Lessons for progressing narrative reporting: Learning from the experience of disseminating the Danish Intellectual Capital Statement approach

The case for the greater use of narrative disclosures within the annual report package continues to attract support from accounting academics. After a decade of comparatively limited attention, the topic of narrative reporting has returned to the accounting research agenda, in part in association with integrated reporting and a growing interest in accounting for business models, as well as a resurgence of intellectual capital research. In the light of a continuing optimism that narrative reporting will eventually assume its rightful place within financial reporting, the paper reports and reflects upon the findings of a study of the outcome of the Danish Guideline Project in the decade following its conclusion in late 2002. This initiative placed a heavy emphasis on the extension of narrative reporting in its principal output, the Intellectual Capital Statement, still widely regarded as a highly promising intellectual capital reporting framework. Based on insights derived from the study, the paper identifies a number of major obstacles that confront the advocates of narrative disclosure practices, the persistence of which is rooted in the contestable jurisdiction that characterises the accountancy profession itself.     

Corporate reporting of intellectual capital: Evidence from UK companies

This paper reports the results of an empirical investigation into the intellectual capital reporting practices of UK companies in four distinct sectors. It differs from prior intellectual capital reporting studies in that it analyses a wide range of corporate reports for their intellectual capital content. It finds major differences between the elements of intellectual capital reported in each sector studied. The study also finds that a range of different types of corporate reports were used for communicating intellectual capital information, and that the annual reports were not a good proxy for the proportion of disclosures across all corporate reports analysed in this study.     

Drivers of innovation capital disclosure in intellectual capital statements: Evidence from Europe

Innovation is one of the major determinants of competitive success. As a result, there is demand for information on the innovation activities of firms among investors, other stakeholders and the public. Using content analysis, this paper examines the innovation capital disclosure (INCD) characteristics (i.e. disclosure quantity and quality) in the intellectual capital statements (ICS) of 51 European for-profit firms. Additionally, the relationships between INCD characteristics and industry, firm size, region of registered office and the disclosure guidelines adopted are analysed. Our content analysis detects an average of 29.16 items on innovation capital (INC) per ICS. These are mainly qualitative, non-financial and historically orientated. Furthermore, as expected, industry, firm size, region and disclosure guidelines drive the quantity of disclosure. Prior empirical studies of voluntary disclosure in documents other than ICS have also suggested a relationship between firm size and disclosure quality. Interestingly, our results for INCD in ICS do not support this relationship. This provides tentative evidence for a similar qualitative level of innovation capital disclosure across firm size. Furthermore, our findings show mostly homogeneous disclosure patterns across the regions in Europe, suggesting that multinational efforts towards fostering INCD has made the ICS phenomenon more a European than a local phenomenon.     

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

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.     

The measurement and recognition of intangible assets: then and now

“In the Fortune 500 there are thousands upon thousands of statistics that reveal very little that’s meaningful about the corporations they purportedly describe. At least that’s the verdict of a growing number of forward-thinking market watchdogs, academics, accountants, and others.”(Fortune, April 2001). In today’s economy value is often created by intangible (intellectual) capital. The accounting profession has not met the challenge of measuring and reporting the results of knowledge-based entities. The Federal Reserve Bank of Philadelphia estimates that in the year 2000 more than US$ 1 trillion was invested in Intangibles. The problems relating to the measurement and recognition of intangibles are international in scope.This paper reviews existing and recently promulgated US, UK, and IASC accounting standards relating to Intangibles. Inconsistencies in the measurement and reporting of Intangibles under US Generally Accepted Accounting Principles (GAAP) are highlighted, and evidence is provided that suggests that recognition of Intangible (Intellectual) Capital is in accordance with existing accounting principles In particular, the newly promulgated Financial Accounting Standards Statements on Business Combinations, Goodwill, and other Intangibles is reviewed. The objective of the comparisons to UK and IASC standards and the review is to provide evidence that will improve the measurement and reporting of intangible (intellectual) capital and facilitate harmonization. Improving the global financial reporting infrastructure will ultimately lead to the reporting of relevant and reliable quality earnings.     

Expected earnings growth and the cost of capital: an analysis of accounting regime change in the European financial market

This study focuses on the relation between the cost of equity capital and earnings expectations when the properties of accounting that determine earnings vary across different regulatory regimes. More particularly, it addresses the European setting where different types of GAAP regime have continued to function in the presence of the gradual harmonization of the underlying legal framework, and where the adoption of internationally recognized accounting standards by certain firms has anticipated the requirement for International Financial Reporting Standards. On the basis of estimates of the cost of equity that are implied by analysts' earnings forecasts, the article provides evidence that financial market integration may have already contributed to mitigating the economic consequences of accounting diversity, and that switching to IFRS could have a short lived impact on capital markets. Moreover, based on firm level transparency and disclosure rankings provided by Standard and Poor's, it is shown how the quality of financial reporting conditions the implied cost of equity under different GAAP.     

The Effect of SFAS No. 131 on the Cross-segment Variability of Profits Reported by Multiple Segment Firms

Our study assesses whether SFAS No. 131 improved disclosure about the diversity of multiple segment firms’ operations. We find a post-SFAS No. 131 increase in cross-segment variability of segment profits, an increase in the association between reported and inherent cross-segment variability, and an increase in association between reported variability and capital market incentives to disclose. We interpret the results as evidence that SFAS No. 131 increased the transparency of segment profitability disclosures, and as indicating SFAS No. 131 allowed firms depending more on external financing to disclose more about differences in segment profitability.

