Public Interest Entities Research Articles

Enhancing environmental information transparency through corporate social responsibility reporting regulation

AbstractThis research aims to contribute to the scientific debate about the lack of interlinkages between mandatory non‐financial reporting and sustainable business models. For our purposes, a counter‐accounting analysis was conducted on the non‐financial reports of a sample of 145 Italian firms interested by the Directive 2014/95/EU effects. Specifically, the study adopts an empirical approach to evaluate environmental information transparency, which represents one of the main critical issues concerning the non‐financial declarations prepared by European Italian Public Interest Entities (PIEs) to comply with Directive 2014/95/EU. The results highlight that corporate governance and report characteristics affect environmental transparency. Furthermore, the results confirm the overall attitude to avoid the disclosure of unfavourable or unavailable environmental information through impression management strategies. Finally, the analysis underlines the opportunities for policymakers to rethink mandatory non‐financial reporting to sustain the ecological transition of European PIEs.

Auditor’s Reporting in the Dutch Market of Public Interest Entities: Exploring New Developments in a Diverse Market

As of 2014, the extended auditor’s report has been introduced for all Dutch PIEs, including but not limited to listed entities. With this explorative study, we provide early insights into how reporting on key audit matters and materiality are applied in practice and whether this differs per category of Dutch PIEs. It appears that the Dutch PIE market is a rather heterogeneous market, including a large number of finance and holding companies, which also results in considerable differences regarding the numbers and subjects of key audit matters and the levels and bases of materiality, which could affect the informative value of auditor’s reporting. Therefore, the question arises whether reporting on key audit matters and materiality has the same relevance for all PIEs, while the results may also give reason to make these elements mandatory for companies that are not yet covered by the PIE-definition.

Disclosure Dynamics and Non-Financial Reporting Analysis. The Case of Romanian Listed Companies

New challenges and perspectives to improve non-financial reporting and the disclosure of environmental, social, and governance indicators have been launched towards the development horizon of Romanian public interest entities, implementing the provisions of Directive 2014/95/EU in the local regulatory framework. In this context, our approach focused on the content analysis of the non-financial information reported by listed companies, for the period 2017–2019, and the measure of the average disclosure degree on environmental, social, economic, and governance (ESEG) indicators. To measure the average degree of disclosure, a composite index was constructed through the main component analysis for categorical data that allowed the classification of sampled companies by sustainable performance. The results showed a slight increase in the ESEG disclosure index at the level of the sampled companies, from 47 units in 2017 to 52 units in 2019, several companies “went ahead” and others “recovered over the period”. Cross-sectional analysis revealed differences in the average non-financial disclosure index, and also in the disclosure index of ESEG indicators. The non-parametric correlation analysis highlighted the existence of a statistically significant positive correlation of medium intensity between the disclosure index of non-financial information and the publication of the non-financial statement or report.

The ‘Rebirth’ of the EU as an Audit Legislator

In April 2014, important new audit legislation was adopted by the European Parliament and the Council, i.e. the 2014 Auditing Directive and the PIE Regulation. In the author’s opinion, the role of the EU as an audit legislator has significantly changed over time. More specifically, the new audit legislation indicates the ‘rebirth’ of the EU as an audit legislator. The article focuses on the role of the EU as an audit legislator, even though the EU also has an important role to play as an accounting legislator. The most important legislative acts when it comes to EU audit legislation are discussed. A number of important trends in EU audit legislation are also identified and discussed. These include an increased legislative focus on Public-Interest Entities (PIEs), a change from a ‘directive only’ to a ‘directive and regulation’ legislative paradigm, a legislative change from the ‘periphery’ to the ’core’ of auditing, ‘codification’ of provisions from the International Standards on Auditing (ISAs) in EU legislation as well as a discussion on a possible EU adoption of the ISAs. Auditing, audit legislation, 8th directive, green paper, financial crisis, auditing directive, pie regulation, public-interest entities (pies), international standards on auditing (ISAs)

Audit of banks as public interest entities: Segmentation and conjuncture of the bank audit market in Ukraine

