Determinants of CSR Reporting and Assurance: An Analysis of Top Cooperative and Mutual Organisations

Corporate social responsibility (CSR) has greatly influenced business communication. CSR reporting has become the main tool through which organisations worldwide communicate their economic, social and environmental performance. Just as this practice is consolidated, the need for credible information in this area is critical. As a result, some companies subject their CSR reports to an assurance process. Several studies have analysed CSR reporting and assurance among stock companies, but few authors have developed a non‐stock firm perspective. Given the shortage of prior research, we analyse these practices, focusing on cooperative and mutual organisations because, as social enterprises, they have a special link with CSR, and they represent another kind of firm with different transaction costs. By combining statistical and content analysis methods, we aim to identify the determinants that influence the adoption of CSR reporting and assurance, the choice of assuror and the quality of assurance statements. The findings reveal that size is positively but non‐linearly related to reporting, while country and sector significantly affect the adoption of reporting and assurance. Assurance statements substantially differ across providers and their quality depends on size, sector and assuror, exhibiting interactions between size and assuror and between sector and assuror.     

Board liability for cyberattacks: The effects of a prior attack and implementing the AICPA’s cybersecurity framework

A significant litigation trend is the rise in lawsuits filed against boards of directors following cybersecurity incidents. We perform an experiment to examine factors we predict will influence directors’ litigation risk. We examine whether jurors are more likely to hold directors liable when a company previously experienced an immaterial cyberattack, and whether subsequently implementing the American Institute of Certified Public Accountants’ cybersecurity risk management reporting and assurance framework (the “Framework”) can mitigate the effects of a prior attack. Consistent with counterfactual reasoning theory, we find jurors are more likely to hold directors liable for a cyberattack when a company previously experienced an attack. Importantly, we also find that directors can reduce this liability risk after a prior cyberattack by subsequently implementing the Framework, especially when they obtain external assurance. Our results have important implications for research, boards, regulators and public policymakers, audit firms, and attorneys who handle cybersecurity-related cases.     

Stakeholders’ perceptions of factors affecting the credibility of sustainability reports

This study investigates factors affecting the credibility of sustainability reporting. Potential factors were first identified from prior studies and then refined through semi-structured interviews with sustainability reporting stakeholders including users, preparers, assurance providers and standard-setters. From this we construct a conceptual framework containing 26 variables that potentially influence credibility assessments of sustainability reports. This large set of variables is then evaluated by using a questionnaire survey of different stakeholder groups. The responses reveal that some source credibility variables (trustworthiness, track record and management expertise), assurance-related variables, and message characteristics (materiality and completeness of sustainability disclosures) are perceived by different stakeholder groups as particularly important to the credibility assessment, with source credibility factors dominating the rankings. An exploratory factor analysis shows that perceptions coalesce on four factors that are concerned with assurance and accountability, source (management) characteristics, message characteristics, and standards & ratings, with the structure of first two being dominated by the variables ranked as most important. The rank analysis also reveals significant differences between users and preparers in the ordering of influential credibility factors, and this is further supported by the significant differences between users’ and preparers’ mean scores for the ‘assurance and accountability’ and ‘source (management) characteristics’ factors.     

Processes of auditability in sustainability assurance – the case of materiality construction

This study examines how financial audit-styled concepts such as materiality are transferred to non-financial audit arenas. Drawing on a case study of assurors working within a Big 4 professional services firm, we uncover a number of interrelated features of the materiality determination and assessment process within sustainability assurance (assurance on sustainability reports). We illustrate how assuror flexibility, underpinned by assuror intuition, is central to uncovering assurance technologies deemed capable of addressing the materiality of ambiguous sustainability data. Assurors with no financial audit background retrospectively rationalise their intuition using the assumed authority of structured financial audit methodologies. This facilitates the tentative translation of financial audit knowledge to the sustainability assurance domain. Collaborative, holistic decision-making processes inform the assurors’ continual construction of materiality and are characterised by alliances of (accountant and non-accountant) ‘expert’ assurors merging formal and tacit knowledge. These alliances seek social cohesion within sustainability assurance teams in order to establish a social consensus among assurors around the materiality determination and assessment process. Our analysis develops and extends Power’s theorisation of how new areas are made auditable and advances our understanding of the more practical aspects of non-financial assurance services offered by Big 4 professional services firms.     

