Annual reports
are useful sources of information and they present a unique opportunity for
companies to convey relevant information to all their stakeholders (Wendy,
2010: Hawkins and Hawkins, 1985). One of the reasons for the tendency for
external stakeholders to rely more on the information presented by annual
reports is the recent moves by the governments to call for more transparency
and accountability in the corporate governance and accounting practices. This
was a move taken to reduce the risk of plummeting of securities out of lack of
trust in the information presented by the organisations through their annual
reports. Annual reports are supposed to present a general reflection of the
corporations’ state of financial health as contained in their balance sheets,
profit and loss accounts; and the cash flow statements (Haskins, 2008: Henderson
and Peirson, 1991). It is therefore critical that the information presented in
such reports be a reflection of the organisation’s true and fair value. Perhaps
more importantly, annual reports give a brief indication of the corporation’s
strategic position in the market and its prospects for future growth as
contained in the director’s report and the chairman’s report. Any informed
investor should be able to assess the company’s strengths and weaknesses in
relation to the goings on in the market and be able to tell with reasonable
accuracy whether or not the company is on the right path (Thomsett, 2007).
Just like
information serves different purposes to different individuals, annual reports serve
different purposes among different stakeholders. The main categories of
stakeholders that may find the information presented in annual reports useful include
investors and prospective investors; the government, suppliers, financial
institutions, the corporations’ management and employees, special interest
groups, and customers (Financial Reporting Council, 2011). While the investors
may aim to base their investment decisions on such statements, the preparers
use them to determine their course of action in terms of strengthening their
corporate governance practices; boosting their profitability; evaluating the
most beneficial sources of funds; and other uses (Financial Reporting Council,
2011). Other stakeholders such as creditors may want to use the information to
gauge the financial strength of the corporations and thereby measure the amount
of risk associated with extending credit facilities to them (Henderson and
Peirson, 1991). Similarly, government agencies use such information to
calculate the tax obligations of such corporations. Various views have been
presented regarding the usefulness of annual reports among the various
categories of stakeholders with many holding the view that insider information
may be more useful- especially for investment purposes. However, such views are
not universal and it is important to investigate and establish the prevailing
views about the subject. This research is about the corporate annual reports in
the UK and their usefulness to different stakeholders.
As part of the
paper, this research incorporates views from different stakeholders with the
intention of establishing just how important they consider annual reports in
the UK corporate sector.
This research is
titled: The significance of annual reports among the corporate sector in the
United Kingdom: A perception of the users and preparers. The research therefore
intends to establish how important annual reports are to different
stakeholders. It therefore endeavours to shed light on who are the main
stakeholders in the UK markets who may find the annual reports useful from time
to time. As such, the information needs for such stakeholders shall be
established and the usefulness of the annual reports be established in relation
to how effectively they are able to satisfy such needs. The research shall also
endeavour to capture the perceptions held by the preparers of such reports and
their intention for preparing the reports and for the inclusion of the kind of
information that is contained in that report. A combination of these two
perspectives will therefore help the study to establish how effectively the
preparers of the annual reports are able to relay their messages to the
stakeholders. The following research questions shall therefore be answered:
- Who are the main users of financial statements in the UK?
- What are their information needs and how effectively do the annual reports satisfy these needs?
- What elements of the annual reports serve these stakeholders best?
- What predominant philosophies guide the preparers of such reports and how useful are the annual reports to them?
- How does information gathered compare to similar findings in other developed economies?
1.3
Rationale for the study
Annual reports
are important instruments in any economy. They in most cases form the basis on
which the well being of corporate organisations is perceived. In many cases,
annual reports form the most comprehensive source of information about
organisations. Other sources may include the company newsletters, official
websites and blogs, informal and formal communications, and others. However,
annual reports are somewhat more reliable due to the legal requirements that
demand that such statements be reflective of the true and fair view of the
status of the organisations. While this legal requirement helps ensure that the
annual statements are truthful, it doesn’t necessarily ensure that the
statements contain all the information required by the different stakeholders.