An important factor in restoring the confidence of financial consumers in banks is to provide auditors with credible and detailed financial statements and their solvency. This study is a pilot step in clarifying the auditor’s role in ensuring the banks’ reliability as public interest entities in Ukraine. It is aimed at investigating the segmentation of the banking audit services market in Ukraine and its comprehensive characteristics. Structural and dynamic analysis were applied to investigate market, regional and branch concentration, as well as main trends in bank audit market development within the data and registers of the Audit Chamber of Ukraine (ACU) and 75 annual reports of Ukrainian banks. Key aspects of the bank audit market in Ukraine are highlighted: the potential of the bank audit market, the ability of auditors to provide audit services and current characteristics of market conjuncture. Bank audit market is highly segmented: this study differentiates strong segments of international audit networks, associations and alliances, including Big 4 companies and the segment of weak Ukrainian audit companies. Kyiv and Kyiv region are the dominant economic active regions in terms of the regional bank market concentration and the presence of international audit networks. The study results are the basis for improving the regulation of the banking audit services market by the National Bank of Ukraine and ACU.

Agricultural enterprise management report

The article is devoted to the organizational and basic procedures of the Management Report’s structural synthesis and informational content. This reporting form introduction is due to the implementation of the Directive 2013/34 / EU provisions “On annual financial statements, consolidated financial statements” in the legislation of Ukraine. Accordingly, the requirement has been established for large enterprises, including public interest entities, to prepare a Management Report concerning the financial and non-financial information disclosing. Medium-sized enterprises are entitled to submit the Report in abridgement, highlighting only the finance indicators of their activities. Management Report is an information support source and a comprehensive assessment of the state and potential, financial, economic, social, labor and environmental enterprise activities, identified risks and uncertainties, etc. The information obtained allows both internal and external users to assess the consequences of the enterprise activities impact on the environment, society and the economy, in particular, the certain segment development potential. Domestic and international regulatory support on the Management Report preparation has been analyzed as part of the study. It has been established that the form, structure and content of the Management Report is not regulated and is generated by enterprises independently in any form, taking into account the Methodological Recommendations for its preparation. The Management Report content has been proposed in accordance with the requirements of different management levels particularly concerning disclosing relevant information on agricultural enterprise activities in economic, social and environmental areas. The purpose of such informational content is to reflect the specifics and technological features of the enterprise activities for crop production. The implementation of these recommendations will provide information on the results and specifics of agricultural enterprise activities; the headcount analysis and the social policy state in general at enterprises; impact on the environment and mechanisms to minimize it. It also has determined that disclosing these key performance indicators contributes to the increase in information transparency, accountability and comparability, as well as agricultural enterprise investment attractiveness and sustainable development.

‘Future Trends in Auditors’ External Reporting: Inspiration from the UK?

For the time being, the International Standards on Auditing (ISAs) and, for Public-Interest Entity (PIE) audit reports, the PIE Regulation constitute the regulatory foundation for audit reports within the EU, together with the national act in each Member State that implements the Auditing Directive and with any other relevant national legislation or regulation. However, further changes to auditors’ external reporting may lie ahead. The purpose of this article is to discuss these possible changes. The article focuses on the UK, where a number of important and possibly ‘game changing’ reports have recently been published – especially following the collapse of Carillion. Admittedly, after Brexit, the UK will of course no longer have a direct influence on EU legislation, including audit legislation. However, there is reason to believe that the UK will remain one of the ‘driving’ countries within auditing and UK hence continue to exert significant influence on audit regulation. Besides a brief description of Carillion and its collapse, the article discusses the Kingman Review and the Brydon Report, which both include interesting considerations on auditors’ external reporting. Only time can tell which changes will actually be implemented, how, when and not forgetting where. Auditing, Auditors, Audit Legislation, Auditing Directive, Public-Interest Entities (PIEs), PIE Regulation, International Standards on Auditing (ISAs), Audit Reports, Key Audit Matters (KAMs), Carillion, Kingman Review, Brydon Report, Company Law, UK Companies Act

The Role of Non-Financial Reporting in Modern Ecological Problems Updating and Solving