International equity valuation: the relative importance of country and industry factors versus company‐specific financial reporting information

The relative importance of country‐ and industry‐specified factors vis‐à‐vis company‐specific financial statement–based information in explaining equity valuation multiples in an international setting is examined. Both country‐specific effects via previously identified variables and an indicator variable approach are analysed. While company‐specific factors are predominant in explaining cross‐sectional differences in valuation, country and industry factors have sizable incremental explanatory power over them; the latter are not independent, so their relative importance is influenced by how we adjust for this commonality. Using country indicators provides larger incremental explanatory power than using country‐specific factors, suggesting that previously identified factors may be measured with sizeable error or omitted factors are important.     

Measuring Country Differences in Enforcement of Accounting Standards: An Audit and Enforcement Proxy

In this paper we present an index designed to capture differences between countries in relation to the institutional setting for financial reporting, specifically the auditing of financial statements and the enforcement of compliance with each country's accounting standards. The use of a common set of standards such as International Financial Reporting Standards (IFRS) aims, in broad terms, to promote the comparability and transparency of financial statements and to improve the quality of financial reporting. However, the effectiveness of IFRS adoption may be hampered by differences, across countries, in the institutional setting in which financial reporting occurs. Studies of outcomes from adopting IFRS use a range of legal system proxies to capture these country differences, but the proxies are deficient in that they seldom focus explicitly on factors that affect how compliance with accounting standards is promoted through external audit and the activities of independent enforcement bodies. To address this deficiency, we calculate measures of the quality of the public company auditors’ working environment (AUDIT) and the degree of accounting enforcement activity (ENFORCE) by independent enforcement bodies. We do this for 51 countries for each of the years 2002, 2005 and 2008, using publicly available data provided by the International Federation of Accountants (IFAC), the World Bank and the national securities regulators. Preliminary tests suggest our indices have additional explanatory power (over more general legal proxies) for country‐level measures of economic and market activity, financial transparency and earnings management. We expect they will prove useful to researchers and other interested parties who require country‐level measures that focus on the degree of enforcement of financial reporting practices.     

公众公司财务报告的披露、分析与解释机制

本文旨在研究公众公司财务报告的披露、分析与解释机制。以披露为基础的财务报告架构要想有效地发挥其功效, 必须做到两点第一, 必须要披露财务报告; 第二, 使用者应该有效地使用所披露的财务报告。前者通过公众公司财务报告披露机制完成, 其中披露规则和披露过程是关键; 后者则需要借助公众公司财务报告的分析与解释机制, 主要包括证券分析师、评级机构等中介服务机构功能的发挥。本文对这些机制和要件分别进行了理论探究和制度分析, 并在此基础上针对中国相关机制的现状和问题进行剖析, 得出一些有益的启示和改进的建议。     

Assurance of Sustainability Reports: Impact on Report Users' Confidence and Perceptions of Information Credibility

This study examines whether (1) assurance, (2) the level of assurance (reasonable vs limited) and (3) the type of assurance practitioner (accountant vs specialist consultant) affect users' perceptions of reliability of sustainability reports. Based on an experimental questionnaire, we find that the provision of assurance improves perceived reliability of the environmental and social information. There are no significant main effects for both the level of assurance and type of assurance practitioner. However, a significant interaction is found between these two experimental factors and report users' perceptions of reliability of such reports. More specifically, report users place more confidence in sustainability reports when the level of assurance provided is reasonable (that is, high but not absolute), and when such assurance is provided by a top tier accountancy firm, compared to when the assurance is provided by a specialist consultant. No such difference is found when the level of assurance provided is limited for either type of assurance practitioner group. The results of this study thus highlight the relevance of assurance for sustainability reporting.     

