When financial statements are difficult to read investors are at risk of being confused and can make inappropriate investment decisions that can lead to loss of investments.
Preparers of financial statements have more information than readers of financial statements and hence
the preparers are capable of exploiting uninformed readers of financial statements through deliberate
obfuscation techniques by virtue of the advantageous position they hold. The imbalance of information
between 2 parties in a transaction that can lead to the exploitation of the party with less information by
the party with more information is referred to as information asymmetry. There is thus need to assess the ease of readability of financial statements in Kenya. Readable information enables:
- users of financial statements make good informed financial decisions
- helps in reducing the information asymmetry and hence reducing the risk of readers being exploited by the preparers of financial statements.