The relevance of the paper is due to the conscious demand of society for ecological results data of business against the background of climate change and ecological disasters. The purpose of the article is to develop recommendations aimed at improving informativeness and reliability of the companies’ non-financial reporting on their ecological management. The study is based on a legitimacy and legality analysis of the global practice of compiling and submitting non-financial reporting. It is determined that the Global Reporting Initiative (GRI) Standards are the most popular among the public-interest entities for the preparation of non-financial reporting. The authors have structured a set of current GRI Standards 300 series (Environmental topics) on the issues’ content. The authors have formed practical proposals increasing the informativeness of non-financial reporting, which is made according to the GRI Standards by identifying the need for additional data disclosure about the company’s policies on resource consumption, environmental protection, hazardous emissions and waste management. These proposals will help increase the credibility of non-financial reporting indicators by providing cross-sectional information on the same phenomenon or event in case of the absence of independent control over the statement’s reliability. It will be an important argument in favour of non-financial reporting as a data source for all stakeholders’ decision-making.

CIVIL LIABILITY OF COMPANIES FOR ANONYMOUS COMMENTS POSTED ON THEIR SITES: A CRITERION OF POTENTIAL CONSEQUENCES OF LIABILITY

Purpose – The purpose of this study is to investigate a criterion of potential consequences of liability of an Internet portal for unlawful comments of its visitors and set certain general waymarks, which would apply to cases of this kind. Research methodology – The European Court of Human Rights has ruled in four cases (Delfi AS v. Estonia, MTE & Index v. Hungary, Pihl v. Sweden and Tamiz v. the United Kingdom) on whether civil liability can be justified to the website operators for anonymous comments made on their portals that violate the right to privacy. One of the criteria of such evaluation was the possible negative consequences of the civil liability of these entities, but its content and meaning have not been thoroughly studied in the doctrine. Therefore the authors analyse the content of this criterion on the basis of a comparative method. Taking into account the legal context of this study, specific methods of legal interpretation are used in this article (such as, systemic, teleologic, histrorical). Findings – Authors conclude that addressing the civil liability of website operators for damages caused by anonymous comments violating the right to privacy must consider not only the financial, and not only ad hoc, short- and long-term adverse effects of the website operators in general, but the impact of the ruling on the concept of free media and other property and non-material consequences for a democratic society as a whole. Research limitations – This article deals with one criteria for the application of civil liability of website operators for the infringement of an individual’s right to privacy by anonymous comments, that is – the possible negative consequences of the civil liability of these entities. That is the continuation of the authors’ research on the topic of website operator’s liability for unlawful anonymous comments. Practical implications – The research reveals that the consequences of applying the civil liability to the website operator are conditions for assessment of extent of the already existing civil liability; therefore, the criteria of the consequences that arose and / or could arise to website operator are not to be considered as factors justifying the application of civil liability, but rather as factors determining, i.e. extending or limiting, the extent of civil liability. Originality/Value – The vacuum of a consistent concept of assessing the behavior of website operators in response to unlawful comments poses a threat not only to the sustainability of website operators as business or public interest entities, but also to the stability of the legal system as a whole. It is therefore important to disclose the content of elements of assessment of the necessity of restricting the freedom of expression of website operators in a democratic society, which are unregulated and formulated only in the case law of the ECtHR, and which have been applied in national courts for horizontal civil liability claims for anonymous comments. There are no previous research that would focus on these issues.

INTERNAL AUDIT - ACTUALITIES AND CHALLENGES

Internal auditing plays an important part in the management of corporations, but it has also proved necessary in the more general framework of public interest entities, especially listed entities, given the importance of their activity in society. The different activities that internal auditors perform lead to the creation of added value in the entity in which they operate. In Romania, this activity is relatively recent and it involves certain organising and exercising particularities. The internal auditor profession has globally faced the same challenges all the other professions face in regards to the digitalization of the economy.

