Abstract/Summary

There is considerable growth in narrative disclosure in developed countries. However, there is still relatively little research on accounting narratives in annual reports from the users' perspective in the developing world, especially in the case of Saudi Arabia. This study therefore examines the use and usefulness of narrative reports for reporting and decision-making in the Kingdom of Saudi Arabia (KSA). Consequently, explored is constituents’ understanding of the narrative concept, the use of narrative disclosure, and the section(s) of most specific interest to users. However, this study is not limited to capturing individual perspectives of the use and usefulness of narrative disclosure, but also investigates the empirical literature, regarding institutional factors that affect the provision of and need for voluntary disclosure. A qualitative interpretive methodology was adopted, in order to fully understand the phenomenon from an individual perspective and observe the historical and cultural context of narrative reporting. Semi-structured interviews were employed as the data collection method, conducted with a sample of Saudi shareholders, investors, financial analysts, creditors, certified accountants and auditors, CEOs and managers, regulators, and academics, whereupon the researcher was able to interact with the participants directly to examine the phenomenon in greater depth. It was found that in the early stages of narrative disclosure in the Saudi market, the Saudi participants wished for more than mere financial statements, expressing a need for substantially more non-financial information such as the nature, segments, lines, activities, strategies, future prospects, and risks of a company, rather than historical disclosure alone. Thus, the importance and effectiveness of narrative reports for enhancing the stakeholders’ ability to anticipate how the company will perform in future was explicitly recognised. This would ultimately improve stakeholders’ decision-making. However, the Saudi accounting regulations, the nature of Saudi culture and the Saudi market, the level of accountancy awareness and education, and country-specific factors (users' awareness and beliefs, technology, media, Islamic religion) appear to have had a considerable effect on Saudi disclosure practices, preventing narrative reports from being useful. Therefore, this study should be considered as an attempt to improve the usefulness of narrative reporting for users of narrative reports in Saudi Arabia. Overall, this research contributes to the existing body of knowledge concerning the relevance of narrative disclosure for the benefit of businesses and the broader accounting society. The ultimate purpose of this is to establish a better accounting system and accounting society in Saudi Arabia. It is also expected to help develop a vision and strategy to encourage faculties to work on the regulation of narrative disclosure within the Saudi accounting system, thereby reflecting positively on best practice and the wider society. Those drafting the regulations and financial reporting preparers will also benefit from the results of this research, as it should enhance their awareness of the importance of narrative disclosure.