Articoli

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Put your money where your mouth is: the difference between real commitment to sustainability and mere rhetoric

Companies have exhibited growing interest in sustainability rhetoric in recent years. The process of assessing sustainability rhetoric is hindered by difficulties in understanding whether a company’s commitment towards sustainability is ‘real’, or if it consists of ‘empty words’ that hide opportunistic strategies. Our paper contributes to this debate, proposing a methodological approach that is based on a company’s business model (BM) representation. Since social and environmental performance are considered important to the long-term success of a business, it is expected that an engaged company integrates sustainability into its value creation process. The same company will take advantage of the BM representation to communicate its real commitment to external users. Compared to previous methodological studies, our analytical method assesses engagement levels separately for each sustainability issue. From an operative viewpoint, our proposal is addressed to regulators and standard setters who are involved in the regulation of sustainability disclosure. Our illustrative example—the UK mining industry—suggests that companies use strategic rhetoric to address sustainability issues, especially issues that pertain waste, corruption, lobbying, and labour conditions. Moreover, we found that effective sustainability rhetoric focuses on infrastructural aspects of the mining business, while other BM pillars are almost completely ignored.

Key-Words: Financial Reporting, Corporate reporting, Discursive logical argument, Business model, CorporateSocial Responsibility, Rhetoric, Narrative disclosure

 

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Omission bias within corporate reporting: evidence from a visual accounting experiment

Omission bias refers to the human beings’ tendency to evaluate a wrongful omission (e.g. a deliberate omission of a negative information) less harshly than a wrongful commission, although the consequences are often the same. Several psychological studies have shown that this bias is widespread as wrongful commissions can cause greater condemnation and public concern. However, the omission bias in financial reporting has not been surprisingly empirically investigated. Companies may prefer omitting negative information rather than providing misleading/false information as they believe users perceive omissions in a less negative way, because of the omission bias. The aim of the paper is to test whether potential annual reports’ readers are affected by omission bias when they view financial graphs displaying a negative trend. We test with an experiment whether techniques of favourable omission and commission via graphs affect the users, even though the information is still displayed via other formats (a table or a text). The paper shows that users perceive performance graphs’ omissions not to be morally wrong. On the other hand, they perceive distracting the reader via another indicator graphed (number of branches) and via favourable distortions as morally worse techniques compared with cases of omissions and, even more, of correct representation. After being taught impression management and after having revealed the preparers’ intentions, users seem to evaluate wrongful commissions still more harshly than omissions. Thus, omission bias does not seem to be removed or significantly reduced by revealing the preparers’ disclosure intention or by teaching users the correct graphical design and the risks of impression management. Overall, our results show that potential annual reports’ users suffer from an omission bias. The study contributes to the impression management literature showing the importance of incorporating a psychological perspective that takes into account cognitive biases.

Key-Words: Financial Reporting

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Sustainability reporting analysed through content analysis and text mining: two techniques competing to generate the same results?

The aim of this paper is to contrast content analysis and text mining as two different research techniques both used by scholars to analyse company social and environmental reports. The paper starts with a presentation of the two research techniques commonly used in the analysis of corporate disclosure with special emphasis on social and environmental reporting.  It examines the techniques with respect to the assumption each holds about the nature of knowledge and it continues with a discussion of the elements that display the differences and similarities between them. This theoretical part is enriched by a comparison in frequency usage and fields of applications of the two techniques. Then, the paper presents an empirical application of the two techniques to the same set of company reports published by four large multinationals that went through an industrial disaster characterized by negative social and environmental consequences with the aim to analyse changes in company social disclosure after the disaster. Results from the application of the two techniques are compared to see whether they lead to different conclusions about company behaviour in trying to restore corporate reputation damaged by the disaster.

Key-Words: Financial Reporting, text mining, content analysis, legitimacy theory, sustainability reporting, disaster, crisis

 

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Investigating risk disclosure practices in european listed companies. What’s going on about reputational risk?

The aim of this research is to investigate how European listed companies disclose on risk and to underline which kind of them influence companies’ decisions on exhibiting infor-mation about reputational risk in their annual report. The research measures risk information by conducting a content analysis of annual financial reports for a sample of 538 European listed companies (France, Germany, Italy, Spain and United Kingdom). The paper is a multi-country study that emphasizes the differences in risk reporting practic-es, focusing on different variables that affect the related content of annual financial reports of our sample. From a theoretical point of view, this research has been developed adopting Walker risk classification model (2013) to systematize the different types of risk and to an-alyse the connection with reputational risk. Our major findings show that there are still many differences in risk disclosure practices both among Countries and types of reported risk. Moreover, the companies that disclose more on reputational risk, are those that have a higher sensibility to risk management and that disclose more also on all the other types of risk.

Key-Words: Financial Reporting, reputational risk, risk management, voluntary disclosure, content anal-ysis, corporate reputation

Fr

Acquisition-type or merger-type accounting? Further insights on transactions involving businesses governed by the same party(-ies)

[Dialogue with standard setters]

This paper – aiming at encouraging a fruitful debate – intends to highlight the discontinuous evolution of the accounting solutions explored by notable bodies (Efrag-Oic, Iasb, Fasb, Kasb, etc.) with reference to transactions involving businesses under common control. The work finally recompose them in two basic categories (discussing their pros/cons as well), here analyzed: acquisition-type accounting, which emphasizes fair value (emergence of exchange or current amounts) vs. merger-type accounting, linked to historical costs (continuity values approach). The first cluster includes the pure-acquisition and the fresh-start method, whereas the second the predecessor basis and the pooling of interests techniques. The concrete identification of the proper methodology, in this regard, essentially requires the profound understanding of the underlying economics, architecture and key elements of a specific transaction shedding light on the most relevant and reliable information useful to stakeholders.

