Public Interest Entities Research Articles

Ensuring More Sustainable Reporting in Europe Using Non-Financial Disclosure—De Facto and De Jure Evidence

Non-financial disclosure has become increasingly popular, as it can satisfy the information needs of a growing range of stakeholders. Because traditional financial reports cannot provide comprehensive accountability, several frameworks and guidelines for facilitating non-financial information disclosure have been developed. Recently, the European Union issued Directive 2014/95/EU (EU Directive) and subsequent guidelines (EU Guidelines 2017/C215/01 [EUG]) to mandate European entities of public interest to convey non-financial information to improve such organizations’ accountability toward their stakeholders. This paper studies the European stage of non-financial reporting from a regulatory and practical point of view. To this end, the first research objective is to analyze the elements that the EUG have in common with the IIRF and the GRI 4 guidelines. Second, the paper proposes a first analysis to assess the compliance to the EUG by performing a content analysis on a sample of annual reports and integrated reports (IR) drafted by the 50 biggest European companies. The results highlight that the content elements required by the Directive exceed the requirements of the two frameworks and that there is already a high level of compliance by European big companies with the EUG. More specifically, particular attention is devoted to Social, Employee and Environmental Matters. Accordingly, the companies demonstrated a common awareness of the necessity to provide an exhaustive amount of social and environmental disclosure in order to maintain legitimacy. Also the disclosure on Principal Risks and Their Management is widespread to meet investors’ and stakeholders’ requirements in recent years with respect to the general level of risk disclosure provided by companies.

Kierunki prac komitetu audytu w jednostkach samorządu terytorialnego będących jednostkami zainteresowania publicznego

Kierunki prac komitetu audytu w jednostkach samorządu terytorialnego będących jednostkami zainteresowania publicznego

Non-financial reporting standards and evaluation of their use illustrated with example of Polish listed companies

The introduction of the obligation to publish non-financial data has been awaited by stakeholders for a long time. This obligation has been in effect since the beginning of 2017 for selected companies listed on the stock exchange, i.e. Public Interest Entities (PIEs). The paper attempts to assess the current state of non-financial reporting based on the standards used by PIEs in the first year of its validity. The authors attempted to assess the new reporting obligation and put forward the following main hypothesis: Polish listed companies, and in particular, public interest entities are not prepared to implement the provisions of the Accounting Act, which is the transposition of Directive 2014/95/EU. The research provided evidence that the highest percentage of companies reported on the basis of GRI standards and other combinations of GRI, GRI G4, SIN, and more than half of the companies proposed their own principles or did not specify them. The research showed the multidimensionality of actions taken by companies in the context of non-financial reporting.

Neovisnost zakonskog revizora u odnosu na subjekte revizije prema Zakonu o reviziji iz 2017. godine

Zakon o reviziji iz 2017. godine uvodi opće zahtjeve za obavljanje zakonskih revizija u svim obveznicima zakonske revizije te posebne zahtjeve koji se primjenjuju na zakonske revizije u subjektima od javnog interesa. Cilj je tih odredbi jačanje neovisnosti i objektivnosti zakonskih revizora u odnosu na subjekte revizije, uzimajući u obzir nedostatke u poslovnoj praksi revizora u razdoblju od 2007. godine do danas. Također se jača javni nadzor Ministarstva financija nad radom ovlaštenih revizora i revizorskih društava. Zakon je usklađen s odredbama Direktive o zakonskim revizijama iz 2014. godine te upućuje na izravnu primjenu odredbi Uredbe o zakonskim revizijama u subjektima od javnog interesa iz 2014. godine.

