I am delighted to introduce this 13th issue of International Accounting Policy Forum (IAPF) – the annual special issue of Accounting and Business Research.
Four of the academic papers in this issue were commissioned for the 2017 ICAEW Information for Better Markets Conference. The papers address the question Corporate reporting: is it heading in the right direction? which was selected as the conference theme in light of major changes to corporate reporting that have taken place in recent decades. Not only have there been significant changes in accounting standards, including the adoption of IFRS in many countries, but there has also been an explosion of narrative reporting and increased attention to reporting on business's impact on society and on the natural world. At the same time, the way in which information is communicated in most areas of life has changed radically, and so it is right to ask whether the communication of corporate reporting information also needs to change radically.
Baruch Lev's paper offers a valuable contribution to the ongoing debate about whether financial reporting continues to retain its relevance for investors. Annual reports have little impact on share prices. Some people cite this as evidence that the business reporting system is working well. Others argue that it indicates the current approach is failing with companies reporting information that does not reflect their business models or capture the drivers of business value. Lev's paper, The deteriorating usefulness of financial report information and how to reverse it, firmly endorses the latter view and criticises the adoption of a balance sheet approach and failure to recognise the value of intangible assets in financial statements.
Jeffrey Unerman, and co-authors Jan Bebbington and Brendan O'Dwyer, provide important insights into economic externalities in their paper, Corporate reporting and accounting for externalities. The paper includes a comparison of the principal qualitative characteristics of externalities information in some of the more prominent reporting frameworks. Bringing the frameworks together in this way is effective in highlighting some of the key issues with externalities accounting and reporting. Also worthy of note in the paper is a continuum that sets out how over time externalities can be internalised.
In The expansion of non-financial reporting: An exploratory study, Hervé Stolowy and co-author, Luc Paugam, investigate what is arguably the most dramatic change in corporate reporting in the past 30 years, the emergence of non-financial reporting (NFR). Examining a sample of firms in South Africa, the authors find that while the volume of NFR has grown significantly over recent years, there is still great diversity in both definition and practice.
The last paper from the IFBM conference, Do firms effectively communicate with financial stakeholders: A conceptual model of corporate communication in a capital market context, examines how successful corporate reporting is as an exercise in communication. The authors, Niamh Brennan and Doris Merkl-Davies, offer important insights into how corporate communication should evolve, suggesting a more sophisticated, interactive approach is required with a view to ‘building strong relationships with capital market participants to ensure their continued financial support’. In order to make this transition, the authors argue that it will be important to assess the connectivity of information and not just its readability. With this in mind, the paper sets out three components of connectivity namely the textual, the intertextual and the relational.
The final paper in this issue is based on the 2017 annual PD Leake lecture delivered by Christian Leuz. Evidence-based policy making: Promise, challenges and opportunities for accounting and financial markets research recognises the increasing pressure on standard-setters and regulators to perform cost-benefit analysis and on academics to conduct policy-relevant work. Leuz sets out some of the key challenges faced in the pursuit of these objectives including difficulties in accessing data and assessing the reliability of published research. The paper also identifies opportunities for progress, including learning from the success of evidence-based medicine.
We are grateful to Mark Clatworthy, Juan Manuel Garcia Lara and Edward Lee for their continuing support as Editors of Accounting and Business Research, to the academic authors featured in this issue and to the practitioners who commented on their papers and whose remarks are reproduced here. Bringing together practitioners and academics continues to be a key function of the Forum and of the events on which its papers are based.
Finally, thanks are due to ICAEW's charitable trusts, which provided funding to support the 2017 Information for Better Markets Conference and P.D. Leake Lecture and the preparation for publication of the academic papers that appear in this issue.