Quality of annual corporate reports in an emerging economy: The case of Oman
This study empirically investigated four aspects of the financial reporting system in Oman: (1) the perception of corporate report users and auditor groups of the various elements of annual corporate reports, (2) the informational needs of corporate reports' users, (3) current reporting practice, and (4) determinants of the level of mandatory and voluntary disclosure in annual corporate reports. The first stage of the research focused on the first two aspects, which were examined via a questionnaire survey administered to seven major user groups: individual investors, institutional investors, government representatives, financial analysts, accountants, auditors, and regulators. Additionally, during this stage, similarities and differences in the perceptions of three auditor groups were investigated. The second stage of this study focused on the other two aspects, which were measured through an examination of 111 Omani corporate annual reports. The study also conducted interviews with 27 professional users in order to understand and confirm the findings of the first and second stages of the research. The study revealed that different user groups relied heavily on information obtained from the financial analysis of annual corporate reports, especially the financial statements. The usage and importance of individual report sections was broadly consistent with that in developed countries. User groups differed in their views of the importance of individual sections of the management discussion and analysis section and the corporate governance report. Regarding auditor groups, the study found that the views of auditors from the Big four audit firms differed significantly from the views of auditors from international affiliated and local audit firms. Regarding the informational needs of different stakeholders, users highly rated and demanded some of the information presented to them in the questionnaire, namely, price earnings ratio, comparison of a company's actual performance with competitors', gross profit margin, trend analysis on profitability, profit forecast and future cash flows. The second stage of the research revealed that Omani listed companies complied with mandatory disclosure requirements. However, these provided low amounts of voluntary disclosure. Comparing users' demand list of information with companies' supply list, the study revealed an information gap between what external users demanded and what companies disclosed in their reports. Using multiple regression analysis, the study was able to identify main causes of variations in the level of annual disclosure. It was found that companies' compliance with disclosure requirements is influenced by company size and auditor type. Regarding voluntary disclosure, large listed companies, companies audited by Big four audit firms, and companies in the industrial sector disclosed more information in their annual reports than other companies. On the other hand, debt ratio, current ratio, return on equity, and ownership structure had no significant association with either the level of mandatory or voluntary disclosure. Employing interviews, the study was able to understand and explain the questionnaire and regression analysis findings. One main finding was that users of reports believed that companies were complying with disclosure requirements. However, interviewees were dissatisfied with the quantity and quality of voluntary disclosure. Another important finding was that auditors have control over the disclosure since they might prepare the annual reports as claimed by some of the interviewees. Finally, the study indicated that establishing a professional body to oversee and govern the accounting profession in Oman is a necessity to improve the quality of the financial reporting system.