from alternative sources, we examine the relevance of non‐GAAP financial information and other non‐financial information for investor decision making. We find that non‐GAAP financial information (as proxied by EBIT and EBITDA) is more value relevant than statutory measures. We further find a broad range of non‐financial information is utilized by investors in making investment decisions both as a ‘screen’ and for valuation purposes. Our findings inform regulators and other stakeholders as we provide evidence of the continuing relevance of financial statements and the complementary role of non‐GAAP financial and other information. Our evidence provides a rebuttal to the recent criticism.
ItemImplementing AASB 16 Leases: Are Preparers Ready?Davern, M ; Gyles, N ; Hanlon, D ; Shah, F (The University of Melbourne, 2019)This is the first report of a project examining the introduction of AASB 16 Leases (AASB 16), the Australian equivalent of IFRS 16 Leases. It reports on a survey that provides a snapshot of the process of implementation of AASB 16 Leases by preparers. A subsequent report, to be released in 2020, will report on an interview-based study of users of financial reports prepared under AASB 16. The results indicate that entities have made relatively good progress in implementing the standard, focusing their project structure on existing internal resources. Preparers have faced challenges in implementation, including the need for additional data collection and systems implementation. However, the results suggest that preparers are expecting to see the benefits of adopting the new standard highlighted by the standard-setters, including enhanced comparability and transparency. Importantly, the need for recognition of (almost) all leases on the balance sheet is an improvement to the quality of the underlying lease data, and thus the quality of the reported information to users of financial statements. This report aims to assist preparers in benchmarking their progress against peers, and for policy makers, including Australian and international standard-setters, to receive feedback as input to the post-implementation review process of AASB 16 and its international equivalent, IFRS 16.