The Yanus-Like Quality of the Ukrainian Audit

The external control over the quality of audit is exercised in Ukraine due to the requirement of the specialized law, in spite of the missing definition of the quality of audit and its criteria in domestic and international normative documents. The article’s objective is to draw attention to the issue of the quality of audit by elaborating on its dual nature, terms and principles for organization of control over business results of auditing entities and user expectations concerning these results. For this purpose, the quality of audit is addressed from two dimensions: external and internal. The external dimension of the quality of audit is analyzed in terms of expectations concerning the quality of audit, held by users of audit results (official regulatory bodies of bank, financial and corporate relations; official fiscal bodies and controlling bodies of public supervision over auditors; actual owners of businesses; hired management) and the coincidence between these expectations and actual results of audit. The internal dimension of the quality of audit is analyzed in terms of auditing entities and their expectations from the categories of entities such as customers, owners of customers, controlling bodies, personnel of auditing entities or invited external auditors or experts. Distinctive features of the Ukrainian market of audit services are highlighted, prevalence of supply over demand in the first place. Questions are posed which need to be responded for proper organization of control over the quality of audit: 
 
 Is control over the quality of audit is necessary? If “yes”, then to whom?
 Do formalized expectations of users of audit results concerning the quality of its result really exist?
 If audit is a type of control over the quality of reporting and management on the whole, would it be expedient to set up control over the controller?
 What is the essential meaning of effectiveness and performance of control over the quality of audit, especially external one?
 Can positive results of the external inspection of auditing entities to the effect of the quality of audit be regarded as “indulgence” for a certain period, or the permanent external control is needed after all?
 Should control over the quality of audit be obligatory only for the auditing entities involved in inspections of entities of public interest, or should it cover all the auditing entities without exception?
 
 The analysis gave grounds to the author to ask if it would be more expedient in the Ukrainian realities that the term “quality of auditing” was abandoned and replaced by the term “compliance with the standards”.

Key performance indicators disclosure in the context of the EU directive: when does stakeholder pressure matter?

Purpose The paper aims to explore the effect of stakeholder pressure on the disclosure of key performance indicators (KPIs) and the patterns of this disclosure in large public interest entities (PIEs). Design/methodology/approach The study is based on the content analysis of the disclosures provided by 169 large (PIEs) operating in Poland in 2019. The data was hand-collected from the companies’ non-financial statements. The research hypotheses were empirically tested with the use of linear regression. Findings The explanation for the disclosure of KPIs can be found in stakeholder theory, operationalized by stakeholder pressure linked to industry. In line with the expectations, business-related KPIs are disclosed by companies operating in industries with high pressure from investors, environment-related KPIs are presented by companies operating in environmentally sensitive industries and companies operating in industries with high pressure from employees disclose society-related KPIs. According to the results of the study, reporting on employee-related KPIs is accompanied by environmental and social KPI disclosures. Originality/value The study contributes to the literature on corporate non-financial disclosures as it provides new insights into non-financial KPI disclosures in a new and relatively unexplored institutional setting established by the Directive 2014/95/EU. While researchers recognize the stakeholders’ environmental and social concerns, there is nevertheless a lack of understanding of their implications for KPIs in measuring social practice. The research fills that gap by addressing the specific impact of different stakeholder groups on the disclosure of KPIs.

The Audit Reform and Non-Audit Services in the Light of the Big-4 Transparency Reports – the EU Perspective

The aim of this article is to compare and contrast three different approaches towards non-audit services (henceforth “NAS”) based on: 1) researchers’ views, 2) the EU regulation, and 3) the provision of NAS by the Big-4 firms operating in twenty-seven EU member states. Therefore, the article includes: (i) a literature review of various NAS aspects, (ii) an analysis of the EU reform in terms of NAS, and (iii) an empirical analysis of NAS fees which have been disclosed in the Big-4 transparency reports for the period 2017-2019.The literature review shows: a) lack of consensus between researchers about the potential consequences of the NAS provision in general, b) quite limited or little evidence of the consequences of the NAS restrictions as part of the EU audit reform, c) ambiguity in terms of the NAS definition itself which results mainly from insufficient NAS disclosures and lack of a detailed NAS split.The EU regulators addressed these concerns only in very narrow aspects, i.e., through: (1) the NAS black list, (2) the NAS cap, and (3) the strong emphasis on public-interest entities (henceforth “PIEs”). What is more, NAS disclosure requirements in the transparency reports are limited only to two categories.Finally, the results of the empirical study indicate the significant differences at the NAS fee level among the EU member states. The analysis shows a particular importance of NAS fees from other clients as a substantial revenue stream for the Big-4 firms. The results suggest also a significant increase in this category in 2018 when NAS fees from other clients increased by net EUR809 million (13%). However, this strong trend was not confirmed in the following year.All in all, the study underlines deficiency in proper NAS disclosure and reporting which might be observed also in the case of transparency reports. All findings of this study may be another argument for regulators to address the problem of NAS in more detail starting from their advice on a NAS taxonomy which might be used then as a point of reference. It would be also beneficial for researchers exploring the NAS aspect and, thus, may enhance data and results comparability between studies. Additional disclosure requirements like NAS provided to PIEs or a recurring or non-recurring character of NAS would also support the better understanding and evaluation of the consequences of the EU audit reform.