In most cases, companies tend to surpass the legal requirements by providing
the stakeholders with as much information as they perceive to be necessary.
Many studies have been conducted on the usefulness of the annual statements to
different stakeholders in the UK and many other regions. However, few studies
have been conducted in the post-economic crisis period where the meaning of the
words ‘transparency and accountability’ is assuming a new meaning with most
stakeholders viewing them as essential components for ensuring the stability of
the economy.
This study
captures the most recent perceptions and will also be keen to draw comparisons
with previous ones in order to highlight the changes in the perceptions.
Moreover, this research captures the perceptions of both the users and the
preparers and therefore introduces a new aspect: whether or not the users
understand the message intended for them by the preparers of financial
statements. The information contained in this paper is expected to make an
invaluable input into the existing body of knowledge with the preparers of financial
statements expected to be the main beneficiaries. An understanding of the
information needs in the market is expected to help them prepare more
meaningful annual reports.
Annual reports
are known to be of peculiar importance to various stakeholders including the
employees, the investors, creditors, customers and others (Chen and Hsu, 2005).
For investors, annual reports are used to gauge the ability of the corporations
to make a good return on their investments (Chen and Hsu, 2005: Wendy, 2010).
Information relating to the financial strengths and the strategic position of
the organisations is of particular importance to the investors. The corporate
accounting reports also help the organisations to evaluate the value of their
securities and the determination of which corporations are sound targets for
corporate takeovers. Creditors on the other hand are believed to use the annual
statements to determine whether the organisations are in a position to meet
their obligations with ease (Walker, 2010). The indications of financial health
are also important to the management and the employees. A general sense of job
security is assured where the company is established to be financially healthy
(Chen and Hsu, 2005). Other stakeholders who may find the annual statements
useful include the government and special interest groups. The government
relies on such statements for taxation purposes and would ordinarily take such
statements as satisfactory evidence unless there was a reason to conduct any
further enquiries (Financial Reporting Council, 2011). Special interest groups
use the statements to evaluate the commitment of such organisations to being
socially responsible and exert pressure to ensure a general compliance with the
social responsibility objectives outlined by these organisations (Financial
Reporting Council, 2011). This research holds the view that annual reports are
indeed useful and serve different purposes to different stakeholders. It
therefore focuses on these different uses as perceived by the users of such
reports in the UK.
This study has
been organised into six distinct chapters. Chapter one provides the background
for the study and outlines the research topic and provides an explanation the
objectives of the paper and spells out the research questions that the paper
seeks to respond to. The rationale for the study and the conceptual frameworks
guiding the study has also been explained in this chapter. Chapter two is the
literature review. It highlights the different aspects of the annual statements
and their importance. In chapter three, the methodology used in the study has
been outlined. The research philosophies guiding the research as well as the
research methods have been explicitly outlined. Understanding of the manner in
which the research was conducted is crucial to the inspiration of higher
confidence levels among the users of the information who are then able to
accord the requisite level of integrity. In addition, limitations faced while
conducting the study have been stated. In chapter four, the results of the
study have been detailed and presented in a palatable form in order to ensure
quick understanding among the users of the information. In chapter five, the
results obtained during the research have been discussed. This discussion
compares the findings of the research to previous studies and also explains
such findings in relation to certain theoretical frameworks related to the
study. The paper then ends with a conclusion and recommendations on additional
measures that can be taken to ensure the enhancement of the importance of
annual reports to stakeholders in the UK.
The
literature review in this study focuses on the general provisions of the
purposes and contents of annual reports and the significance of each of the
components. The literature review also provides insights on the various kinds
of stakeholders to organisations and what their interests are likely to be.
This angle informs the report on the information needs that the stakeholders
may be having and how the preparers can meet these information needs. The
chapter also makes a brief description of the usefulness of the reports to the
stakeholders and how annual reports have been known to serve these needs from
the experiences of other economies around the world. The reliance on annual
reports as the basis for gathering information about organisations has various
advantages and disadvantages. This section also highlights on the advantages of
the reliance on annual statements and some of the disadvantages that are
related to the manipulation of financial statements to portray the desired
image.
