Accounting Communication in Life’s Largest Investment: The role of the annual report in a purchasing situation of a housing apartment

Abstract

Background and problem: Purchase of a housing apartment is a situation where a private individual, often an inexperienced user of accounting information assess the financial state of affairs of a housing association by examining a communicative document; the annual report. In a Swedish context a housing association is an organizational form with special characteristics, which should affect the information they present in the annual report. The current debate among accounting and industry specialist reveals that the housing association’s annual report in its current form does not present relevant, understandable and comparable information for the users. One particular group of are the buyers of housing apartments who in order to assess the financial state of affairs need to rely on financial information received in the annual report. Purpose: The purpose of this study is to explore how well the annual report achieves its role as a communicative document, for a buyer assessing the housing association’s financial state of affairs in a purchase situation of a housing apartment. Research question: How well does the annual report achieve its role as a communicative document in a purchase situation of a housing apartment? Research Design: The research question was studied using an exploratory case study in order to get an understanding of a relatively unexplored topic. Twelve respondents, six buyers and six real-estate agents were studied using semi-structured interviews. These in-depth observations were complemented with information from a document study containing six annual reports. Consequently this study consists of six cases each containing two interviews and one annual report. Analysis and conclusion: The findings suggest that housing associations’ annual reports in its current form do not provide relevant, understandable and comparable information for buyers in a purchasing situation. The answers from the respondents indicated that the level of complexity was high and the level of relevance was low in the annual reports. The document study revealed that the amount of voluntary disclosures varied significantly among the different annual reports and consequently the possibility to compare financial information between different housing associations was low. Buyers who are often non-professional users of accounting information need to obtain more disclosures that currently are voluntary. A new regulatory requirement for housing associations that include key ratios, maintenance plan and other relevant information made in a standardized, educational and visual way is needed to better reflect the financial state of affairs of the housing association. The findings in this study indicate that housing associations’ annual reports do not achieve their role as a communicating document and as providers of information relevant for decision-making.