Users' Needs Subcommittee

Analysis of the Information Needs of Investors and Creditors

Introduction

The following materials are prepared by the Users' Needs Subcommittee (the Subcommittee) of the AICPA Special Committee on Financial Reporting (the Committee). The Committee's mission is to recommend improvements in external reporting. To carry out part of its work, the Committee formed the Subcommittee specifically to study the information needs of investors and creditors. Consistent with its charge, the following materials document the Subcommittee's analysis of those information needs. The Subcommittee's findings will provide a base on which the Committee may develop recommendations to improve external reporting and will help insure that the Committee's recommendations are responsive to the information needs of investors and creditors.

This introduction discusses the objectives, scope, basis for analysis, guiding principles, and organization of the Subcommittee's analysis.

Objectives

The objectives of the analysis are to (1) identify, describe, and support views about the information needs of investors and creditors that can be reasonably inferred from the Subcommittee's database of materials on users' needs for information and (2) present those views in a manner useful to the Committee in developing recommendations to improve external reporting.

Scope of the Subcommittee's Study About Users' Needs for Information

The Subcommittee undertook its study of users' needs for information solely to support the Committee's work. In setting the scope of its study, the Subcommittee considered the scope of the Committee's overall work and practical limits on the resources and time available to the Subcommittee.

The Subcommittee limited the scope of its study about users' needs to only certain users. Specifically, the Subcommittee focused on professional investors and creditors, and their advisors, who follow fundamental approaches and who cannot compel the company to produce the information needed for analysis. The Subcommittee further restricted its focus to users' evaluations of only certain reporting entities - specifically, to for-profit entities. The scope of the Subcommittee's work and the reasons for that scope are discussed in Section I, "Scope of the Subcommittee's Study About Users' Needs for Information."

Basis for Analysis

The Subcommittee's analysis of the information needs of investors and creditors is based on the Subcommittee's database of materials on users' needs for information dated June 22, 1993. That database is based, in turn, on the Subcommittee's research activities over the last eighteen months. Each of those activities resulted in materials, all or a portion of which were included in the database. The introduction to the database lists those materials. Also see Section II, "Activities that Provide the Basis for Analysis," which discusses the scope of the Subcommittee's research activities and the reasons why the Subcommittee undertook certain projects and rejected others.

Guiding Principles

The Subcommittee prepared the preliminary analysis following certain guiding principles:

1. Capture all views that can reasonably be inferred based on the materials in the database. Identify a comprehensive list of views even though some may conflict with others.

2. Flag inconsistent views and recommend how those inconsistencies should be resolved.

3. Identify the reasons supporting each view listed in the analysis. Cross-reference those reasons to the applicable sections of the database so that a reader can evaluate the support for a view.

4. Draft entries into the analysis in outline and bullet point format. Be concise.

5. Design the analysis to facilitate review and use by the Committee.

Organization

To facilitate both the analysis and the Committee's use of the analysis, the analysis is divided into the same categories and subcategories as used in the database.

The analysis also includes a section that captures general views of users' needs for information that are pervasive and apply to many or all of the categories in the database (see Section III, "General Views of Users' Needs for Information)

Leading and Alternative Views

The analysis identifies two kinds of views about users' needs for information: leading views and alternative views.

The Subcommittee determined leading views based on the following subjective criteria:

1. The view held by the majority of users

2. The strength of the arguments offered in support of a view

3. The consistency of the arguments supporting a view.

Although in concept leading views could conflict with the majority position, in practice this was not often the case. Most often, the majority view was also supported with well- reasoned positions.

Within a topic, the Subcommittee often identifies more than one leading view. In those cases, the leading views do not conflict. Rather, they address different issues within the more general topic.

In contrast to leading views, alternative views are held by a significant minority of the user group, or in rare cases, if held by the majority, are not supported by compelling arguments. Alternative views always conflict with leading views.

The Subcommittee suggests that the Committee develop, to the extent possible given cost/benefit constraints, recommendations that are consistent with leading views. Nevertheless, the Subcommittee decided to include alternative views in the analysis (1) to alert the Committee to cases where a significant group of users disagree with the leading view and (2) to permit the Committee to evaluate the Subcommittee's conclusions about leading views.