Abstract
In this article, we build a Quantitative Discretion Index (hereafter referred to as QDI) to identify within the financial statements the most vulnerable areas related to possible opportunistic earnings management (hereafter referred to as EM) practices, with the aim of supporting ethical behaviour in corporate social communications. In order to better explain the QDI construction method, a practical example is implemented, starting from an analysis of the consolidated balance sheet of an Italian listed company operating in the media sector (in 2016).
 
 The QDI might be added to the contents of voluntary information provided by companies that pay attention to ethical behaviour and corporate social responsibility. 
 
 Within each corporate balance sheet, the QDI allows stakeholders to identify the evaluation discretion areas, where any possible EM practices may be more likely and on which it may be more useful for stakeholders to focus their research attention.
 
 Business ethics aims to mitigate EM practices in social communications, including voluntary communication. Indeed, the discretional nature of the assessment of financial statements items by the administrative body represents one of the main weaknesses in the activity of mitigating earnings management practices.
 
 At present, the literature has dealt with the relations between ethical behaviour and EM; however, the research should also provide tools that can identify and neutralise the possibilities that opportunistic EM practices can be implemented, thus resulting in more ethical business practices.
Highlights
In this study, we aim to improve the quality of voluntary corporate information, with particular reference to the financial statements.During recent years, in the continuous improvement of financial reporting, the literature has focused on aspects related to the adoption of the principles of ethical behaviour and corporate social responsibility in companies, highlighting the benefits related to the quality of social communications (Dhaliwal et al, 2011; Martínez-Ferrero et al, 2015; Gong et al, 2018)
In the continuous improvement of financial reporting, the literature has focused on aspects related to the adoption of the principles of ethical behaviour and corporate social responsibility in companies, highlighting the benefits related to the quality of social communications (Dhaliwal et al, 2011; Martínez-Ferrero et al, 2015; Gong et al, 2018)
The goals of business ethics include the facilitation of the correctness of social communications and the minimisation of opportunistic earnings management (EM) practices in the financial statements (Martínez-Ferrero et al, 2016): while in the past financial statement disclosure was considered an issue of interest only for shareholders (Friedman, 1970), currently, the “stakeholder theory” (Freeman, 1984; Freeman, 1994; Freeman et al, 2010) has highlighted how for all stakeholders of a company, balance sheet disclosure has become so significant that the improvement of financial disclosure is in effect a form of the “socially responsible behaviour” of managers (Gelb & Strawser, 2001)
Summary
We aim to improve the quality of voluntary corporate information, with particular reference to the financial statements.During recent years, in the continuous improvement of financial reporting, the literature has focused on aspects related to the adoption of the principles of ethical behaviour and corporate social responsibility in companies, highlighting the benefits related to the quality of social communications (Dhaliwal et al, 2011; Martínez-Ferrero et al, 2015; Gong et al, 2018). The connection between ethical practices, corporate social responsibility and EM has been identified and analysed by Chih et al (2008); Greenfield et al (2008) suggest a significant relationship between the individual’s ethical orientation and earnings management practices. This last study was deepened and extended by Johnson et al (2011) and by Shafer (2015). This last study was deepened and extended by Johnson et al (2011) and by Shafer (2015). Hong and Andersen (2011) analysed the interrelation between ethics, corporate social responsibility, earnings management and financial statement quality, highlighting the direct correlation between a higher level of ethics and a lower application of opportunistic earnings management strategies by companies but pointing to the need to identify operational tools to achieve these results
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