Accounting

Executive Summary

Corporate reporting of and non-financial performance are essential in an organization. This is because they submit a reflection of the current value of an organization which can be used to forecast the overall corporate performance in both short and long run. Distinctly, the research presented in the report is suitable to global drifts in corporate reporting; for instance, corporate divulgence on environmental and sustainability data drives more sustainable investment (Dhaliwal et. al, 2011). In turn, this enables companies to increase productivity and capitalize on commercial opportunities from better management of climate related vulnerabilities. (Tapscott et. al, 2003)

An article by Alisa G.B, et.al, for instance, looks at the effects brought up by factors like rule precision and incentives has on effective corporate reporting. Another article byVincent K et.al analyses how the ongoing projects in an organization are influenced by transparency through information on its progress reported publicly; or if the information is only known to a smaller circle of top level management.. On the other hand, Ann F. et. al. authored an article that looks at the effect that inclusion or exclusion of corporate risk activities in corporate reports has on investment decisions made by corporate investors. The final article by Caroline, O.  et. al, sheds light on areas where auditors focus on when assessing corporate reports.

1.0  Introduction

The report will review the impact that the vagueness of information and differing motives can have on competitive or decent reporting. A corporate report can easily be twisted by intentionally or inadvertently by inaccurate data. Consequently, this will motivate a falsified information that does not reveal the current sphere of a firm. Furthermore, the report will contemplate the manager’s dedication in implementing unremunerative projects if the knowledge is privatized or exposed for public scrutiny.  These are revelations that are as per the revelations from researchers discussed in high-quality journals in volumes 15 and 17 of Behavioral Research in Accounting.

1.1  Purpose

In consideration for the importance of decent corporate reporting of financial and non-financial performance standards, this report intends to provide a review of articles in volumes of Behavioral Research in Accounting; and their pertinence in addressing corporate reporting as a whole.

1.2  Scope

  This report confines itself to research as administered in the articles in Behavioral Research Accounting Volumes and their significance to reporting. Therefore, the report does not carry the analysis of other factors and views handled in the research.

1.3  Assumptions

The report expects that the findings of the research conducted were just and hence reliable. Besides, the report assumes that the secondary data in the research is sound.

1.4  Limitations

First, the report confines itself to the research conducted by the article writers. As such, the evaluation is based on sample segments as determined and chosen by the researchers to represent the whole corporations and industry. In this respect, there is a likelihood of drawing wrong general conclusions about the findings and their relevance to corporate reporting of financial and non-financial performance.

2.0  Background Information

2.1  Aggressive Reporting

Alisa G. Brink et al in their article The Impact of Rule Precision, Information Ambiguity, and Conflicting Incentives on Aggressive Reporting demonstrated that individuals will employ both precision rule and information ambiguity in order to report in a self-interested manner which is harmonious with their directional aims. Generally, this exploitation should be consistent with motivated reasoning theory. Besides, research further observes that persons tend to be conservative in their reporting especially when the information vagueness is higher. Even though this contrasts the motivated reasoning theory, the report is easily defensible (Dechow et. al, 2004).

Subsequently, Alisa G. Brink et.al resolved that rule precision yields a greater force on aggressive reporting. However, this influence is highly effective when controlling an aggressive reporting behavior especially when information is unambiguous. (Schmitt, 2012).  Generally, the research perceived that the relationship between ambiguity and effective reporting is highly complicated in comparison to a simple linear relationship.

2.2 Managers Commitment to Unprofitable Projects

An article written by Vincent K. et.al The Impact of Sole and Joint Responsibility on Managers’ Escalation of Commitment to Unprofitable Projects: An Experimental Investigation aims to find out whether project managers exhibit a higher tendency to continue a failing project if  the information about its progress remains private or is disseminated to the public. The research outcome is that project managers in a private information condition exhibited a higher tendency to escalate their commitment to a failing project than did their equivalents in a public information condition. Therefore, it is necessary to note that public corporate reporting is necessary so as to hinder the continuity of such disappointed projects by the managers (Schmitt, 2014).   Additionally, managers will tend to work harder to ensure that projects work if the reporting of its course is made public. Further, it will ensure transparency in all the project activities.

            The finding should be practiced in the re-design of management control systems and corporate reporting strategies. For instance, the research outcome reveals that managers with joint responsibility will show a higher escalation tendency than those managers with sole information responsibility under private information condition (Saunders et. al 2010). Therefore, the organization should implement de-escalation strategies such as mutual monitoring and reporting system in a team-based setting to prevent irrational decision-making as well as irresponsible behavior among the management.

