Accounting theory & Accountability essay on stock exchange
Accounting Theory
Reporting and Voluntary Disclosure Part 1
( Chapter 7)
1
Learning Objectives
Have an understanding of voluntary disclosure
Explain what is good corporate governance and why good corporate governance is needed
Recent developments and issues in corporate governance
Role and impact of accounting on corporate governance
Voluntary Disclosures
The annual report contains both mandated financial statements and voluntary disclosure.
Information outside the financial statements is not audited.
The annual report can be used as a marketing tool as well as a conveyor of a particular organisational image to its readers.
Voluntary Disclosures Cont
Narrative voluntary disclosures in annual reports used to report activities excluded by accounting standards from the financial statements.
Impression management used to improve corporate image.
Can be biased, even misleading.
Why Entities Voluntarily Disclose
Mandated accounting information is constrained.
Definition of users is limited.
Organisations require and desire broad support.
They have multiple responsibilities.
Variety of information is necessary to satisfy and inform range of stakeholders.
Management Motivation to Disclose
Deegan lists ten reasons for voluntarily disclosure
To comply with legal requirements
Because of economic rationality arguments
Because of accountability to stakeholders
Because of borrowing requirements
To comply with community expectations
Management Motivation to Disclose
6. To ward off threats to organisational legitimacy.
7. To manage powerful stakeholders
8. To forestall regulation
9. to comply with industry requirements 10. to win reporting awards.
Management Motivation to Disclose
O’Donovan’s research suggests that management discloses environmental information to:
Align management’s values with social values
Pre-empt attacks from pressure groups
Improve corporate reputations
Provide opportunities to lead debates
Secure endorsements
Demonstrate strong management principles
Demonstrate social responsibilities
Problems with the Management of Corporations
Management self interest
Fraud
Perquisites
Anti-social corporate behaviour
Hiding or falsifying information
Perceived gap between performance and remuneration
Problems with the Management of Corporations
These problems, real or perceived, can have wider ramifications.
Poor governance is linked to
Poorer firm performance
Increased regulation for all companies
Decreased consumer confidence
Reduced economic growth
It has even been implicated in a number of national and global financial crises
The End