Institutional Investors’ Perceptions on Quality of Financial Reporting in Kenya

Abstract

Financial reports are formal records of a business' financial activities. They provide an overview of a business' profitability and financial condition in both short and long term. I here are four basic financial statements namely the Balance sheet, which is also referred to as statement of financial condition, reports on a company’s assets, liabilities and net equity as of a given point in time, income statement. Cash flow statement and Statement of changes in shareholders equity which explains the changes in a company's shareholders equity over the reporting period. In addition, financial reports contain elaborate disclosure which aims at enhancing the understanding of the financial statements. The key objectives of the study were to determine the type of information in the financial reports that is regarded as very useful by the institutional investors in Kenya, to determine institutional investors' perception on information reported in the financial reports with respect to usefulness in decision making and to identify the challenges facing investors as they use financial reports of the companies in Kenya. The design of the study was the descriptive survey design. The target population consisted of all the institutional investors' participating at the NSE. The researcher will sample two respondents from each of the 24 institutions in trading NSE. The overall sample size of 48 respondents will be selected from the target population. Data was collected using semi-structured questionnaires and was analyzed using descriptive statistics. The researcher found out that the type of information in the financial reports that was regarded as very useful by the institutional investors in Kenya was total assets, non- current liabilities, retained earnings, cash flows from investing activities, and dividends per share. The institutional investors also perceived the financial report in terms of completeness, comparability, and consistency as good, while in terms of undersandability. relevance, faithful representation, neutrality, predictive ability and timeliness it was regarded as fair. It was also found that the biggest challenge that faces the users of financial reports in Kenya is the technical nature of language of presentation.