2.3  Management Discussion and Analysis(MD&A) Risk Disclosures and Non-Professional Investors

Anne Fortin et. al in an article MD&A Risk Disclosures and Nonprofessional Investors’ Perceptions and Investment Decisions discusses how she administered a research investigation using an experimental approach to examine how the perceptions and decisions of perspective non-professional investors are induced by risk disclosures in the MD&A. Therefore, the study is applicable to corporate reporting in that its result suggests the way forward on both financial and non-financial reports so as to enable the targeted investors to make prudent investment decisions. Additionally, risk disclosures in MD&A reporting have the ability to scare away investors who are reluctant to invest in a high-risk setting. Mainly, this is due to their inadequate nature and contrasts with the professional investors decisions (Schmitt, 2012). 

The partakers of the research were given a firm’s financial statements in the experimental group receiving the section on risk in the MD&A. On the other hand, the control group did not receive any part of the MD&A. Consequently, they were to reach an investment decision. Eventually, there was clear indication that the corporate risk section included in the report has an adverse effect on the investment decisions made by the investors. The weight of the study is that corporate bodies and market regulators are made to understand how some market participants respond to risk information disclosed in their financial and non-financial reports under their statutes. Therefore, market regulators should ensure that confession of risk information on the corporate report should be necessary (Deegan et.al, 2013) 

2.4  The effects of the need for Cognition in Audit Sampling

Corporate reports are not only beneficial to the investors and the organization, but also relevant to auditors as well. Auditors use the corporate report as an inspection tool to determine what length the financial statements grant a true and fair view of the attention as required by the law. In an article The Effects of the Need for Cognition in Audit Sampling authored by Caroline et.al , is based on a study that aims to understand the effects of audit sampling deficiencies by examining the role of auditors’ individual characteristics on judgments and decisions made throughout the sampling process. Further, the study examines if the need for cognition-an individual’s tendency to engage and think- has a role in audit sampling decisions. (Everlingham et.al, 2008)

            Therefore, the result of this study is appropriate for corporate reporting in that managers are informed on what auditors seeks to extract  and assess from the annual, semi- annual or quarterly reports in the organization. Furthermore, they find out what they should incorporate in the reports so as to suit the auditors' judgments and decisions made by the report sampling process. Nevertheless, the study observes that the desire to engage in cognitive processes has not been investigated in business decisions. Additionally, the study simulated a basic sampling to ascertain whether the desire to engage in cognitive process influences the decisions made during the task. (Schmitt, 2012). 

3.0  Recommendations

In line with the studies above, it is recommended that additional studies be performed in the scope of corporate reporting. This is because most studies relied on a lot of sampling of data, and also the timeframe of a study was inadequate. Furthermore, over-reliance on secondary data are clear in these studies, this limits the effectiveness of the study because it fails to reflect the true contemporary nature of the corporate reporting. It is also recommended that later research in this field should seek to outline the part that technology plays in corporate reporting. Other current drifts in corporate reporting should also be explored in detail.

4.0  Conclusion.

In conclusion, organization management body should set standards of curbing corporate reporting. These measures should factor into cause the investors’ demands, the auditors’ opinions on assessments and also the environmental impact that is caused by the activities in and out of the enterprise. Furthermore, corporate reporting should be crystal on the sustainability proposals to be tackled by the organization in the long run.

Reference List

Dechow, P. M., Sloan, R. G., & Swwney, A. P. (2004). The causes and consequences of aggressive financial reporting policies. [Boston], Division of Research, Harvard Business School.

Deegan, C. M. (2013). Financial accounting theory.

Dhaliwal O. Z, Li, A. &Yang, G. (2011), “Voluntary Non-financial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting,” The Accounting Review, 59-100.

Everingham, G. K., & Suresh, P. (2008). Corporate reporting. Sunninghill, PricewaterhouseCoopers

Saunders, M. N., Skinner, D., & Dietz, G. (2010). Organizational Trust. Cambridge University Press. http://www.myilibrary.com?id=274914.

Schmitt, D. B. (2012). Advances in accounting behavioral research. Volume 15 Volume 15. Bingley, Emerald.

Schmitt, D. B. (2014). Advances in accounting behavioral research. Bradford, Emerald Group Publishing Limited. http://public.eblib.com/choice/publicfullrecord.aspx?p=1766286.

Tapscott D, Anthony, W. (2003). 59Value and Values in the Age of Transparency, Digital 4Sight, 35.-100.