The impact of auditor rotation, audit firm rotation and non-audit services on earnings quality, audit quality and investor perceptions: A literature review

This literature review evaluates 103 empirical research studies on the link between rotation and non-audit services on the one hand and their influence on earnings quality, audit quality and investor perceptions on the other hand. After the financial crisis 2008/09, regulators all over the world are aware of decreased stakeholder trust in earnings and audit quality. As a reaction, stricter rules on rotation and non-audit services by public interest entities (PIEs) have been implemented (e.g. in the European Union). However, the impact of these regulations on earnings and audit quality is still controversial. We briefly introduce the theoretical, normative and empirical audit framework that comprises an adequate structure of the state-of-the-art of empirical research in this field. We summarize the findings in each research area, while we split our rotation analysis in an audit firm and audit partner rotation and tenure and our dependent variables in earnings quality, audit quality and investor perception measures. Most of the cited studies are linked to earnings-related measures, especially abnormal accruals models. The mixed results can be explained by the different theoretical impacts of agency- and resource-based view. Finally, we will discuss the current limitations of the studies and give useful recommendations for future empirical research activities on this topic

Specyfika sprawozdawczości spółek giełdowych na przykładzie spółek sektora energetycznego

Artykuł poświęcony jest sprawozdawczości spółek giełdowych. W wyniku zmian wprowadzanych w przepisach jednostki zainteresowania publicznego coraz częściej są zobowiązane ujawniać informacje dotyczące ochrony środowiska naturalnego, spraw społecznych i pracowniczych. Celem pracy jest wykazanie, że zagadnienia istotne dla oceny kondycji finansowej jednostki i perspektyw jej dalszego rozwoju są poruszane nie tylko w granicach sprawozdania finansowego, lecz również poza nim. Analizie poddano raporty roczne największych spółek działających w polskim sektorze energetycznym. W opracowaniu wykorzystano analizę obowiązujących przepisów rachunkowości i metodę analizy przypadków.

HARMONISING SANCTIONS AGAINST EXTERNAL AUDITORS

The European Parliament adopted the Directive 2014/56/EU amending the Directive 2006/43/EC on every statutory audit in the EU and the Regulation (EU) No. 537/2014 containing requirements that relate specifically to statutory audit of public interest entities. One of the main issues imposed by the new audit Directive and Regulation is introducing and harmonizing measures against statutory auditors and audit firms. This new audit legislative impose harmonized administrative pecuniary sanction on statutory auditors, audit firms and public interest entities for identified infringements of the rules. Member States should apply identical criteria when determining the sanction to be imposed with the possibility of withdrawing the approval of the statutory auditor or audit firm concerned. In that sense, the aim of this paper is to investigate the auditor’s liability according to the existing regulatory framework in the Republic of Croatia, as well as the legal consequences for infringements of the rules. In addition, this paper presents comparative overview of the solutions for audit infringements adopted by the selected European Union Member States that have already transposed the new audit regulation into national legislation.

CSR and Sustainability Report for Nonprofit Organizations. An Italian Best Practice

The purpose of this paper is to analyze the sustainability report for the communication of Corporate Social Responsibility (CSR) in a nonprofit organization. To this aim, an Italian case study is analyzed: the Fondazione Renato Piatti Onlus, a nonprofit organization of Social Utility. In the first part, we analyze the CSR for nonprofit organizations and the sustainability report (also called ‘social balance’). In the second part, we present evidence from the case study. The research is exploratory in nature when considering the connection of corporate social responsibility efforts to the nonprofit sector, a qualitative methodology was chosen over quantitative methods. Specifically, the case study was used to show what strategy a nonprofit organization can develop. Nowadays CSR strategies received a growing attention from both businesses and nonprofit organizations but also from the EU which forced large public-interest entities to present a social balance. For nonprofit organizations, applying social responsibility is not a voluntary issue. Nonprofit organizations have an ethical obligation to their stakeholder and to the public to conduct their activities with accountability and transparency. Scholars have increasingly been studying the impact of corporate social responsibility as a business strategy in for-profit companies. However, there is still lack of researches on how nonprofit organizations implement CSR into the strategy. As a consequence of the above remarks, a large part of nonprofit organizations fails to correctly implement a successful long term CSR strategy. The Fondazione Renato Piatti Onlus belongs to that group that has been able to incorporate social responsibility within the organization, then expanding its content into a social report drawn up in accordance with the guidelines of the Italian Agency for the Third Sector.