Annual
reports are in many cases used by organisations to communicate to stakeholders
in relation to their financial status, internal efficiencies, strategic
positioning in the markets, and their corporate governance practices (Henderson
and Peirson, 1991). Understanding of the
annual reports is what defines how important such a report to the stakeholders
of a corporation. According to O’Connor (2000), a typical annual report
contains the following elements: the chairman’s statement, the director’s
report, the auditor’s report, the balance sheet, the profit and loss account,
and the notes on financial statements. One of the key elements, the balance
sheet, is used to reflect the financial health of an organisation and it seeks
to balance out the assets and the liabilities while indicating the funds’ uses and
the sources of such funds (Walker, 2010). Walker (2010) further states that
interpreting a balance sheet entails seeking out the information not directly
written in pros and requires a good understanding of financial statements.
Balance sheets give information on the net worth (the amount of wealth owned)
of the companies (Walker, 2010). It also provides information on crucial ratios
such as the quick ratio, reserves to equity ratio, and the debt/equity ratio
(Walker, 2010). These ratios are crucial in evaluating the financial strengths
of the organisations. For instance, the quick ratio weighs the amount of
liquidity in the organisation and their ability to settle their current
liabilities in short notice; while the reserves to equity ratio enables the evaluation
of the level of reserves held by the organisation and therefore its relative
financial strengths (Financial Reporting Council, 2011). Other useful financial
statements include the profit and loss accounts and the cash flow statements
which are also important for investors in their assessment of
organisations.
The
director’s report gives a self evaluation of the company from the directors’
points of view and always contains their explanation of the financial
performance for a particular year or season (BT Plc, 2011). It also briefly
evaluates the firm’s strategic position in the environment outlining their
sources of strategic strengths and explaining how the firm intends to take
advantage of them in expanding their operations. The director’s report seeks to
give investors confidence by providing insights that cannot be provided by the
figures contained in the financial reports (Ntalianis, 1993). The chairman’s
report on the other hand outlines the management’s explanations of the
operations of the corporations: industrial relations, future plans, research
and development efforts, risk identification and control efforts, and their
view of their strategic position in the market (Ntalianis, 1993). This
information is considered crucial to making sound investment decisions. The
Auditor’s report is basically a comment to indicate whether the financial
statements contained in the annual reports are a reflection of the financial
state of the company (BT Plc, 2011). It covers the profit and loss statements,
the balance sheet, and other financial documents to be used in the annual
general meetings. They test the compliance of the organisations against their
level of compliance with the generally accepted accounting principles and are
useful in indicating areas of weaknesses that must be given full attention when
assessing the financial strengths of the corporation (BT Plc, 2011). It is a
legal requirement that independent external auditors be contracted to evaluate
the accuracy of the financial reports to be presented by the companies (BT Plc,
2011). According to the Financial Reporting Council (2011), the Auditor’s
report guards against the inclusion of misleading information thereby
protecting the stakeholders who are expected to base certain decisions on their
evaluation of the annual reports.
Annual reports
do not serve the same purpose to everyone; their importance depends on the
information needs of the various parties and how effectively the information
needs are satisfied (Meneses and Villar, 2011). Annual reports are known to be
of peculiar importance to various stakeholders including the employees, the
investors, creditors, customers and others (Chen and Hsu, 2005). For investors,
annual reports are used to gauge the ability of the corporations to make a good
return on their investments (Chen and Hsu, 2005). Information relating to the
financial strengths and the strategic position of the organisations is of
particular importance to the investors. They use such information to evaluate
the opportunities for growth available to the corporations and the
corporations’ ability to tap into these opportunities to realise their
expansion agenda (Hawkins and Hawkins, 1985). Investors’ main aim is to
maximise their returns and they are expected to take due care to ensure that
their investment decisions are as reliable as possible. The main items of
concern to the average investor are the balance sheet, the profit and loss
statements and the director’s report (The Association of Chartered Certified Accountants, 2009).
