A methodology for analysing and evaluating narratives in annual reports: a comprehensive descriptive profile and metrics for disclosure quality attributes

There is a consensus that the business reporting model needs to expand to serve the changing information needs of the market and provide the information required for enhanced corporate transparency and accountability. Worldwide, regulators view narrative disclosures as the key to achieving the desired step-change in the quality of corporate reporting. In recent years, accounting researchers have increasingly focused their efforts on investigating disclosure and it is now recognised that there is an urgent need to develop disclosure metrics to facilitate research into voluntary disclosure and quality [Core, J. E. (2001). A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(3), 441–456]. This paper responds to this call and contributes in two principal ways. First, the paper introduces to the academic literature a comprehensive four-dimensional framework for the holistic content analysis of accounting narratives and presents a computer-assisted methodology for implementing this framework. This procedure provides a rich descriptive profile of a company's narrative disclosures based on the coding of topic and three type attributes. Second, the paper explores the complex concept of quality, and the problematic nature of quality measurement. It makes a preliminary attempt to identify some of the attributes of quality (such as relative amount of disclosure and topic spread), suggests observable proxies for these and offers a tentative summary measure of disclosure quality

Disasters and Disclosures

Many securities fraud lawsuits follow corporate disasters of some sort or another, claiming that known risks were concealed prior to the crisis. Yet for a host of doctrinal, pragmatic and political reasons, there is no clear-cut duty to disclose these risks. The SEC has imposed a set of requirements that sometimes forces risk disclosure, but does so neither consistently nor adequately. Courts in 10b-5 fraud-on-the-market cases, in turn, have made duty mainly a matter of active rather than passive concealment and thus, literally, wordplay: there is no fraud-based duty to disclose risks unless and until the issuer has said enough to put the particular kind of risk “in play.” But when that is, and why, flummoxes them. This incoherence could be rationalized by a more thoughtful assessment of how words matter to investors and better appreciation of the variable role that managerial credibility plays in the process of disclosure and interpretation, which is the main focus of this article. Disasters are an ideal, if disturbing, setting for thinking through the micro-structure of corporate discourse—the implicit rules of interpretation for how marketplace actors interpret what issuers say and don’t say, whether in formal SEC disclosures, conference calls, press conferences and even executive tweets. But even if there is more thoughtfulness to the endeavor, it is fair to ask why wordplay should make so much of a difference as to duty in the first place, or whether instead our impoverished conception of duty and its links to scienter, reliance and causation deserve a more thorough makeover. The study of disasters and disclosures also offers a distinctive reference point for thinking about contemporary controversies associated with bringing matters of social responsibility (e.g., law abidingness) and sustainability (environmental compliance, cybersecurity, product safety, etc.) into the realm of securities law

SEC Reporting Requirements for Publicly Traded Companies Should not be Expanded Despite Advancements in Information Technology

Advancements in information technology allow information to be collected and analyzed quickly within a corporation. As a result, technology also allows the quicker release of information to the Securities Exchange Commission (SEC)—much quicker than the Form 10-K and Form 10-Q releases that are currently required for publicly traded companies. Although publicly traded companies must also disclose certain significant events in Form 8-K, the reporting requirements for publicly traded companies are not nearly as expansive as they could be considering the easy access these companies have to their business information. Even with this in mind, the SEC is well into a reevaluation of Regulation S-K primarily because requirements have accreted over time to become not just burdensome to companies but also blinding to investors who are overwhelmed by the volume of disclosure thrown at them. This paper expounds on these arguments and posits additional arguments for why the SEC should not expand reporting requirements for publicly traded companies. Specifically, expanded requirements are associated with high compliance costs; market forces already induce higher-quality disclosures; the more information companies file with the SEC, the more advantages they give to their competitors; and both the liability concerns and the doctrinal issues already associated with the current requirements will be exacerbated with an expansion of the requirements

The supply of new reporting – plethora or pertinent

This paper studies the extent to which present annual reporting practices fulfill the themes of comprehensive business reporting put forth by the Jenkin’s Report and a series of authoritative reports that have emerged in its wake, and thereby examines which types of information suppliers find relevant. In this paper, a content analysis of the annual reports of all the listed companies in the Danish biotech, pharmaceutical and medicotech industry from the fiscal year 2002/03 is conducted. The sample thus includes 13 companies. The empirical analysis uncovers the characteristics of the information that companies voluntarily supply to the capital market in their annual reports. The findings support the cost of disclosure theory, as a strong correlation between disclosure and market capitalization is found. Especially disclosures of corporate governance metrics and social and sustainability disclosures were significantly correlated with firm size. The overall findings indicate an overweight of context-building and branding-related information in the annual reports, suggesting that annual reporting plays a central role in legitimizing the company’s existence and that their content is driven by appropriate corporate action. The analysis confirms that there is a lack of disclosure of forward-oriented types of information which are comparable over time like e.g. value drivers, critical success factors as well as non-financial information. Finally, awareness towards and disclosure of information concerning the effects of voluntary disclosure were found to be non-existent.No keywords;