CSR in Non-Large Public Interest Entities: Corporate Talk vs. Actions

Smaller companies’ understanding of and attitude toward corporate social responsibility (CSR), both in terms of actions and disclosure, is distinct from that of other organizations, including large public interest entities (PIEs) that dominate the existing literature in the field. In this study, we examine the interdependencies between non-large PIEs’ CSR practices and disclosures with the use of the organizational hypocrisy concept as a theoretical lens. Our sample consists of 111 companies operating in Poland and pursuing 646 CSR-related practices in 2017. We perform content analysis of their websites using the disclosure index to assess the extent of their CSR disclosures. The total number of observations equals 1227. Both practices and disclosures are analyzed according to ISO 26000 standards. The relationship between the sample companies’ CSR talk and actions is analyzed by means of the Pearson coefficient. Our findings suggest that CSR practices and disclosures of non-large PIEs are loosely coupled. For the whole sample and for the non-SMEs (small and medium sized entities) subsample, the strongest association between the two was observed as regards the organizational governance area. As far as the SMEs are concerned, the statistically significant association between their CSR reporting and actions was identified for the environmental area. Our study contributes to the CSR literature, as it provides new insights into the relation between voluntary CSR talk and actions of non-large PIEs operating in a relatively unexplored setting.

ROLE OF AUDIT IN MANAGING PUBLIC INTEREST ENTITIES

Abstract. The article discusses current issues of interaction between external auditors and management of public interest entities with the aim of making managerial decisions aimed at ensuring the continuity of an entity, ensuring balance between resources and their sources, eliminating distortions in financial statements. Based on the study, it has been found that the definition of «public interest» is inextricably linked with the economic benefits of interested financial statements users. Internal control (audit) is aimed at prompt response to negative effects of economic activity. Considering financial performance generally, external audit provides users with reliable information on financial and property status of the audited entity, its financial results, and changes in cash flow and equity. Management team of a public interest entity has to create an audit committee to interact with an external auditor. At the same time, an external auditor creates an additional report and informs the audit committee on the applied principles of independence, on the key partner, on the auditors involved, on the scope and timing of the statutory audit, on the audit methodology, the materiality level chosen for the audit, on business continuity of the audited entity, on the shortcomings of its quality control system, on identified violations of the law, and on the interaction of auditors and management during the audit. A letter from the auditor to those with the highest managerial authority also contains information about the internal control system and its ability to identify deviations from legislative norms. A final document informing report users on financial and property status, operating activity, cash flow and equity statements of the audited entity is an audit report, which may include the following opinions of an auditor: unqualified opinion, qualified opinion, adverse opinion, and disclaimer of opinion.The management of the audited entity makes decisions on adjusting internal control system, financial statements, and revealed deviations from legislative norms based on audit documents preceding the report and the audit report itself. The procedure for adjusting the customer’s internal control system of the audit, its financial statements identified during the inspection of deviations from existing legislative standards on the basis of audit documents preceding the audit report and an additional report for the audit committee of the enterprise is considered. Keywords: public interest entities, audit, financial statements, audit committee, audit report, management. Formulas: 0; fig.: 0; tabl.: 4; bibl.: 10.