While the first two items shed light on the financial performance, the
director’s report show the strategic positioning of the organisation and this
helps in analysing the future prospects for the organisation.
The corporate
accounting reports also help the organisations to evaluate the value of their
securities and the determination of whether or not corporations are sound
targets for corporate takeovers (Cronje and Gouws, 2011). Even though the
accounting information is available to the organisation long before the annual
statements are produced, they still serve the important purpose of
incorporating other aspects of the organisation that may inform the
organisation members on the direction that the organisation is likely to take.
Moreover, managers use these reports to provide useful information to
shareholders to give confidence that the best governance practices are in place
and that there are adequate measures to ensure that arising risks are
identified and dealt with in a timely manner (Ntalianis, 1993). Such assurances
are crucial in the retention of shareholder confidence, a crucial component in
the endeavour to avoid corporate takeovers. It is often in the best interest of
managers to safeguard against the risk of such an eventuality since the
management teams tend to be the first culprits in such cases (Deloitte, 2010).
Creditors are
also important stakeholders and they use the annual statements to determine
whether the organisations are in a position to meet their obligations according
to the expectations (Walker, 2010). The most common creditors include suppliers
and the financial institutions. The financial statements are particularly
important in this front, especially the evaluation of the current and fixed
assets as well as the profit and loss account (Walker, 2010). Organisations
that are consistently profitable tend to demonstrate their ability to meet
their obligations while those that are not are considered to be more risky by
prospective creditors (Henderson and Peirson, 1991).
Employees also
use the annual statements for a number of reasons. To begin with, the financial
stability of organisations help in assuring the employees that their future is
secure and they may not need to worry unnecessarily about their livelihoods (The Association of Chartered
Certified Accountants, 2009). A general sense of job security
is assured where the company is established to be financially healthy (Chen and
Hsu, 2005). Serious movements towards financial instability are often
accompanied by various cost cutting measures which place the employee’s welfare
at risk. Employees also find the reports important in their reflections on the
strategic positioning of the organisations and this is crucial in giving the
employees the confidence that their organisations are on the right path. Every
employee likes being associated with organisations with a good chance of growth
as this may be a signal that their individual careers may be set to blossom
(Sinett and Graziano, 2010). The management teams also benefit from the
financial statements in their determination of their expansion and operational
agenda especially where it relates to the suitable sources of funds (Chen and
Hsu, 2005). For instance, organisations in good financial health may find it
easy to access credit at low interest rates, making debt capital a cheaper
option than other sources of funds.
Other
stakeholders who may find the annual statements useful include the government
and special interest groups. The government relies on such statements for
taxation purposes and would ordinarily take such statements as satisfactory
evidence unless there was a reason to conduct any further enquiries (Financial
Reporting Council, 2011). However, the relevant agencies often call for
specific reports which provide details that may be superfluous if included in
the annual statements (Sinett and Graziano, 2010). The government also
scrutinises these reports with an aim to ensuring that the accounting
provisions are followed. Special interest groups use the statements to evaluate
the commitment of such organisations to being socially responsible and exert
pressure to ensure a general compliance with the social responsibility
objectives outlined by these organisations (Financial Reporting Council, 2011).
These measures are often contained in the director’s report, which is the main
concern for such interest groups. The customers have also generally been known
to seek out more information about their preferred corporations with many of
them increasingly basing the purchasing decisions based on the perceptions of
how socially responsible the organisations are (Chen and Hsu, 2005).
Organisations committed to transparency and social responsibilities inspire
more confidence among consumers and generally tend to make healthier returns
than their counterparts that are perceived otherwise.
Various surveys
indicate that a vast majority of stakeholders continue to rely on annual
reports are the primary source of information about organisations (Sinett and
Graziano, 2010). This reliance may both be good or bad depending on how
organisations react to its knowledge. The annual reports are in many cases
regulated by law and those relying on them are justified in doing so. These are
official communications that are released to the public and the preparers of
the reports remain fully aware that the information contained therein may be
used by stakeholders in making various decisions (Meneses and Villar, 2011).