“Public Interest Entity” A Proposed Legal Framework for a Social Entrepreneur Entity in Malaysia

“Public Interest Entity” A Proposed Legal Framework for a Social Entrepreneur Entity in Malaysia

Client's business risk, public‐interest entities, and audit fees: The case of German credit institutions

This study examines a sample of 573 German credit institution‐year observations covering 2009–2011, a period when not all credit institutions were designated as public‐interest entities (PIEs) in Germany. The results show that a credit institution's business risk is associated with audit fees. In addition, the statistically significant findings reveal that PIE credit institutions pay approximately 27.29% higher audit fees, on average. There is also some evidence of an association between the interaction of a credit institution's business risk and PIE status and audit fees even if, on average, the business risk of credit institutions seems not to vary systematically between PIEs and non‐PIEs. Ultimately, since a dummy variable for PIE versus non‐PIE might not only, or even primarily, capture effects attributable to PIE status, the results should be interpreted with caution.

EUROPEAN REQUIREMENTS REGARDING THE AUDIT REPORTING

In recent years, reporting requirements on the statutory audit have been revised and amended to increase the audit report’s communication value. In addition to the stipulations of the International Auditing Standards Package on reporting, revised and enforceable on 15 December 2016, the European Union issued the Directive 2014/56 / EU amending Directive 2006/43 / EC on statutory audits of annual financial statements and consolidated financial statements and EU Regulation no. 537/2014 on specific requirements for the statutory audit of public interest entities, both of which were published on the same date, June 17, 2014 and with the same application deadline, June 17, 2016. These normative acts foresee increased requirements for the reporting procedure in the statutory audit. Thus, the Directive provides for additional content requirements for the audit report, and the regulation requires additional information in the report but also the issuance and provision of other reports by the auditor: report to the audit committee of the public interest entity; In some cases, a report to the public-interest entity's supervisory authority or to the auditor's supervisory authority, and a transparency report published annually on the auditor's website. Our article details this information with direct reference to the content of these European official documents.

Umhverfi og starfsemi endurskoðunarnefnda – bakgrunnur nefndarmanna og traust á fjárhagsupplýsingum

Markmið þessarar greinar er að greina frá hluta niðurstaðna rannsóknar á umhverfi og starfsháttum endurskoðunarnefnda, nánar tiltekið bakgrunni nefndarmanna, áherslum þeirra og mati á trausti og gagnsæi fjárhagsupplýsinga. Bornar eru saman niðurstöður tveggja kannana höfunda á efninu, annars vegar frá árinu 2012 og hins vegar frá árinu 2016. Í lögum nr. 3/2006 um ársreikninga eru gerðar kröfur um að tilteknir lögaðilar, einingar tengdar almannahagsmunum, skv. lögum nr. 79/2008 um endurskoðendur, setji á stofn endurskoðunarnefnd. Tilgangur endurskoðunarnefnda er að tryggja gæði og áreiðanleika fjárhagsskýrslna og fjárhagsupplýsinga, hvort sem um er að ræða skýrslur til stjórnenda félagsins eða til hagsmunaaðila utan félagsins. Í sömu lögum er kveðið á um að stjórn skipi nefndarmenn í endurskoðunarnefnd. Í greininni verður m.a. reynt að varpa ljósi á bakgrunn nefndarmanna og afstöðu þeirra til þess hvort traust á fjárhagsupplýsingum hafi aukist eða ekki. Gerðar voru tvær kannanir meðal stærstu fyrirtækja og stofnana landsins (sem falla undir skilgreininguna einingar tengdar almannahagsmunum) 2012 og 2016. Samanburður á niðurstöðum þessara kannana bendir til þess að breytingar hafi átt sér stað á vissum þáttum. Niðurstöðurnar varpa ljósi á aðstæður og umgjörð endurskoðunarnefnda sem kunna að leiða til breytinga t.d. á löggjöf. Þetta er fyrsta rannsóknin þar sem tvær kannanir á umhverfi og starfsemi endurskoðunarnefnda, sem framkvæmdar voru með nokkurra ára millibili, eru bornar saman.

