The Usefulness of Value Added Reporting

From the viewpoint of accounting standard- setting bodies, the first goal of the traditional financial reporting is the representation of usefulness information for investors decision-making on the other hand, some believe this goal was very limited, because it disregards social goals, and it only supports a special group of financial statements users. So, the traditional financial reporting is limited to disclose returns to investors, namely, earnings and cash flows. In contrast, value added reporting, however, can measure and disclose returns to the other financial statements users. Value added represents the total wealth of the firm that could be distributed to all capital providers, employees and the government. Earning represents the return to shareholders while other value added components reflect returns to the other stakeholders, i.e, the Government, bondholders and employees. The investigation of value added reporting has been the continuing subject of a descriptive literature. This paper provides an overview of the empirical literature, which has generally focused on the benefits and limitations of value added reporting in the U.S context from three perspectives: (1) value added- based performance of firms in different contexts, (2) the information content of value added in market valuation, and (3) the predictive ability of value added data.