Knowing that the stakeholders rely on the reports makes the organisations take
extra caution in ensuring that the information presented through them is
factual and as accurate as possible. For instance, most investors use the
annual reports as their reference points when endeavouring to determine the
financial worth and health of the organisations and it is on the basis of this
assessment that their investment decisions are made. Where the basis for their
decisions is flawed, there is a higher risk of incurring hefty losses which
they may not easily recover from (Sinett and Graziano, 2010). This is why
organisations are required to act responsibly and ensure that their annual
reports bear a reflection of the true and fair value of the organisations.
Annual statements are also known to be reliable in the sense that they provide
the view of the whole organisation. Before the official statements are
published, information from all parts of the organisation is collected and
fine-tuned in a manner that makes sense for any stakeholder (Deloitte, 2010).
As analysts have held in various occasions, it is difficult for stakeholders
with limited knowledge about the operation of a business to accurately
interpret the implications of some of the events that happen within the firms
or in the environment (Deloitte, 2010). It is incumbent on the management to
come up with the official interpretations and inform the stakeholders through
some of the informative chapters of the annual statements. Many investors tend
to rely on information from the inside sources, or the infamous insider
information, when making their investment decisions. It must however be noted
that the insider information is in most cases a reflection of the perspectives
of a given individual or department and may therefore be misleading. For
information to be considered to be a reflection of the overall state of an
organisation, it must factor in all aspects of the organisation without any
exclusion (Sinett and Graziano, 2010). Annual reports are discussed at the
highest levels of management and among executives who remain aware of the fact
that they would be held personally liable for the accuracy of the reports
(Sinett and Graziano, 2010). They therefore take their oversight role seriously
to ensure that no falsities find their way into the reports. Besides, annual
reports are prepared after through audits have been conducted to assure their
accuracy. The reliance on annual reports by stakeholders is therefore
justified.
This reliance is
however detrimental, especially where little or no scrutiny is conducted to
verify the accuracy of the information contained therein. Organisations remain
perpetually aware of the fact that the annual reports are relied upon for
various purposes and they may opt to use them to achieve their means (Ahmed,
2008). Some of the sensitive items in the reports include the profit and loss
account, and the balance sheet whose main purpose is to provide information on
the financial health of the organisations. The manipulations may be illegal or
legal depending on the laws in place in the various countries. These
manipulations are referred to as creative accounting and they have been
prevalently used by organisations to achieve various selfish ends (Ahmed,
2008). For instance, where an organisation wishes to attract extra investments,
they may intentionally include some balance sheet items into the profit and
loss statements with an aim to project their organisations are liquid (Shah and
Butt, 2011). The liquidity in organisations is one of the factors that
investors consider with many of them tending to avoid organisations which are
likely to face liquidity issues in the near future. In a similar scenario,
executives wishing to acquire shares in a company may want to manipulate the
figures in a manner that makes investors to avoid their shares (Ghosh, 2010).
With falling share prices, the executives may acquire the stocks at the desired
prices then move in later to readjust the statements before they are detected.
In yet another hypothetical scenario, an organisation wishing to avoid taxation
may want to include underestimate their profit margins and avoid paying the
requisite corporate taxes. The reasons for the manipulation of accounts are
mainly selfish with some of the managers wishing to make undue gains at the
expense of the various stakeholders (Ghosh, 2010). The impact of such gains is
largely measured by the extent to which such stakeholders rely on the annual
reports. With surveys indicating that the annual reports remain the main
important source of information on the operations and state of the
organisations, stakeholder remains at risk of being victims of the creative
accountants. Some of the practices have expressly been outlawed (Gowthorpe and
Amat, 2010). For instance, the inclusion of capital expenditures into the
profit and loss statements and the exaggeration of sales to boost profits are
practices which have been directly outlawed under the International Accounting
Standards (Deloitte, 2010). However, there still exist loopholes that could be
used to cause some marginal variations. For instance, the provisions on the
valuation of assets is rather flexible and the accountants may choose to use
the methods that suit their needs best at a given time. However, such allowable
loopholes do not often result in acute manipulations. With proper oversight,
the organisations in the society can be pressured into ensuring that their
statements present a fair view of the organisation (Sinett and Graziano, 2010).