A Study on the Taxation System for Unincorporated Organizations

A Study on the Taxation System for Unincorporated Organizations

ТЕОРЕТИЧНІ АСПЕКТИ РОЗВИТКУ АУДИТУ НА ОСНОВІ ЯКІСНОГО ПІДХОДУ

The aim of the article is to study the essence of a qualitative approach in auditing and the development of domestic audit based on it in the context of forming a new concept of quality control of audit services in Ukraine. The research methodology is based on theoretical generalizations and the use of scientific tools, including comparative analysis, analysis of the provisions of current legislation of Ukraine and international legislation in the field of audit quality regulation. The research substantiates the assertion that the reform and development of independent audit in Ukraine is based on a qualitative approach as the main direction of improving national legislation in the field of audit and bringing it closer to EU requirements is to improve the quality of audit services and increase confidence in domestic auditors. It is studied that quality management of audit and audit services is to create and operate a quality management system, which aims to create an information product that meets the requirements of standards and can meet the needs of users and ensure their confidence in the reliability of audited financial statements. The analysis of domestic legal requirements for the quality of audit services allows us to state that the main emphasis is placed on ensuring the quality of mandatory audit of financial statements and mandatory audit of financial statements of entities of public interest. As a result of the research, it is proposed to use a qualitative approach in auditing from three interrelated positions: 1) in auditing research – a set of techniques for studying audit objects based on the theory of quality as a historically formed philosophical concept; 2) when conducting an audit and providing audit services – this is a necessary set of tools to ensure the improvement of their quality, which is formed at the international, national and internal levels; 3) in assessing the information provided by the auditor (audit opinion) – the establishment of criteria for its usefulness on the basis of a qualitative approach that allows to establish the level of suitability of information for users.

Institutional ownership, environmental, social, and governance performance and disclosure – a review on empirical quantitative research

Since the financial crisis of 2008–2009, nonfinancial-related shareholder activism increased, as public interest entities (PIEs) should strengthen their environmental, social, and governance (ESG) activities. This study aims to determine whether institutional ownership (IO) impacts ESG performance and disclosure and vice versa. Moreover, IO’s moderating and mediating influence on the relationship between ESG and firms’ financial consequences is included. This is the first literature review focusing on IO and ESG, describing IO as independent, dependent, moderator, and mediator variable. A structured literature review with 81 empirical-quantitative (archival) studies on that topic is presented based on an agency theoretical framework. Regarding the main results, long-term IO leads to increased ESG performance. Moreover, ESG performance promotes the ratio of institutional investors. Other relationships are rather heterogeneous and too low in an amount yet, stressing major research gaps.

Sustainability regulation and global corporate citizenship: A lesson (already) learned?

AbstractThe European Directive 2014/95, in force in 2017, requires non‐financial information to all public interest entities with more than 500 employees. However, multinational companies as ‘global corporate citizen’ have already started to communicate sustainability disclosure, before the accounting regulation imperative. The paper studies the sustainability disclosure behaviour of a global multinational Company, Eni, an Italian Integrated Oil & Gas Listed Company. The aim is to examine the relationship between the ‘self‐regulation’ disclosure before the law and the forces within the company that drove that decision and the ex‐post disclosure after the regulation imperative. The analysis is conducted over the 2018–2011 period and considers all the annual reports (i.e., financial report and social, environmental or sustainability reports). The results state that ‘self‐regulation’ is guided by strategic legitimacy based on factors as corporate strategy, corporate identity and stakeholders' pressure while the accounting regulation represents a tool to summarize non‐financial data.

Non-financial key performance indicators: regulations and guidelines versus business practice

According to Directive 2014/95/EU, large public interest entities (PIEs) must disclose, i.a., a description of their business model, policies regarding environmental, social and employee matters, as well as non- financial key performance indicators (KPIs). The aim of the paper is to identify the practices of large PIEs operating in Poland as regards non-financial KPIs disclosures and to recognize any regularities among them. Our sample consists of 169 public companies that are required to provide non-financial dis-closures according to the Act on Accounting. The data was hand-collected from non-financial statements (reports) in 2019. The main research method is content analysis. The data was examined using cluster analysis. Research findings indicate that although companies present KPIs in a very diverse way, some regularities can be observed. Two groups of PIEs have been identified: (1) those that reveal KPIs on oper-ational and social activities, and (2) those that report environmental and employee indicators. Further analysis made it possible to identify companies that focus on reporting KPIs on (1) the environment, (2) operating activities, and (3) with generally moderate disclosure levels of non-financial KPIs in operational, environ-mental, and social areas. The results of the research increase knowledge in the field of reporting of non-financial information by large PIEs and are of practical importance for companies themselves, as well as for institutions and organizations which deal with corporate reporting in Poland.