The accounting rate of return within the South African environment.

Abstract

Accounting is a human creation designed to satisfy human need, and which must therefore, above all be useful. Financial statements should, therefore, provide information that is useful in making economic decisions. Academics and practitioners are however critical of the output of the accounting information system and propose that accounting profitability is of limited economic significance. They claim it is no longer sufficient to provide antiquated historical cost data. that in Joost respects cannot be processed further. There is no urgent need to develop both analytical systems for thinking about and anticipating changes in the business world and the mechanisms and structures to assure that we respond appropriately from that standpoint of useful financial reporting 'The Accounting Rate of Return (ARR) may assist in evolving the usefulness of financial reporting. In the report the usefulness of the Accounting Rate of Return is established. The purpose of this report is achieved through normative and empirical studies. The result of comparing the ARR to the opportunity cost of capital has been suggested to be absolute. but in reality this is not feasible. Investors would use the ARR, as an input in rather than the decisive factor for deciding whether to buy. hold or sell investment. The proposals advocated in the paper communicate relevant and useful information for the purposes of investment performance appraisal.