Other aspects that
may require vigilance are the reports on corporate governance practices and the
claims made as far as corporate social responsibility is concerned. An
overreliance on annual reports provides stakeholders with no avenues of
determining whether or not the claims made are accurate (Shah and Butt, 2011).
For instance, various labour movements around the world have been able to
dispute the claims made by organisations in the annual statements regarding
their treatment of employees and their commitment to them. Investigations into
the internal practices of such organisations would reveal that the employees
were indeed not treated as claimed. Other areas often prone to manipulations is
the report on corporate social responsibility with organisations seeking to
look good without necessarily carrying out some of the activities cited- or by
exaggerating the impact of the same (Gowthorpe and Amat, 2010). Vigilance in
the society is therefore important to ensure that the claims made are verified
and falsities dealt with accordingly (Gowthorpe and Amat, 2010). Even though
this problem may not be prevalent in the UK and the USA where organisational
transparency and accountability are taken seriously, many organisations in
other parts of the world continue to pursue this reckless strategy. It is
therefore important that stakeholders find a balance between the reliance on
annual reports and the use of other sources of information before reaching a
decision in relation to the organisations.
As
can be seen from the literature review, the uses of annual statements are many
and are dependent on the information needs of the various stakeholders. The
most influential stakeholders may be listed as the investors, the government,
the creditors, and the employees. The preparers of the annual statements must
therefore take precautionary measures to ensure that the information needs are
met. Further evaluations reveal that care must be taken to ensure that the
reliance on annual reports do not become a source of a disadvantage. Practices
such as unethical creative accounting have been sprouting in realisation of the
fact that many stakeholder decisions are based on the contents of the annual
reports. These are hazards that must be guarded against. This literature review
provides a good basis for the evaluation of the stakeholders, their information
needs and the effectiveness with which these needs are satisfied by the UK
corporate organisations.
This chapter describes how the information was collected,
how it was analysed and how the information was interpreted. A brief
description of the common philosophies applicable to research has been made
with an aim to establish which philosophies are best in this scenario. The research
strategy has also been described with a full description of the various
approaches taken in the study and the justification for the same. The
description of the target population and the sample has also been made with the
data collection methods outlined accordingly. The challenges faced while
conducting the study has also been outlined and recommendations made.
The research philosophy basically refers to the underlying
perceptions that are relevant to the conduct of research and they are aimed at
enabling researchers to avoid biases that could compromise the objectivity of
their reports (Johns and Lee-Rose, 1998). The understanding of these
philosophies also helps in shaping the research strategy where the researcher
can use the knowledge to eliminate the influence of biases while conducting the
study. The information collected can only be said to be reliable when it is
free of ideological biases and this is the reason why a lot of attention must
be dedicated to the examination of the philosophies relevant to a research
(Flowers, 2009).
Ontology and epistemology are the dominant concepts in the
philosophy of research. Ontology acknowledges the presence of biases among the
respondents and the researchers where such biases are believed to be a function
of their experiences and interactions with other members of the society
(Flowers, 2009). This concept affirms the existence of relative realities where
different people can perceive the same phenomena differently and continue to hold
a firm belief that such their perspectives are the right ones. The researchers
are therefore advised to evaluate the objectivity of the answers provided based
on their understanding of the experiences that the respondents may have been
through (Kumar, 2005). For instance, a person who has been a victim of a system
would be more likely to highlight the ills of that system than one who hasn’t
had a similar experience. This evaluation is also applicable to the researchers
themselves who are required to conduct a self analysis the issues at hand and
have an understanding of their positions in order to guard against using them
to influence the research. This research shall factor in the ontological
perspective and make its interpretation of observed biases if and when they are
identified. Epistemology on the other hand emphasises the use of the right
procedure (James and Vinnicombe, 2002). For a research to be considered as
objective, the procedures must be right. The research should be designed in a
manner that allows for the collection of the desired information effectively.
