NATIONAL ACCOUNTING CULTURE AND THE RECOGNITION OF PROVISIONS: AN APPLICATION OF THE PRUDENCE PRINCIPLE

Prudence in accounting is a corner-stone concept which has shaped accounting theory, as well as ordinary financial reporting. Thus, on the quantitative side of the study, we developed a proxy for accounting conservatism, namely the degree of uncertainty associated with the settling of a company's obligations. To this purpose, we hand-collected accounting data for 388 business groups from 17 European countries. For these companies we computed the provisions-to-liabilities ratio (PLR) and performed several group tests, according to the following original classification of national accounting cultures. The results indicate that companies incorporated in countries that are classified as ‘conservative' do assign a significantly higher degree of uncertainty to their total amount of liabilities.mixed research methods, accounting conservatism, European companies, national accounting culture, international harmonization

NATIONAL ACCOUNTING CULTURE AND THE RECOGNITION OF PROVISIONS: AN APPLICATION OF THE PRUDENCE PRINCIPLE

International audiencePrudence in accounting is a corner-stone concept which has shaped accounting theory, as well as ordinary financial reporting. Thus, on the quantitative side of the study, we developed a proxy for accounting conservatism, namely the degree of uncertainty associated with the settling of a company's obligations. To this purpose, we hand-collected accounting data for 388 business groups from 17 European countries. For these companies we computed the provisions-to-liabilities ratio (PLR) and performed several group tests, according to the following original classification of national accounting cultures. The results indicate that companies incorporated in countries that are classified as ‘conservative' do assign a significantly higher degree of uncertainty to their total amount of liabilities

Effects on corporate stakeholders and limitations of the implementation of the Non-Financial Reporting Directive (2014/95/EU)

Research question: What are the effects of non-financial reporting (NFR) for companies and stakeholders? Motivation: We draw on previous research that examines the effects and limitations of the Non-Financial Reporting Directive on key stakeholders. Idea: This article investigates the increasing significance of the sustainability orientation in corporate operations, as well as the role of NFR in providing information about social, ethical, and environmental aspects of a particular organization. Additionally, the article explores the possible benefits of sustainability reporting, such as improved reputation, in addition to the company’s ability to contribute to the sustainable development goals. Data and tools: This paper provides a scoping review that explores the influence of NFR on the decisions of various stakeholders, such as companies, investors, governments or regulators, accountants and auditors, employees, and the general public. The review discusses existing studies in the literature focusing on NFR and the legislative context in respect to the transition from NFR to sustainability reporting. Findings and Contribution: This article shows that Directive 2014/95/EU positively influenced the quality and transparency of the sustainability disclosure process of companies. Also, we identify various gaps in the literature, along with challenges faced by firms when reporting on non-financial information and ensuring accuracy and completeness. Based on summarized evidence from the literature, the limitations of NFR include inconsistent formats, lack of standardization, weaknesses in the reliability and comparability of information used in decision-making process, and limited assurance. Finally, our study highlights the importance of transitioning from NFR to sustainability reporting, the latter having significant effects in increasing stakeholder participation, safeguarding business reputation, boosting investor confidence and achieving the sustainable development goals, while complying with legislation. It explores the challenges and opportunities linked to NFR (a synonym of ESG reporting) and specifies the necessary components of sustainability reporting frameworks

Conflicts of interest in business: A review of the concept

All companies admit in their codes of conduct that conflicts of interest (CIs) are a threat to their efficiency, integrity and reputation. Except for insider trading, definitions of CIs are strictly particular to each business and publicly expressed through their codes of ethics. I propose an interpretative analysis of what is understood by conflict of interest in the codes of ethics of the world’s ten largest companies, along with a comprehensive review of CIs in several sections: employment, contracting, corporate assets, insider trading and personal investments, competitors, and corporate image. The present paper offers solutions to avoid or resolve CIs in a business context, by combining economic preference with the psychological cognitivist view of self-interest. The conclusion is that a code of ethics and relevant training are protective measures for a company wishing to convince its employees that they are better off not entering CIs

Accounting for sustainability: the quest for a conceptual framework

This paper aims to produce an original model distilling a conceptual framework for sustainability reporting. Two levels of information reliability are described, derived mainly from accounting conceptual frameworks, and global reporting initiative (GRI) guidelines. We follow an inductive approach: we analyse the qualitative characteristics of specific environmental indicators, in order to assess the degree of relevance and reliability of each particular provision. We will finally make an attempt to derive the objective of sustainability reporting, while evaluating the degree of usefulness of this type of documents that closely follow the more formalised process of financial reporting. We conclude that there are a number of reasons for not reporting; most of these are related to internal data reliability. Hence, stakeholders cannot distinguish between different types of data unreliability; and the GRI does little on this matter.sustainability; accounting conceptual framework; corporate reporting; global reporting initiative; GRI; stakeholder theory; sustainable development.

The Relationship between Integrated Thinking and Financial Risk: Panel Estimation in a Global Sample

There is a growing interest in identifying the benefits that companies may have once they disclose financial and sustainability information in integrated reports. The aim of this study is to analyze the relationship between integrated thinking and reporting (ITR) and financial risk in nonfinancial companies worldwide. Data were collected mainly from the Refinitiv Eikon database for 7111 companies from 85 countries over the period 2017–2021. The focal industries are basic materials, consumer discretionary, consumer staples, energy, healthcare, industrials, real estate, technology, telecommunications, and utilities. Panel regression was used as a statistical procedure and random effects models are preferred. Hypotheses related to signaling theory are confirmed, as companies are interested in high-quality disclosures in integrated reports, reflecting a positive outlook and reduced financial risk. Our results show a negative relationship between ITR and the weighted average cost of capital, and a positive association between the main predictor and liquidity measured by the cash ratio. In addition, designing a compensation system linked to sustainability performance leads to a reduced cost of financing through debt and equity. Robustness tests were applied to the relationship between ITR and the weighted average cost of capital; the results show that stricter board oversight and holistic stakeholder management can decrease the average cost of capital and the financial risk for the company. This research is important for stakeholders looking to improve their knowledge about integrated reports and for practitioners seeking to enhance the quality of integrated reports and reduce the financial risk of companies

Empirical Evidence on the Development and Digitalization of the Accounting and Finance Profession in Europe

The objective of this research was to evaluate the development and digitalization of professional services in the field of accounting and finance, as well as to calculate and compare several indicators of the development of the profession in each European country. We also sought to identify the factors that drive the development of the accounting and finance profession at the international level. We collected rich information on 337 professional associations in 40 countries in Europe. Using this dataset, 20 accounting and finance services and 14 membership services and benefits provided by professional associations were identified. Digitalization of the profession is a prominent membership service, but also a characteristic of country competitiveness. The results of the intergroup analysis showed that high-income countries have a significantly larger number of professional associations and services compared to middle-income countries. Furthermore, the accounting and finance profession in high-income countries covers a larger number of accounting and membership services. The size of the population and the competitiveness of the national economy are the main predictors of the development and digitalization of the accounting and finance profession in a country. This research has implications for professional associations and national regulators in reducing disparities between European countries on the matter of accounting education and service quality. The scale of this research can provide institutional actors with a holistic perspective on the accounting and finance profession at the national and international level