Corporate social responsibility assurance and reporting quality: Evidence from restatements

Previous research has shown that obtaining independent assurance of corporate social responsibility (CSR) reporting has capital market benefits and that these benefits are amplified when accountants provide the assurance. Yet, little is known about whether and the manner in which CSR assurance improves the quality of CSR reporting, and whether accounting providers improve reporting quality to a greater extent than non-accounting providers. This study uses the unique setting of CSR restatements to examine these issues. We present theoretical and empirical evidence supporting a competitive advantage of using accounting firms as assurance providers as they not only identify inaccuracies in previous reports earlier than non-accounting providers, but also prevent future reporting inaccuracies. CSR assurance, from either type of provider, also leads to improved reporting definitions, scopes, and methodologies that require restatements for comparability. Results also indicate that CSR reporting frameworks (e.g., GRI) are not a substitute for obtaining CSR assurance as the latter has incremental benefits over GRI usage in terms of identifying errors and reporting improvements. These results have implications for public policy makers considering the merits of mandating CSR assurance and for organizations assessing the relative benefits and costs of preparing GRI-based CSR reports, obtaining CSR assurance, and choosing between accounting vs. non-accounting CSR assurance providers.     

Firm incentives,institutional complexity and the quality of “harmonized” accounting numbers

In this paper, we investigate how firm reporting incentives and institutional factors affect accounting quality in firms from 26 countries. We exploit a unique multicountry setting where firms are required to comply with the same set of international reporting standards. We develop an approach of cross-country comparisons allowing for differences between firms within a country and we investigate the relative importance of country- versus firm-specific factors in explaining accounting quality. We find that financial reporting quality increases in the presence of strong monitoring mechanisms by means of ownership concentration, analyst scrutiny, effective auditing, external financing needs, and leverage. Instability of business operations, existence of losses, and lack of transparent disclosure negatively affect the quality of accounting information. At the country level, we observe better accounting quality for firms from regulatory environments with stronger institutions, higher levels of economic development, greater business sophistication, and more globalized markets. More importantly, we find that firm-specific incentives play a greater role in explaining accounting quality than countrywide factors. This evidence suggests that institutional factors shape the firm's specific incentives that influence reporting quality. Our findings support the view that the global adoption of a single set of accounting standards in isolation is not likely to lead to more comparable and transparent financial statements unless the institutional conditions and the firm-specific reporting incentives also change.     

2007年沪市公司内部控制自我评价研究——数据分析与政策建议

管理层对内部控制的自我评价能够释放企业内部控制有效性的信息,有助于企业外部相关利益者的决策。本文主要对2007年沪市公司披露内部控制自我评估报告的情况进行统计,分析企业内部控制自我评价对于实现内部控制三个基本目标——财务报告及相关信息真实完整目标、资产安全目标、合法合规目标——的效果和存在的问题,并对《企业内部控制评价指引(征求意见稿)》提出了相应的政策建议。     

An Examination of Audit Delay: Further Evidence from New Zealand

An important qualitative attribute of financial statements is timeliness. The recognition that the length of the audit may be the single most important determinant affecting the timing of earnings' announcements has motivated recent research on audit delay. The present study extends prior research by examining the multivariate relationship between a set of explanatory variables and audit delay for a large sample of New Zealand public companies. Further, the study includes two explanatory variables, company control (i.e. owner control versus manager control) and debt proportion, which have not previously been considered. The results indicate that both company size and sign of income significantly affect audit delay across the two years examined. Five other explanatory variables significantly affected audit delay for one of the two years examined. The adjusted R2s of the regression models, however, were relatively low. Additional analysis was also performed on each company control subsample. These results revealed that the effect of company size and income sign may be conditional upon company control. Implications from the results of the study for future research are discussed.     