This research is designed in a manner that enables it to capture the views of a
variety of sources relevant to it.
Research philosophies can be categorised as being
positivist, constructionist, or realist. Each of these philosophies is
applicable to research based on the nature of research and the kind of
information being sought (Chia, 2002). The positivist philosophy views the
world as a collection of systems whose interrelation can be established through
statistical methods. This philosophy mostly emphasises the use of quantitative
research. The constructionist philosophy on the other hand acknowledges the
presence of personal realities. According to this philosophical view, there are
no objective realities (Chia, 2002). All realities are relative and are
dependent on the experiences of the individual and their interaction with
systems and members of the society. The realist philosophy on the other hand
acknowledges that the world systems can both be relative and objective. It
combines the perceptions of the constructionist and the positivist views in a
unique combination that suits the conduct of research.
This research embraces the adoption of the realist
philosophy. This is due to the fact that whereas many of the responses are
expected to be a reflection of the relative realities of the respondents, it is
an acknowledged fact that the usefulness of annual reports can be proven using
intensive analysis focused on facts.
Research strategies describe how the research is conducted
and the justification for the choice of research methods adopted (Saunders,
Lewis and Thornhill, 2007). It takes into consideration the nature of the
research before embarking on the process of the definition of methodology.
Other factors that are considered when coming up with a research strategy
include the amount of resources available and the amount of time available to
the researcher (Saunders, Lewis and Thornhill, 2007). A reliable strategy must
be designed to assure the integrity of the findings and it is designed in a
manner that ensures that the right population is considered; and the sample
size is comprehensive enough to represent the population while being small
enough to facilitate comprehensive research (Easterby-Smith, Thorpe and
Jackson, 2008). These factors have been put into consideration when designing
this research. Given that the research relates to annual reports and their
usefulness, the research aims to cover the perspectives of some of the main
stakeholders to the businesses. The managers who are responsible for the
production of the reports have also been factored in.
The
nature of this research is such that it mainly dwells on the qualitative
aspects with quantitative elements only being attributed to the frequency of
responses given by the respondents. The research makes use of both primary and
secondary research. The preliminary secondary research has been used to
identify the main stakeholders in the UK who may find the corporate annual
statements useful in one form or another. The stakeholders identified have been
covered comprehensively on the section on population. The researcher was
conducted using a survey with appropriately designed questionnaires in order to
capture the desired information. The written questionnaires were considered due
to their usefulness in collecting data from respondents who are not in close
proximity with the researcher.
The
report made use of both primary and secondary data collection methods. The
secondary data was collected from various reliable sources such as professional
publications, academic journals and relevant online sources that were verified
to be reliable sources of information. Secondary sources are crucial in any
research as they help in supporting the findings by providing the theoretical
underpinnings on which the data collected can be analysed and interpreted
(Erickson and Kovalainen, 2008). Secondary information also provides in-depth
insights on the different aspects of the study hence helping in making the
research findings and interpretations reliable. The secondary sources also
allow the researcher to save on time by using such findings instead of having
to go out and collect the information needed through primary research. However,
secondary sources do not always provide the information as needed due to the
fact that they may have been tailored to cater for different information needs.
Besides, they may not have the information required in total. This is where
primary research becomes useful.
Primary
research was conducted using written questionnaires which were distributed to
the identified stakeholders through email. Questionnaires are good data
collection tools due to the fact that they can be used to efficiently collect
information over long distances. The stakeholders to be surveyed are spread in
different cities; and given the number involved; it would be difficult to
collect information using other primary data collection methods. Questionnaires
also provide the respondents with the opportunity to synthesise their thoughts
before presenting their answers. This ensures that the answers presented as
carefully considered and therefore quite accurate. Despite the challenges
associated with the use of questionnaires, this data collection method was
embraced as the best research tool after considering the location of the
respondents, the nature of information sought, the resources available, and the
amount of time available for research.