Disclosure\u27s Purpose

The United States securities regulatory infrastructure requires disclosure of a wide array of information both by and about covered companies. The basic purpose of the disclosures is to level the playing field – for investors, for issuers, and for the public. Although investor protection is the disclosure goal often touted, this article develops the purposes of disclosure extending beyond investors to issuers and the public. Indeed, the disclosure system is designed to level the playing field for issuers— addressing confidentiality concerns, for example. In addition, the system helps to promote confidence in the markets, which, in turn, enables growth and innovation by creating access to capital – goals important to issuers. Yet, as importantly, the system also protects the public more broadly. After all, the harms of market crashes and other disruptions are not confined to investors and issuers – despite the fact that writing in this space focuses largely on them. Disclosure’s purpose, then, is to diminish asymmetries and the space for fraud, both for those within the entity and for the public affected by the entity. To achieve these purposes, the system depends on gatekeepers, like corporate directors who are assigned a role in effectively managing the purpose and consequences of disclosure. Doing so requires them take ownership of both the ensuing internal discourse between the entity, its insiders, and its owners, as well as the external discourse with the entity’s public stakeholders and the public more generally. When directors do so, the resulting discourse and candor helps to ensure the purposes of disclosure are met. This article examines the purpose and regulation of this discourse, emphasizing the role of the board of directors and its attention to public stakeholders and the public, with a particular focus on omissions. The article proceeds as follows. Part I explores the purposes of disclosure in corporate discourse and how disclosure requirements are designed to transmit information. As we will see, the securities disclosure regime aims to address a broad range of issues -- from fairness to market competitiveness. Part II develops the omissions theory in the context of the purposes of disclosure, as well as explicating their role in corporate discourse. Part III turns to the board and its responsibilities with respect to the purposes of securities disclosures and corporate discourse, with a particular emphasis on omissions and candor, and deployng some case studies to develop the theories further. Part IV analyzes the relationship between directors, disclosure (and its purpose) and omissions, and publicness, tying the information-forcing-substance theory to director gatekeeping and explicating how it can result in more thorough disclosure outcomes for investors, issuers, and the public – and thereby, fulfill disclosure’s purpose

Is it Time to Address Selective Disclosure for Nonprofit Organizations?

Over the past two decades, there have been several highly publicized nonprofit scandals that have eroded the publics confidence in the sector (Aviv 2004). Significant changes in nonprofit regulation have been implemented to address these concerns that have expanded the financial information available to the public. Interestingly, the calls for more nonprofit accountability have not focused on an important concern, that of selective disclosure. This is a practice under which an organization provides material information to some constituents while withholding it from others. This paper argues that practice is frequently observed in the nonprofit sector. As the New Era Philanthropy scandal highlighted, this practice can pose substantial risks to the nonprofit sector by facilitating fraud and harming the publics trust. The paper describes the existing nonprofit reporting requirements and potential shortcomings. It examines two alternative disclosure environments, the Freedom of Information Act (FOIA) in the federal government and corporate securities regulation, particularly Regulation Fair Disclosure, and their limitations. It will then discuss what measures could be taken to address selective disclosure in the nonprofit sector.This publication is Hauser Center Working Paper No. 33.7. Hauser Working Paper Series Nos. 33.1-33.9 were prepared as background papers for the Nonprofit Governance and Accountability Symposium October 3-4, 2006

Discretionary risks disclosure: a management perspective

Discretionary risks disclosure practices by managers provide useful information to investors and other users of accounting information in assessing the risk profile of a company. A managers’ ability to disclose relevant risk information that reflects more accurately the companies’ current and future financial performance will facilitate these users in making effective investment decisions. This paper aims to examine empirically the effect of management perception on the disclosure of risk-related information in companies’ annual reports, thus, exploring the current practices of risk reporting by managers of listed companies in Malaysia. The findings should provide useful information to regulators and other policymakers in identifying the factors that influence managers’ perception of risk-related information and, consequently, affect the extent and nature of risk information disclosed in companies’ annual reports. Overall, the findings reveal that enhanced understanding and perception on the overall risk concepts are important drivers that can facilitate managers in disclosing more comprehensive and relevant risk-related information. This, in turn, improves the trust and confidence of investors and other users of financial statements as their evaluations are influenced by the choices of information being disclosed in annual reports by managers

Non-Financial Disclosures in the South African Mining Industry

The purpose of this article is to analyse the nature and extent of non-financial disclosures in South African mining companies’ annual reports both pre- and post-King III to explore the impact that King III may have had on such disclosures. The research methodology adopted was a content analysis of annual reports prior to the issue of King III and then, in order to provide a second benchmarking period, more recent studies of mining companies’ annual reports after the issue of King III were accessed. These studies also used content analysis allowing for some degree of comparability. The study found that overall, the non-financial disclosures for all mining companies showed an increasing trend for the years leading up to the issue of King III. After the release of King III, the study found that although the extent of disclosures increased further, pointing to King III being the impetus for such an increase, there was still room for improvement in corporate governance disclosures especially with regards to forward looking disclosures and board of directors’ disclosures