Qualtiy of Financial Reporting

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Introduction Corporations usually communicate with shareholders through making disclosures within and outside the financial reports. The narrative disclosures in financial reports have become longer and more sophisticated in the recent years. With the increasing number of corporate scandals, it has been questioned that whether the financial reporting quality has been undermined by such disclosures. As the statement argued, ‘Disclosure outside the financial statements is only used to manage the impressions of gullible shareholders.’ which generally means that such disclosures mislead the shareholders through manipulating their perceptions. Disclosures outside the financial statements include the narrative disclosures within the financial report such as Chairman statement, CEO statements, future improvement plan, etc. (just excludes P&L accounts, balance sheets, cash flow statement together with associated notes) and those disclosures outside the financial reports which can be found on corporate websites, press release. Such as profit warning, RD activities, takeover intentions, capital expenditures, etc. In a broad way,impression management refer to the process that someone influences the perceptions of the others. In a corporate reporting context, it means “strategically display and present the information in a manner that is intended to distort readers’ perceptions of corporate achievements” (M-DB, p.415, taken from Godfrey et al, 2003). In the statement, it constrains this kind of readers to be the shareholders, more exactly, gullible shareholders. They are unsophisticated, may not have professional knowledge of the stock market thus unable to tell the truth or just simply believe what they heard. In my opinion, this s... ... middle of paper ... ... information or impression management? Journal of accounting literature, 26, 116–194. Merkl-Davies, D.M., Brennan, N.M., and McLeay, S.J., 2011. Impression management and retrospective sense-making in corporate narratives: a social psychology perspective. Accounting, auditing and accountability journal, 24 (3), 315–344. Merkl-Davies, D.M., and Brennan, N.M., 2011. ‘A conceptual framework of impression management: new insights from psychology, sociology and critical perspectives’, Accounting and Business Research, 41, pp.415-437 (M-DB) Rutherford, B.A., 2003. Obfuscation, textual complexity and the role of regulated narrative accounting disclosure in corporate governance. Journal of management and governance, 7 (2), 187–210. Yuthas, K., R. Rogers and J. F. Dillard. 2002. Communicative action and corporate annual reports. Journal of Business Ethics 41 (1-2): 141-157.

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