Population refers to the total
number of elements for consideration in a research. When determining the population for a
research, it is important to take into account the population characteristics
and their perceived level of knowledge in the subject matter (Saunders, Lewis
and Thornhill, 2007). The population will be the market
players within the UK economy who are perceived to interact most with annual
reports and who are expected to be affected by the annual reports in one way or
another. The estimation of the number of persons involved under this
description may run into hundreds of thousands of individuals. A comprehensive
analysis of the perceptions of such a large number may be impossible in the
time and resources available. This forms the rationale for using samples.
A
sample can be described as a representative component of the whole (Saunders, Lewis and Thornhill, 2007).
This means that a sample bears similar characteristics as the whole population.
When sampling, researchers should always remain keen to ensure that the samples
settled on provide a reflection of the perceptions of the whole population. The
determination of the sample was based on the resources available to the
researcher as well as the time available. Care was taken to ensure that the
sample sizes would be large enough to be representative of the vast stakeholder
views while remaining manageable to facilitate meaningful analysis in the time
available. In order to ensure a comprehensive research, the research endeavoured
to survey 2000 respondents drawn from a cross section of stakeholders in the UK
economy. This number was proportionately distributed across the stakeholders as
follows: preparers (600), investors (800), suppliers (200), financial
institutions (200), and special interest groups (200). The distribution was
based on the researcher’s interpretation of the extent to which the various
stakeholders rely on annual reports to make their decisions.
To
pick out the 2000 from the vast numbers in the population, sampling was
necessary.
Sampling
can be described as the process of determining which specific members of the
population are to be involved in a research (Kumar, 2005). Sampling can be done
using a number of methods. In this research sampling was done using random and
judgmental methods. Judgmental sampling is used by researchers in order to
ensure the objectivity of a research by deliberate determination and inclusion
of categories of respondents expected to hold different positions regarding a
given matter (Saunders,
Lewis and Thornhill, 2007). For instance, this research is about
establishing the stakeholder perspectives. Various stakeholders are known to
have different information needs and they may therefore not share the views of
those whose interests have been taken care of by the annual reports. This is
where judgmental sampling becomes useful. In this research, the respondents
were distributed across the different stakeholder groupings in order to ensure
that the findings were not dominated by a particular group. Random sampling
refers to a haphazard selection where elements in the population have an equal
chance of being selected and is most appropriate where the elements are largely
homogenous (Kumar, 2005). Within the different stakeholder groups, it is
expected that the individual respondents bear similar characteristics. This is
not to say that they were expected to have the same points of view on the
issues in question: it simply means that their information needs were
categorised as similar and therefore they were expected to apply the same
yardsticks when assessing the usefulness of the annual statements.
The process of analysis helps in the transformation of
incoherent bundles of data into useful information that can be used and
presented in a palatable form. Interpretation on the other hand refers to the
process of providing meanings to explain the data in question. In this
research, analysis and interpretation remained consistently qualitative even
though quantitative elements were included when deemed necessary to promote
understanding. The data was also interpreted
accordingly in order to provide meaning to the data collected. Presentation was
done with the help of visual aids where appropriate in order to promote quick
understanding.
One
of the main challenges was the problem of low turnover of questionnaires. A
good number of those who had confirmed their participation had failed to
provide their answers. However, this is a problem that had been anticipated and
the researcher had ensured that extra respondents had been contacted across the
different categories. These extra questionnaires were used to cover up for the
defaulters. There was also a problem of unclear responses which proved
difficult to include in the analysis. Such responses were excluded. However,
such cases were few and therefore not expected to negatively impact the quality
of the findings.
For more theory and case studies on: http://expertresearchers.blogspot.com/
For more theory and case studies on: http://expertresearchers.blogspot.com/
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