Where is the ethical knowledge in the knowledge economy?: Power and potential in the emergence of ethical knowledge as a component of intellectual capital

There is a growing discussion of intellectual capital and the knowledge economy more generally within the accounting literature. This literature, however, has focused narrowly on the considerable discrepancy between book and market values and the inability of traditional accounting concepts and methods to deal with the intangible nature of key sources of corporate competitive advantage. This essay contributes to this literature by providing a broadly poststructuralist reading of the emergence of ethical knowledge as a component of intellectual capital, a category of asset that has almost been completely overlooked within the extant accountant literature on the knowledge economy. The paper does three things. Firstly, it draws on a broad review of the accounting literature to explore how intellectual capital is being defined and constructed within that literature. Secondly, it provides a poststructural analysis of the way ethical knowledge emerged within the intellectual capital statements of an early innovator in Intellectual Capital reporting. Finally, the paper tentatively hints towards the moral and civic potential of alternative conceptualisations of ethical knowledge networks at the margins of the knowledge economy and considers some areas for further research in this regard.     

Standard Business Reporting in Australia: efficiency,effectiveness, or both?

The benefits of using eXtensible Business Reporting Language (XBRL) as a business reporting standard have been widely canvassed in the extant literature, in particular, as the enabling technology for standard business reporting tools. One of the key benefits noted is the ability of standard business reporting to create significant efficiencies in the regulatory reporting process. Efficiency‐driven cost reductions are highly desirable by data and report producers. However, they may not have the same potential to create long‐term firm value as improved effectiveness of decision making. This study assesses the perceptions of Australian business stakeholders in relation to the benefits of the Australian standard business reporting instantiation (SBR) for financial reporting. These perceptions were drawn from interviews of persons knowledgeable in XBRL‐based standard business reporting and submissions to Treasury relative to SBR reporting options. The combination of interviews and submissions permit insights into the views of various groups of stakeholders in relation to the potential benefits. In line with predictions based on a transaction‐cost economics perspective, interviewees who primarily came from a data and report‐producer background mentioned benefits that centre largely on asset specificity and efficiency. The interviewees who principally came from a data and report‐consumer background mentioned benefits that centre on reducing decision‐making uncertainty and decision‐making effectiveness. The data and report consumers also took a broader view of the benefits of SBR to the financial reporting supply chain. Our research suggests that advocates of SBR have successfully promoted its efficiency benefits to potential users. However, the effectiveness benefits of SBR, for example, the decision‐making benefits offered to investors via standardised reports, while becoming more broadly acknowledged, remain not a priority for all stakeholders.     

A CEO with many messages: Comparing the ideological representations provided by different corporate reports

This study analyzes how corporate reporting can be used to reinforce particular worldviews in the ongoing discursive debate over sustainability. The use of language is compared in CEO letters from two types of disclosures: the annual and sustainability reports of two Finnish companies during 2000–2009. The analysis is based on Thompson's (1990) schema regarding the modes of ideology. Significant differences are noted; the CEO letters in the annual reports prominently use the economic discourse of growth and profitability, but they rely on the ‘well-being’ discourse in the sustainability reports. Despite the difference in discourse, by using different forms of ideological strategies, both types of disclosure serve the dominant social paradigm. The findings presented in this study highlight the need to further develop corporate sustainability reporting practices.     

以优化营商环境为突破口降低制度性成本——基于湖南、辽宁、安徽和山东的调研

营商环境是企业生存和发展的土壤,是进一步降低制度性成本的关键突破口。调研组通过走访相关企业和政府部门发现,调研地区在创新政务服务、升级要素供给服务等方面着力优化营商环境,但在政策协调、知识产权保护等方面依然存在堵点难点,未来应有针对性地进一步加大营商环境建设力度,切实增加市场主体的获得感。     

Intellectual capital disclosures by South African companies: A longitudinal investigation

Most of the previous studies on intellectual capital disclosures have been conducted from developed countries' context. There is very limited empirical evidence in this area from the context of emerging economies in general and Africa in particular. This paper is one of the early attempts in this regard. The main purpose of this study is to examine the extent and nature of intellectual capital disclosures in ‘Top 20’ South African companies over a 5 years period (2002–2006). The study uses content analysis method to scrutinise the patterns of intellectual capital disclosures during the study period. The results show that intellectual capital disclosures in South Africa have increased over the 5 years study period with certain firms reporting considerably more than others. Out of the three broad categories of intellectual capital disclosures human capital appears to be the most popular category. This finding stands in sharp contrast to the previous studies in this area where external capital was found to be most popular category.     

A Wealth-Based Explanation for Earnings Conservatism

This study extends research on earnings conservatism – the degree to which the accounting system recognizes bad news regarding future cash flows in a more timely manner than good news – by arguing that heterogeneous executives' risk attitudes will influence the degree of conservatism. Prior research has demonstrated that differences in earnings conservatism are mainly the result of differences in institutional factors (Basu (1997) and Ball et al. (2000a)). We hypothesize that more risk-averse managers, who demand a risk premium that offsets the effects of the variance in their compensation, will report more conservative earnings. Earnings conservatism will temper expectations among stakeholders about the future cash flows to be distributed thereby diminishing the likelihood of disappointing outcomes and potential litigation or threats for executives of being fired. The more risk-averse manager would be more inclined to reduce such conflicts, since they will have a destabilizing effect on his future compensation. The empirical results for a sample of Dutch companies over the period of 1983 to 1995 confirm our hypothesis: more risk-averse managers report earnings more conservatively than do less risk-averse managers.