Vivien Beattie

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

Abstract 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 companys 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.

Lifting the lid on the use of content analysis to investigate intellectual capital disclosures

Abstract This methods paper highlights specific issues that arise in using content analysis to investigate intellectual capital (IC) disclosures. The use of content analysis in the IC context is debated through an analysis of prior studies and the use of an illustrative example (Next plc’s 2004 annual report). It is concluded that the depth and breadth of the IC concept and the lack of common definitive language make it difficult to establish the extent and nature of disclosure currently provided. The range of choices available to researchers in terms of analysing and measuring IC disclosures further hinders interpretation and comparability. Transparency in the choices made is required. Shared meanings could be developed and the IC concept better understood through increased transparency in the categorisation of IC information, which in turn could further assist in the interpretation and comparison of findings across studies.

Deep and surface learning: a simple or simplistic dichotomy?

In recent years, broad evaluations of higher education in several countries have called for a greater degree of deep learning (i.e. learning with understanding) relative to surface learning (i.e. rote learning). These concepts, having been developed in the 1970s and 1980s, are now well established in the higher education literature. However, to a large extent, exploration and discussion of these concepts is missing from the accounting education literature. The present paper aims to fill this gap in the accounting education literature by introducing the full complexity of this important education literature on deep and surface learning. We show that the use of this dichotomy, which is often used as a convenient shorthand, generally oversimplifies in two key respects. First, the deep- surface distinction is relevant in analysing the following aspects of learning: student learning intentions, learning styles, learning approaches adopted and learning outcomes. The specific context in which the distinction is ...

The Importance of Audit Firm Characteristics and the Drivers of Auditor Change in UK Listed Companies

Abstract This paper explores the importance of audit firm characteristics and the factors motivating auditor change based on questionnaire responses from 210 listed UK companies (a response rate of 70%). Twenty-nine potentially desirable auditor characteristics are identified from the extant literature and their importance elicited. Exploratory factor analysis reduces these variables to eight uncorrelated underlying dimensions: reputation/quality; acceptability to third parties: value for money: ability to provide non-audit services: small audit firm: specialist industry knowledge; non-Big Six large audit firm: and geographical proximity. Insights into the nature of ‘the Big Six factor’ emerge. Two thirds of companies had recently considered changing auditors; the main reasons cited being audit Ice level, dissatisfaction with audit quality and changes in top management. Of those companies that considered change. 73% did not actually do so. the main reasons cited being fee reduction by the incumbent and av...

Perceptions of auditor independence: U.K. evidence

The reality and perception of auditor independence is fundamental to public confidence in financial reporting. A new Independence Standards Board was set up in the U.S. in 1997 and the European Union (EU) is currently seeking to establish a common core of independence principles. The general setting within which audit decisions are made and independence perceptions are formed is evolving rapidly due to competitive and regulatory changes. Policy-makers must work continuously to evaluate the critical threat factors and develop appropriate independence principles. This paper explores the potential of recent regulatory reforms in the United Kingdom (U.K.), many of which are unique to that country, to strengthen the independence framework. Using a questionnaire instrument, U.K. interested parties’ perceptions of the influence on auditor independence of a large set of 45 economic and regulatory factors are elicited. Most factors have a significant impact on independence perceptions for all groups (finance directors, audit partners, and financial journalists). The principal threat factors relate to economic dependence and non-audit service provision, while the principal enhancement factors relate to regulatory changes introduced in the early 1990s (the existence of an audit committee, the risk of referral to the Financial Reporting Review Panel and the risk to the audit firm of loss of Registered Auditor status). Exploratory factor analysis reduces the factor set to a smaller number of uncorrelated underlying dimensions.

Corporate Financing Decisions: UK Survey Evidence

Despite theoretical developments in recent years, our understanding of corporate capital structure remains incomplete. Prior empirical research has been dominated by archival regression studies which are limited in their ability to fully reflect the diversity found in practice. The present paper reports on a comprehensive survey of corporate financing decision-making in UK listed companies. A key finding is that firms are heterogeneous in their capital structure policies. About half of the firms seek to maintain a target debt level, consistent with trade-off theory, but 60% claim to follow a financing hierarchy, consistent with pecking order theory. These two theories are not viewed by respondents as either mutually exclusive or exhaustive. Many of the theoretical determinants of debt levels are widely accepted by respondents, in particular the importance of interest tax shield, financial distress, agency costs and also, at least implicitly, information asymmetry. Results also indicate that cross-country institutional differences have a significant impact on financial decisions.

Behind the Audit Report: A Descriptive Study of Discussions and Negotiations Between Auditors and Directors

This paper presents direct evidence concerning the extent, nature, and outcome of interactions between the two primary parties in the auditor-client relationship — finance directors (FDs) and audit engagement partners (AEPs). A questionnaire instrument is used to elicit the frequency with which, over a three year period, an extensive set of 46 audit and audit-related issues is discussed, is negotiated, and results in a change to either the accounting numbers or disclosures. Three hundred FDs and 307 AEPs of listed UK companies are surveyed, with response rates of 51% and 80%, respectively. Principal findings are that: (i) compliance issues dominate discussions, while accounting and fee issues dominate negotiations; (ii) audit committees generally reduce the level of negotiation and increase the level of discussion, suggesting that the overall degree of confrontation declines; and (iii) in the majority of cases (57%), negotiation results in a change to the financial statements, providing evidence of the auditors influence on the financial statements.

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.

A Comparative Study of the Use of Financial Graphs in the Corporate Annual Reports of Major U.S. and U.K. Companies

The use of graphs to disclose information in corporate annual reports represents a significant dimension in financial disclosure management. Surprisingly, no inter-country comparative analysis of this area of voluntary disclosure has been conducted. This study compares the graphical reporting practices in the 1990 annual reports of 176 leading U.S. and U.K. industrial companies. Ninety-two per cent of U.S. companies use graphs compared with 80% of U.K. companies; the mean number of graphs per company being 13.0 and 7.7, respectively. Sales, an earnings measure, earnings per share and dividends per share are the four most frequently graphed aggregate financial performance variables in both countries. Significant differences in several of the variables graphed are found and explained in terms of environmental factors. In both countries, evidence of graphical information manipulation exists in the form of selectivity, measurement distortion, and presentational enhancement. Moderate evidence supports the hypothesis that U.K. companies are more likely than U.S. companies to adopt interpretative shading. Regulators need to clarify the responsibilities of directors and auditors by setting graphical guidelines.

A six-country comparison of the use of graphs in annual reports

This study contributes to each of knowledge of comparative international reporting practices by exploring an aspect of the annual report package not previously researched from a transnational perspective. The financial graphs in the corporate annual reports of 50 companies in Australia, France, Germany, The Netherlands, the UK, and the US are investigated using an established methodology. We conclude that companies in different countries adopt significantly different graphical practices, with German graphical practice being especially different. Findings with regard to selected graphical reporting dimensions are not generally consistent with predictions based on the macro/microorientation of countries.