Public companies non-financial reporting and audit in Ukraine: challenges and prospects

Public interest entities and public companies as their representatives should be an example in implementing of sustainable development initiatives (sustainable development goals of the United Nations, development strategy «Europe-2020», «Sustainable Development Strategy»Ukraine-2020») in the light of Association agreement. Main challenges for Ukrainian public companies are non-financial information disclosure and assurance of both financial and non-financial reporting through statutory audit. Key prospects of public companies accounting system reform were outlined in this regard. This research may contribute to the existing literature in regard of identifying key areas of improving financial and non-financial information PIEs disclosure as well as its independent verification through statutory audit. This improvement should incorporate European experience and provision of Directive 2014/95 / EU, Directive 2013/34 / EU, Directive 2014/56 / EU and Regulation (EU) no. 537/2014. Among the promising areas of research, introduction of integrated reporting for Ukrainian PIEs is worth noting.

Public companies’ transparency in Ukraine: key regulatory requirements

Public companies as strategically important and economically powerful Ukrainian companies should be classified as public interest entities in the context of European integration. Based on the research methodology of the Index of public companies’ transparency of the Center for CSR Development and research of largest public and private companies’ transparency in Ukraine, conducted by TI, the authors concluded about critically low level of transparency of public companies in the disclosure of audited financial reporting, as well as non-financial reporting. This research may contribute to the existing literature in regard to identifying key areas of improving transparency of public companies in Ukraine on the basis of amendments to the existing order of reporting and additional disclosure of non-financial information and carrying out the statutory audit, taking into account European experience. Among the issues that require further study, the authors should name the relationship between the level of transparency of public companies, their financial efficiency and investment attractiveness. Among the promising areas of research, the extension of the study on transparency of public interest entities after the publication by the European companies of the first statements prepared in accordance with Directive 2014/95/EU is worth noting. Limitations of the research carried out concerned the size of the sample Ukrainian public companies analyzed.

Adoption of IFRS: Implication of Event after Reporting Period on Auditorss Reports

Adoption of the International Financial Reporting Standards (IFRS) has come to stay in Nigeria as all Public Listed Entities and Significant Public Interest Entities are by now expected to be with full compliance of the relevant provisions if the standard. This paper examined the adoption of IFRS in Nigeria and the implication of the International Accounting Standard (IAS) 10- event after reporting period on auditors’ reports. This paper discusses the adjusted and non-adjusted transactions as it affect the financial statement already prepared but still within approving period though after reporting period (fiscal year). Meta-analysis was adopted by reviewing the available literature in the field of this study. It was discovered that some adjusting events do poses reconciliation issues to the eventual finalisation of the financial statement and non-adjusting events in the same vein adds to the responsibilities of auditors in ensuring that such are adequately disclosed.

Društvena odgovornost banaka u vrijeme financijske krize: ususret direktivi Europske unije o nefinancijskom izvještavanju

The current financial crisis reaffirmed the relevance of social responsibility and ethics in financial products. Frauds, scandals, collective law suits by organizations for consumer protection, negative reputations as well as increasing anti-corporate activism have not circumvented the banking industry. In a situation of constant emphasis of social costs and operating damages, the banks are expected to embrace social responsibility more significantly, as well as to endure the sizeable burden of the economic crisis. According to the legitimacy theory, the voluntary adoption of the corporate social responsibility concept within the banking business may serve as a method of building up the reputational capital of the banks and regaining the trust of society in banking products, all segments where it is important that socially responsible actions are adequately reported and disclosed. Thanks to the 5/EU on non-financial reporting of large-sized and listed companies as well as public-interest entities, social responsibility reporting will soon become mandatory for the banking sector. By giving an insight into the scale of social responsibility reporting of selected Croatian banks, this paper will address responsibility reporting has increased during the financial crisis, as the legitimacy theory suggests. It will also give an answer how prepared are banks for the new regulatory requirements in the nonfinancial reporting area.

