Is there a way of expressing the two fundamental qualitative characteristics of useful financial information by statistical measures?
Predictive and confirmatory value can be used as proxy for Relevance. They can be easily measured by different statistical approaches.
However, Faithful representation requires information to be complete, neutral and free from error.
Are there any statistical measures of completeness, neutrality and free from error which do not take into account only one specific user of the financial statements? For example, it is easy to asses whether information is faithfully represented to a specific bank, but is it possible to asses faithfulness on a more general level (i.e. for all of the users of financial statements)?
In general, there are six qualitative characteristics of financial information: relevance, faithful representation, comparability, verifiability, timeliness, and understandability. All are difficult to capture statistically.
Therefore, descriptive quantities of these characteristics are often used like loss avoidance ratio, profit decline avoidance ratio, accruals ratio, qualified audit opinion ratio, non-big four auditor ratio, and audit-fee ratio.
For more information see
https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/evaluating-quality-financial-reports
I think the following paper will help you out in this regard:
Determinant factors influencing the quality of financial reporting local government in Indonesia
HN Tambingon, W Yadiati… - … Economics and Financial …, 2018 - search.proquest.com
It is possible where EFFECTIVE INTERNAL CONTROL SYSTEM is put in place and integrity of both the employees and the organisation are not be compromised.
Dear academics, this topic of discussion relates directly to one of the elements of my professional practice. Nowadays, it is very difficult to obtain high-quality financial information from companies, because as a practitioner, I will put it straight, accountants and high-level managers have learned the sophisticated tricks of fraud in documenting business activities. In my opinion, progress in creating document fraud is faster than progress in fraud detection in internal and external audit activities. I propose to look at the problem of measuring the quality of financial information from the perspective of systemic conditions.
Firstly, there is a tendency to formulate poor quality financial information in a country where the level of tax rates is growing rapidly or where tax rates are already so high that in neighboring countries the level of taxation is much lower and the fiscal system is more competitive in terms of exemption rates and reliefs for enterprises . Secondly, enterprises tend to formulate incorrect information in the reports if a country has developed a complex data reporting system (deviating from international accounting standards) and a complex tax system favoring ambiguous legal interpretations.
Thirdly, errors and frauds in the field of financial reporting in companies increase if there are very frequent and underdeveloped (in terms of implementation) changes in regulations in a given country. In Poland, we call such a process the "inflation of financial law". Such a situation occurs when we are dealing with a low-quality political class in parliament or frequent shifts in economic policy due to changes in governments and party coalitions.
Thank you for Your attention and best regards