Decision Usefulness Approach to Financial Reporting: A Case for Malaysian Inland Revenue Board

This paper aims at determining whether or not financial reporting of companies in Malaysia provides useful information to Inland Revenue Board for income tax determination. The respondents in this study were staff of the Inland Revenue Board, Jalan Duta, Kuala Lumpur, and, for the purpose of the study, copies of questionnaire were distributed to them to illicit their responses. The data collected were analyzed, using SPSS. Most of the respondents are satisfied that companies’ financial reporting follows the requirements of relevant laws in the country and that they comply with appropriate accounting standards. But the respondents query the decision usefulness level of the financial reporting of companies to the Inland Revenue Board’s functions of tax assessment and income tax determination. It is for this reason that adjustment becomes necessary to the income measurement shown in the income statement of companies for proper income tax determination by the Malaysian Inland Revenue Board. It is, therefore, recommended that appropriate laws on companies financial reporting in Malaysia should include a clause that would require companies to prepare an adjusted income statement which would be decision useful to Inland Revenue Board as part of the items of financial statements to be reported by the companies.