The importance of financial reporting for investment decision making

Abstract: The process of decision making requires information, financial and non-financial information as well. The most important financial information needed in the process of business and investment decisions comes from accounting, i.e. financial reporting in a company. Therefore, it can be said that accounting is a service function to the management in a company. It basically processes or gathers and studies “raw data” and converts them into suitable information, necessary for the process of decision making. The basic characteristics of the accounting are: gathering, processing and presenting accounting (financial) information; information considering company’s business and those directed towards different interested users. Accounting process contains several phases and basically, it is a process in which input data are converted into output information. All organizations, both public and private, need to disclose financial information relating to their operations in order to assist investors in making investment decisions. They do so as a matter to satisfy the legal requirement, retain existing investors and to attract potential ones through the publication of their financial statements where the capital stock of an organization is widely held and its affairs are of interest to general public relations. Financial statement methods in terms of information disclosure pattern, transparency, auditing, reporting standards, regulatory control and flexibility, corporate governance and financial scandals have influence on investment decision making in any organization. The perceived relevance of the financial statements are to provide information about the financial position, performance and changes in financial position of a company, that is useful to a wide range of users in making management and investment decisions. These users include managers, directors, employees, prospective investors, financial institutions, government regulatory agencies, media, vendors and general public. Accurate and transparent business and corporate reporting are in the spotlight today, more than ever before. National and also international market conditions and frequent company failures both highlights needs for transparency and efficiency in the process of generation and dispatching of information. Transparency is necessary in order to meet regulators and authorities requirements, while efficiency is important for enabling company executives to quickly respond to changing market conditions and meet investors and analysts needs. The benefits of standardized and high quality financial reporting are: lower preparation costs, simplified and international access to information, standardized information recognized and understood by all recipients, high degree of required transparency by regulators, enhanced analytical capabilities and most important of all: enhancement of informed and efficient investment decisions. Keywords: financial, reporting, information, investment, decision making