FINANCIAL REPORTING QUALITY AND ITS IMPACT ON THE CONTINUITY OF THE ORGANIZATION: THEORETICAL STUDY

Abstract

According to the information provided by the financial reports, consumers are making decisions, that determine the effectiveness and success of the organization. Financial reports must be accurate, clear, and not misleading to consumers, so the quality of the financial reports is an important factor for the continuity of the organization’s activities. The evaluation of the quality of the financial statements by using quantitative indexes is more and more discussed in foreign scientific literature, however in Lithuania too little attention is given to such a quality discussion of financial statements. With this theoretical study is aimed to discuss the quantitative methods of evaluating financial reports and reveal the impact of these statements on continuity of the organization’s activities. Based on the analysis and synthesis of scientific literature is observed, that there is no one universal method to evaluate financial reports, because types of assessment or choice of evaluation indicators are determined by researching context and the purpose of the research. In scientific studies where the quality of financial reports is evaluated by the quantitative indicators, is usually applied the provision valuation method of  P. Dechow and I. Dichev (2002), which was modified by M. F. McNichols (2002). The quality of the financial reports is a very important aspect of the continuity of the organizations activities, by improving results of activity, looking for possibilities to expand and creating long term activity strategies.