The future of corporate reporting: a review article

Significant changes in the corporate external reporting environment have led to proposals for fundamental changes in corporate reporting practices. Recent influential reports by major organisations have suggested that a variety of new information types be reported, in particular forward-looking, non-financial and soft information. This paper presents a review and synthesis of these reports and provides a framework for classifying and describing suggested information types. The existence of academic antecedents for certain current proposals are identified and the ambiguous relationship between research and practice is explored. The implications for future academic research are discussed and a research agenda is introduced

Audit market competition: auditor changes and the impact of tendering

Increased competition within the external audit market and the recent phenomenon of audit tendering has renewed interest in the factors influencing auditor changes. In this paper, a questionnaire instrument is used to elicit perceptions of the factors which influence auditor-client realignments in this new environment and to indicate the relative influence of economic and behavioural factors. Positive, statistically significant associations were found between unsolicited approaches and the consideration of either a change in auditor or the conduct of a competitive tender. Fees are both the most frequently cited reason for considering auditor change and the most frequently cited factor influencing the selection of a new auditor. The chemistry of the relationship with senior audit firm personnel was ranked as more important than service issues in new auditor selection. Several significant associations between the reasons for change and both company size and type of change are identified. In particular, smaller companies, and companies changing from a non-Big Six firm, were more likely to change due to the need for a wider range of services and the influence of third parties. Findings indicated that 55% of auditor changes were effected by means of a tender, with the incumbent auditor having only an 18% chance of retaining the client. The various stages of the tender process appear to be dominated by the finance director, with audit committees having a restricted role. Tenders resulted in significant fee reductions in the year of change

The British Accounting Review - characteristics of papers submitted and accepted, 1997 to 2006

Abstract not available

Auditor changes and tendering: UK interview evidence

Competitive pressures in the audit market have led to aggressive fee renegotiation and tendering by companies. This paper reviews microeconomic tender theory and finds it to be of limited value in the audit context. Content analysis of semi-structured interviews conducted with the finance directors of 12 UK listed companies which had recently tendered and/or changed auditor are used to investigate the tender/change process. Contrary to popular belief, fee levels do not necessarily dominate the decision to change auditors, rather changes within the client company, audit staffing, and auditor's professionalism and competency issues dominate. Nor is the selection of a tender "winner" generally based solely on price, as predicted by tender theory and as would be expected when the consequences of audit failure do not fall on the directors. However, consistent with economic theory, the winning bid appears frequently to be too low, resulting in attempts by auditors to subsequently increase fees and resentment by the finance director. Directors generally appear to view the audit tender as relating to not only the attest function per se, but to a larger package of services concerning the financial reporting function. The relative importance of price versus non-price competition in auditor choice is found to vary across companies. Auditor choice is influenced strongly by both economic and behavioural factors, in particular, by directors' assessment of the quality of non-attest services and the expected quality of working relationships, in addition to price and audit quality

The <i>British Accounting Review</i> review process: evidence from 1997 to 2006

This is the first part of a two-part analysis of submissions to The British Accounting Review (BAR) over the decade spanning 1997 to 2006. In this part, we outline the journal review process, report on selected characteristics (country of origin, number of authors) of 657 submitted papers and report on the review process outcomes of these papers (including turnaround times). In part two of this analysis, we will investigate the characteristics of these papers that give insights into the way in which accounting and finance knowledge has developed over the decade (in particular, the topic area and methods of analysis used)

Measurement distortion of graphs in corporate reports: an experimental study

Graphs in corporate annual reports are a double-edged sword. While they offer the potential for improved communication of accounting information to users, the preparers of the annual reports can easily manipulate the graphs for their own interests. For over a decade, the empirical financial graphics literature has focused on examining company reporting practices. A particular concern has been measurement distortion, which violates a fundamental principle of graph construction. Unfortunately, it is not yet known whether observed levels of measurement distortion are likely to affect users' perceptions of financial performance. This study uses an experimental approach to address this issue. Pairs of graphs are shown to establish the level of difference that is just noticeable to graph readers. Six levels of "distortion" are investigated (5 per cent, 10 per cent, 20 per cent, 30 per cent, 40 per cent and 50 per cent). Results indicate that if financial graphs are to avoid distorting the perceptions of users, then no measurement distortions in excess of 10 per cent should be allowed. Users with lower levels of financial understanding appear to be most at risk of being misled by distorted graphs. Further research will be necessary to investigate whether this impact upon perceptions subsequently affects users' decisions in specific contexts

Briefing: Auditor/company interactions in the 2007 UK regulatory environment

No abstract availabl

Auditor independence and audit risk: a reconceptualisation

The principles-based U.K. regulatory framework for auditor independence (Chartered Accountants Joint Ethics Committee 1996), which was adopted in 1997, identifies threats to independence in fact, independence in appearance, and the safeguards that control these threats. These principles are incorporated in the International Federation of Accountants (IFAC 2001) ethics framework. Drawing on six case studies of interactions involving significant accounting issues between audit engagement partners and finance directors in U.K.-listed companies, we analyze the threats and safeguards to auditor independence in fact that are relevant to the outcome of each interaction. Despite the U.K.'s comprehensive regulatory framework for independence, audit quality control, and independent inspection of firms, not all the interactions have a fully compliant outcome. Independence in fact is compromised where the safeguards in the framework are insufficient defense against the threats, particularly regarding intimidation and bullying during the audit process. Further examples of existing threats are identified and additional threats emerge, in particular an urgency threat, and a loss of face threat. Management motivation is found to be a key driver of pressure. Threats to independence arising within audit firms are not recognized in the current U.K. audit risk model. An extended risk model incorporating within-firm risk is suggested. This study demonstrates the need for continual improvement to regulatory frameworks; in particular it supports the recent U.S. Securities and Exchange Commission (SEC) rule on improper influence on the conduct of audits (Securities and Exchange Commission 2003a)

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

Investigating presentational change in UK annual reports: a longitudinal perspective

This article examines structural and format changes in annual reports of U.K. listed companies from 1965 to 2004 with a particular focus on graph use. The article compares a new sample of 2004 annual reports with preexisting samples by Lee and by Beattie and Jones. Lee's identified trends continue. There has been a sharp increase in page length, voluntary information, and narrative information, particularly among large listed companies. A detailed analysis of voluntary disclosure indicates changes in the incidence and pattern of generic sections. Graph usage is now universal. However, key financial graph use has slightly declined, replaced by graphs depicting other operating issues. Impression management through selectivity, graphical measurement distortion, and manipulation of the length of time series graphed are common. Overall, annual reports continue to exhibit many features of public relations documents rather than financially driven, statutory documents, and the analysis of graph usage suggests a need for policy guidelines to protect users