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Keywords: Common control, consolidation, financial reporting, acquisition accounting, fresh start, predecessor basis, pooling of interests, IAS/IFRS

Fr

Business Combinations under Common Control: Concerns, Criticisms and Strides

[Dialogue with standard setters]

Although excluded from the scope of IFRS 3, business combinations under common control (BCUCCs) are widespread transactions that take place all over the world in different forms, often as a reorganization or restructuring among related parties. These transactions occur when entities are ultimately – not transiently – controlled by the same party/ies before and after the combination (which is neither a capital market nor an arm’s length transaction and devoid of economic substance: indeed, no change of control is entailed). The scarce and fragmentary literature, not to mention the lack of clear consensus on the topic, contributes to the prevailing concerns on how to account for BCUCCs. In this complex context, the purpose of this work is to assess the possible and various accounting methods and identify the most suitable, accredited and consistent techniques. […]

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Keywords: Common control, consolidation, financial reporting, acquisition accounting, fresh start, predecessor basis, pooling of interests, IAS/IFRS

 

Fr

Impairment estimates for available-for-sale equity instruments under IFRS: evidence from italian Banks

Literature indicates that accounting choices under a given set of standards is an important topic due to the different economic implications. Daske et al. (2013) suggest that firms have substantial discretion in applying IFRS. Despite the implications on how the firms apply IFRS have motivated many studies, to our knowledge, little is known about the impairment estimates for the Available-for- Sale (AfS) equity instruments. Using a sample of Italian banks over the period 2010-2011, we investigate the determinants of the accounting decisions for impairment estimates. We find that the reporting quality and profitability are explanatory factors of the banks’ decisions to modify the thresholds of the impairment indicators used to assess AfS equity instruments. Our study also suggests that banks use a substantial discretion in implementing the IAS 39 for the AfS equity instruments.

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Keywords: Financial instruments, IAS/IFRS, accounting choices, impairment, financial reporting.

Fr

The Severity of Internal Controls over Financial Reporting Deficiencies: Differences among Types and Industries

This study analyzes the severity of Internal Control over Financial Reporting deficiencies (Deficiencies, Significant Deficiencies and Material Weaknesses) in a sample of Italian listed companies, in the period 2007- 2012. Using proprietary data the severity of the deficiencies is tested for account-specific, entity level and information technology controls and for industries (manufacturing and services vs finance industries). The results on ICD severity is compared with one of the most frequent ICD (Acc_Period End/Accounting Policies): for account-specific, ICD in revenues, purchase, fixed assets and intangible, loans and insurance are more severe while ICD in Inventory are less severe. Differences in ICD severity have been found in the characteristic account: ICD in loan and insurance for finance industry and ICD in revenue, purchase for manufacturing and service industry are more severe. Finally, we found that ICD in entity level and information technology controls are less severe than account specific ICD in all industries. However, the results on entity level and information technology deficiencies could also mean that the importance of these types of control are under-evaluated by the manufacturing and service companies.

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Keywords: Internal control, financial reporting, significant deficiencies, material weaknesses.

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La accountability delle società partecipate dalle pubbliche amministrazioni italiane e il modello civilistico di rendicontazione: un improbabile connubio

State-Owned Enterprises accountability and private sector based financial reporting: an imperfect wedding in the Italian accounting regulation

Italian State-Owned Companies often present a public-style accountability. Nonetheless, they generally have to comply with private sector reporting requirements. This significantly impairs the effectiveness of their financial reporting system and limits the control by the relevant public authorities. Observing the reporting requirements of Australian and New Zealand SOEs, the study calls for a radical change in Italian SOE reporting model and highlights a first set of minor possible amendments to the current financial reporting model.

Fr

Oral financial reporting: A rhetorical analysis of earnings calls

Earnings calls are a key form of voluntary financial reporting through which companies seek to proactively engage investors. Although now quite routine, little is known about their rhetorical dimension. Inspired by Aristotlean classical rhetoric, this paper offers an exploratory analysis of the language of a small sample of earnings calls to identify expressions of logos (reason), ethos (credibility) and pathos (emotion). Text analysis software was used to generate descriptive data for follow-up qualitative analysis to interpret strategic usage. Results indicate a strong presence of persuasive language that is skillfully juxtaposed by company executives with financial information to emphasize success and instill confidence. The findings can be applied towards developing state-of-the-art courses for students of financial communication and towards enhancing the effectiveness of financial reporting.

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Keywords: Financial reporting, classical rhetoric, earnings calls, corpus linguistics

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La valutazione degli Information Technology Controls nell’ambito dei sistemi di controllo interno: i risultati di una ricerca empirica

Information Technology and Internal Controls over Financial Reporting: the audit cycle

The Information Technology Controls (ITC) have a great influence on the reliability of financial reporting. They are part of Internal Controls over Financial Reporting (ICFR) but the area of Information Technology is often not well integrated and coordinated with the traditional Internal Controls, in absence of a compulsory Framework. A survey was conducted on a sample of companies listed on the Italian Stock Exchange. The results of this research offer an improvement of the Internal Control over Financial Reporting framework that consider the Information Technology peculiarities and specifies some conditions for their utility in relation to the main phases the audit cycle (scoping, planning, risk assessment, documentation, evaluation, reporting).