This paper examines financial reporting gap in Iran. Legal financial reporting model is determined by using fact documents and the actual reporting model is explored by applying interviews through purposive sampling. Finally, the potential gap is determined by comparing the reporting models (legal vs. actual). The research results indicate that the Iranian investors as well as legal sources of information (financial, audit and TSE's reports) use informal sources of information in their decision making process. These sources include brokers, friends, financial analysts' reports, media, companies' websites, and corporate staff. Using the other sources of information suggest that there is a gap between the legal and actual financial reporting models in Iran. This implies that the legal reporting system does not meet the needs of the users; therefore the users use the other sources to overcome this failure. The findings also show that the reporting gap is caused by the following factors: the inadequate disclosure of non-financial information in the financial statements, inability of the financial statements to provide on time information, and advances in technology, which facilitates access to more and real time information. This case study would be of value to regulators, financial analyst, brokers, investors, and researcher especially in developing and emerging markets.

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