Quality of Corporate Financial Reporting in Ethiopia

Abstract

Financial information provided through issuance of financial reports is an important input for the decision makers. However, to trust and rely on while making decisions, such reports should possess certain qualitative characteristics. Taking this fact into consideration, IASB, inter alia, in its conceptual framework has identified the qualitative characteristics that financial reports must possess. Accordingly, the objective of this paper is to investigate the extent of the qualitative characteristics of corporate financial reporting in Ethiopia. Using index, data were collected from annual reports of 40 sample corporate companies in the country over a period of ten years (July 6, 2007 to July 7, 2016). To measure the qualitative characteristics (such as relevance, faithful representation, understandability, comparability and timeliness) of financial information in the annual reports, 21- items which were constructed by Beest et al. (2009) were employed and descriptive statistics were used to present and analyze the data. The study found that the practices of reporting items that are considered as an indicator of ‘relevance’, ‘faithful representation’ and ‘comparability’ characteristics in Ethiopia were poor. However, regarding the ‘understandability’ characteristics, they were encouraging. Regarding the ‘timeliness; characteristics, the study also showed that firms in Ethiopia, on average, provided their annual reports within six months after the end of accounting year.

Keywords: Quality, Corporate, Financial Reporting, IFRS, Ethiopia