Widening the debate on the development of new business reporting models

International Accounting MSc student research

Monday, 25 October, 2004

As part of an ongoing programme to investigate the ideas examined in its report New Reporting Models for Business, which has a greater emphasis on forward looking and non-financial measures,  The Institute of Chartered Accountants in England &  Wales (ICAEW) has supported research by Cass Business School MSc students.

The research was conducted by students during their MSc in International Accounting and Finance programme. Three pairs of students were involved, and the ICAEW hosted a reception on 21 October at which they presented their findings.

Chiara Pietrogrande and Qiuli Sun considered whether there was any evidence that firms benefited from reporting on non-financial indicators which related to important value drivers such as corporate reputation, innovation and environmental responsibility. They found evidence suggesting that only a restricted set of the non-financial performance measures reported by firms, were acted on by investors. Those they classified as newsworthy were associated with reductions in volatility faced by the reporting firms. Other measures, with low news value, seemed not to be acted on by investors and therefore there seemed to be a lack of evidence that such disclosures benefited companies.

Li Sheng and Yuanyi Tao found that the market reaction to timely strategic disclosures by firms, rather than just those that occur in traditional financial statements was quite marked. This suggests any further developments of new reporting models should not be restricted to a focus upon traditional annual, semi annual or quarterly reports. Instead attention should also be directed at the need for more timely methods of communication with investors.

Nataliya Pokinska and Vandana Sathyaraj examined the extent to which traditional financial reporting lost relevance during the recent internet boom. They looked at the extent to which traditional financial accounting numbers could be used to explain the value of internet companies and the extent to which such measures helped predict subsequent failure of many internet start-ups. Their findings suggest that traditional accounting did not lose relevance. In addition valuation may have been considerably enhanced if companies had had to disclose the type of detailed accounting policies they were using, for instance for barter transactions. 

Research Supervisor and Professor of Corporate Disclosure at Cass, Miles Gietzmann, welcomed the ongoing moves by the Institute to investigate new reporting models for business and the facilitating of a debate among a wide group of interested parties including researchers and students at universities.

“The ICAEW’s development of a major research initiative on the need for more forward looking reporting, capable of supporting both investor and industry needs is very timely and identifies a critical gap in present reporting practices. I found it very encouraging that the Institute was so interested in hearing the views of independent bright young MSc students rather than solely those of established interested parties and pressure groups”.

Robert Hodgkinson, Technical Director at the ICAEW, said: "We are delighted that the students chose our report on New Reporting Models for Business to provide topics for their dissertations.  We are especially pleased that they have produced quality work which will help us to take forward our own thinking on the questions raised in the report."

Copies of New Reporting Models for Business, and other reports in the ICAEW’s Information for Better Markets series, are available from www.icaew.co.uk/bettermarkets.

International Accounting MSc students from Cass, Yuanyi Tao (left), Nataliya Pokinska, Chiara Pietrogrande

International Accounting MSc students present their research at ICAEW. Dr Nigel sleigh-Johnson, Head of Financial Reporting at ICAEW (left), Chiara Pietrogrande, Nataliya Pokinska and Brian Singleton-Green, Technical Policy Manager at ICAEW

Students, Nataliya Pokinska (left) and Chiara Pietrogrande