Discussion of Accounting Discretion in Fair Value Estimates: An Examination of SFAS 142 Goodwill Impairments

Beatty and Weber examine an accounting choice that managers made upon adoption of Statement of Financial Accounting Standards 142: whether to record a goodwill asset impairment as a cumulative effect of an accounting change at the time of adoption or delay the recognition of such an impairment to the future (perhaps indefinitely) when they would be recorded as expenses in earnings from continuing operations. The authors consider several factors that might influence management's reporting of transition effects, including contracting, equity market incentives, and regulatory forces. Participants at the 2005 Journal of Accounting Research Conference questioned whether such a complex accounting decision can be captured with simple linear models and noisy proxy variables, while also speculating upon whether the results would generalize to other settings. In this discussion, I summarize Beatty and Weber's research, highlight its contribution to the accounting literature, and provide a record of the main issues raised by the conference participants.     

Improving earnings quality: The effect of reporting incentives and accounting standards

We investigate the different effects on earnings quality of accounting standards and reporting incentives for Germany over the period 1994 to 2005. To this end, we control for reporting incentives at the firm level, instead of the country level, by using the timing of voluntary IFRS adoption as a proxy for reporting incentives. We then include reporting incentives in an analysis of earnings management and information asymmetry. Contrary to common expectation, we find that IFRS reporting potentially decreases earnings quality on average; but also that reporting incentives appear to have lower effects on earnings quality in IFRS statements than in GGAAP statements. Thus, IFRS may lead to more homogenous earnings quality across firms.     

Shell games: On the value of shell companies

A reverse merger allows a private company to assume the current reporting status of another company that is public. This can be done quickly, without fundraising, road show, underwriter, substantial ownership dilution, or great expense. Private firms that go public via reverse merger are often motivated by the need to quickly secure financing through privately placed stock (PIPEs) and the desire to make acquisitions using stock as payment. In each of the last eight years reverse mergers have outnumbered traditional IPOs as a mechanism for going public, and reporting shell companies are providing fuel for much of this growth. We study 585 trading shell companies over the period 2006-2008. The purpose of most of these shell firms is to find a suitor for a reverse merger agreement. These companies have no systematic risk, operations, or assets, and their share price tends to decline over time. Yet, these firms have investors. When a takeover agreement is consummated, shell company three-month abnormal returns are 48.1%. We argue that this exceptional return is compensation to investors for shell stock illiquidity and the uncertainty of finding a reverse merger suitor. We show that shell company returns are much greater at the consummation of a merger than those of a similar entity that in dollar terms is more popular among investors — Special Purpose Acquisition Companies (SPACs).     

Economic freedom and cross-border venture capital performance

We investigate the determinants of cross-border venture capital (VC) performance using a large sample of 10,205 cross-border VC investments by 1906 foreign VC firms (VCs) in 6535 domestic portfolio companies. We focus on the impact of a domestic country's economic freedom on the performance of both VC investments and portfolio companies using a probit model and the Cox hazard model. After controlling for other related factors of domestic countries, portfolio companies, VCs and the global VC market, as well as year and industry fixed effects, we find that a domestic country's economic freedom is crucial to cross-border VC performance. In particular, in a more economically free country, as measured by the raw values of, quartiles of or the ranking in the index of economic freedom (IEF), a foreign VC-backed portfolio company is more likely to pull off a successful exit through an IPO (initial public offering) or an M&A (merger and acquisition), and a foreign VC firm is likely to spend a shorter investment duration in the portfolio company. We also identify interesting evidence on the impact of many other level factors of domestic countries, portfolio companies, VCs and the global VC market on cross-border VC performance.     

Accounting-policy choice and firm characteristics in the Asia Pacific region: An international empirical test of Costly Contracting Theory

This study provides evidence on the cross-sectional relationship between firm-specific variables and management's choice of accounting policies by examining four key accounting-policy disclosures in the 2000/2001 annual reports of 442 listed companies in the Asia Pacific region. The dependent variable is the composite measure for the income increasing (decreasing) accounting-policy choice tendency.The results show that firm-specific variables linked to Costly Contracting Theory partially explain management's choice of accounting policies. Companies that pursue income-increasing accounting techniques are characterized by lower financial leverage, lower level of ownership concentration, and higher investment opportunity sets. This finding holds true when country and industry control variables are not considered. When the control variables are included, the CCT variables are less a factor and instead country of reporting provides the strongest explanation for company managers' choice of accounting policies. Indonesian companies utilize the most income-decreasing accounting technique.     