Współpraca organów korporacyjnych spółki giełdowej z biegłym rewidentem jako element realizacji dobrych praktyk

Polish Financial Supervision Authority and the Warsaw Stock Exchange have for several years been promoting the rules of good practice and their use by public interest entities. Practice shows that more and more large entities systematically use good practices, with some exceptions. The article examines the cooperation that occurs between corporate organs of the companies and auditors, presenting it as an important factor in corporate governance. In the recommended principles this area is treated as being of secondary importance. For the audit committee, it is only monitoring and coordinating the process of auditing financial statements that are recommended. Auditing committees are created only when there are more than five members sitting on the supervisory board. However, the majority of Polish companies have five-member boards. The conclusion, therefore, is that cooperation between corporate management boards and auditors is very restricted.

Problematika poskytování neauditorských služeb a její aktuální vývoj

Problematika poskytovani neauditorských služeb auditovaným klientům vysla v roce 2016 do popředi temat, diskutovaných odbornou veřejnosti v oblasti auditu. Důvodem obnoveni zajmu o tuto problematiku je vstoupeni v platnost novelizace Směrnice Evropskeho parlamentu a Rady 2006/43/ES/ ze dne 17. května 2006 o povinnem auditu rocnich a konsolidovaných ucetnich zavěrek ve zněni Směrnice 2014/56/EU a přijeti Nařizeni Evropskeho parlamentu a Rady (EU) c. 537/2014 ze dne 16. dubna 2014 o specifických požadavcich na povinný audit subjektů veřejneho zajmu. Ceska legislativa v roce 2016 take zaznamenala řadu změn, ktere přinesla novela zakona c. 90/2003 Sb., zakona o auditorech, ktera byla schvalena a nabyla ucinnosti 1. 10. 2016. Cilem clanku je přibližit nebo připomenout ctenaři problema-tiku poskytovani neauditorských služeb auditovaným klientům a seznamit ho se změnami, ktere přinasi novelizovana evropska legislativa. Od cilů clanku se odviji i jeho struktura. Uvodni cast je věnovana definici zakladnich pojmů, ktere jsou nezbytne pro nasledne vysvětleni cele problematiky. Nasledna cast clanku představuje přehlednou sumarizaci nazorů zastanců a odpůrců poskytovani neauditorských služeb auditovaným klientům. Sumarizace zahrnuje jak nejznamějsi matematicke modely zkoumani nezavislosti auditora, tak i komplexni moralně psychologicke modely a argumenty. Dalsi cast uvadi přehled změn, ktere zavedla nova evropska legislativa, navod na jejich praktickou aplikaci a vysvětleni některých nejasných bodů, což umožni ctenaři zorientovat se v auditnim prostředi, fungujicim na zakladě nových pravidel.

The Duties of Significant Shareholders in Transactions with the Company

According to accounting rules, companies must provide a (financial) summarized overview of related party transactions, among which are transactions with shareholders. This study of the Euro STOXX small 200 shows that transactions with large shareholders are common and a significant number of these transactions are material compared to the size of the company. Unfortunately, the reporting standards are not in accordance with the information that is necessary to assess whether the potential conflicts of interests are mitigated. In its proposal to revise the shareholder rights directive, the European Commission provides – in its current 2015 version - in a process of disclosure of the transaction, the assessment of the fairness of the transaction for the company and its minority shareholders by an independent body and an approval by the (supervisory) board and/or the shareholders. However, the proposal will more than likely not overcome the major concerns of the capital market regarding conflicts of interest within companies. I suggest involving the external auditor and the audit committee. The external auditor’s duties already include the control over the related party transactions. Consequently, these duties can be broadened as to include the reasonable assurance that the envisaged related party transactions are economic fair transactions. Further the audit committee must be established in public interest entities with a duty to monitor i.a. the performance of the work of the auditor. Consequently it can include the work of the auditor regarding related party transactions. The audit committee can serve as the body that approves the related party transaction. This procedure can help to mitigate the conflicts of interests in related party transactions.

This Is Not America: The Impact of the New EU Audit Regulation in Slovenia

The article presents problems that could arise in a small European country with a modest number of public interest entities and weak market competition due to the new European audit legislation. In this framework, special attention is paid to the effects of the extended requirements to audit public interest entities, public oversight of the audit profession, and adoption of the international auditing standards. The author points out those fields where the European Commission’s further action could make the legislation more proportionate in terms of the size of the country and its capital market development. DOI: 10.15458/85451.23