USING A PROPORTIONAL ODDS MODEL TO ANALYSE THE FACTORS THAT INFLUENCE ACCOUNTING STANDARD SETTING LOBBYING IN AUSTRALIA

The primary aim of this study was to test the hypothesis that, when making written submissions to the accounting standard setting bodies, lobbyists place the same level of importance, on: 1) the ASRB Release 100 accounting standard evaluative criteria, 2) differential reporting, 3) the ‘relevance’ of the proposed financial reporting disclosures, and 4) the ‘reliability’ of those disclosures to general purpose financial statement users. The secondary aim was to determine if these qualitative factors are afforded different levels of importance by different lobbying groups, viz., public practitioners, corporate accountants, government accountants, and academics/individuals. The responses to a survey of formal lobbyists were examined using a proportional odds model which utilises the ordinal nature of the responses and employs an analysis of deviance between responses. The results showed that the sampled lobbyists, as a whole, considered the four qualitative factors of ‘evaluative criteria’, ‘differential reporting’, ‘relevance’, and ‘reliability’ of financial information, to be of equal importance to their lobbying position. In addition, the ranking in importance was not consistent across the different lobbying groups. That is, company and government accountants rated the ‘reliability’ of the proposed reporting disclosures as the most important factor influencing the nature of their lobbying submissions, while the public practitioner and academic groups perceived the ‘relevance’ of the proposed disclosures as the most important. Testing the effects of the financial reporting issues underlying each of these four factors on the relative importance of those factors, revealed 1) a concern by all lobbyists that the thrust of an Exposure Draft matches the lobbyists' views on the ‘relevance’ of the disclosures proposed, and 2) a desire by all lobbyists that the proposed financial reports faithfully represent the underlying transactions of the entity.     

Accounting and litigation risk: evidence from Directors’ and Officers’ insurance pricing

We study whether and how financial reporting concerns are priced by insurers that sell Directors’ and Officers’ (D&O) insurance to public firms. As D&O insurers typically assume the liabilities arising from shareholder litigation, the premiums they charge for D&O coverage reflect their assessment of a company’s litigation risk. Using a sample of public firms in the 2001–2004 Tillinghast D&O insurance surveys, we document that firms with lower earnings quality or prior accounting restatements pay higher premiums after controlling for other factors impacting litigation risk. In addition, insurers’ concerns about financial reporting are most evident for firms with restatements that are not revenue or expense related, are greater in the period following the passage of the Sarbanes–Oxley Act of 2002, and are greater for firms with financial reporting problems that linger. Our results are consistent with past restatements being viewed as evidence of chronic problems with a firm’s financial statements. By analyzing archival data, we can also quantify the effects of other determinants of D&O premiums (such as business risk, corporate governance, etc.) identified by Baker and Griffith (Univ Chic Law Rev 74(2):487–544, 2007a) through interviews regarding the D&O underwriting process.     

Gender-diverse board and the relevance of voluntary CSR reporting

In this paper, we focus on voluntary corporate social responsibility (CSR) disclosure, and we test the extent to which the value relevance of CSR reporting is affected by the appointment of female directors. Using a sample of French listed companies belonging to the SBF 120 index from 2001 to 2011, we control for differences in firm characteristics between firms with and without female board membership by using propensity score matching. Our results show that high CSR reporting is more relevant in terms of market value for firms with gender-diverse boards than for firms with completely male directors. This finding holds when we use the accounting-based performance measures, namely, return on assets (ROA) and return on equity (ROE). We also highlight that engaging an external assurance provider for CSR reporting is value relevant for firms without female directors but not value relevant for firms with female directors, suggesting a substitute relationship between gender-diverse boards and CSR assurance. Our results are stable when we consider the presence of at least two and three female directors.