Corporate governance based on business reporting in accordance with IAS/IFRS accounting

A critical analysis of what information IAS/IFRS accounting provides for a holistic business reporting and its usefulness for value based management

In recent years standard setting bodies as well as users such as capital markets have increased their demands for developing external reporting towards a HBR (HBR). Along with the requirement that listed companies located in Europe as of 1st January 2005 should prepare their consolidated financial statement in accordance with International Accounting Standards (IAS), more and more companies all over the world (freely or by obligation) are preparing and publishing their consolidated accounts applying International Financial Reporting Standards (IFRS).

Using international accounting systems like IAS / IFRS with its central principle of “decision usefulness” makes it possible respectively obligatory to meet the information needs of a HBR by “ ... reducing the information asymmetry between providers and recipients of capital … ” . “To be relevant to investors, creditors, and other for investment, credit and similar decision, [IAS / IFRS] accounting information must be capable of making difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm correct expectations.”

By calling for “decision useful” information within IAS / IFRS accounting one could ask why the collected information is only used for external business reporting. With its holistic approach, business reporting and its underlying informative basis determined by the principles and rules from IAS / IFRS provides the opportunity to use it as an internal control system in order to support managerial decisions as well. Or, to see it from a different angle, if “decision useful” information to prepare IAS / IFRS consolidated accounts are already gathered, it is to be questioned how CG can use them within the decision-making processes.

Hence, the main goal of this elaboration is to figure out to what degree and how CG can benefit from “decision useful” information that holistic business reporting in accordance with IAS / IFRS holds.
Therefore the present thesis, as the title already suggests, primarily deals with the analysis of (1st) what information HBR on the basis of IAS / IFRS accounting provides
and (2nd) to what extent information from holistic business reporting is useful for corporate governance.

Finally, this thesis will draw a conclusion on the analysis whether CG can be based on holistic business reporting in accordance with IAS / IFRS accounting and summarize its new insights in the topics of CG and HBR.

Inhaltsverzeichnis (Table of Contents)

• 1 Introduction
• 1.1 Objective
• 1.2 Structure
• 2 Theoretical background
• 2.1 Corporate governance
• 2.1.1 Corporation
• 2.1.1.1 Types of organisations
• 2.1.1.2 Attributes of corporations
• 2.1.1.3 Corporate capital structure
• 2.1.1.4 Corporate management
• 2.1.2 Corporation's need for governance
• 2.1.3 Governance
• 2.1.3.1 Governance of a corporation
• 2.1.3.2 Corporate governance objectives
• 2.1.3.2.1 Shareholder value
• 2.1.3.2.2 Stakeholder view
• 2.1.3.2.3 Corporate social responsibility
• 2.1.4 Corporate governance system
• 2.1.4.1 Shareholder-oriented corporate governance systems
• 2.1.4.2 Stakeholder-oriented corporate governance systems
• 2.1.4.3 Integrated corporate governance systems
• 2.2 Accounting
• 2.2.1 Financial accounting vs. management accounting
• 2.2.2 Information asymmetry and principal-agent theory
• 2.2.2.1 Problems of information asymmetry according to the principal-agent theory
• 2.2.2.1.1 Hidden characteristics
• 2.2.2.1.2 Hidden action and hidden information
• 2.2.2.1.3 Hidden intention
• 2.2.2.2 Application of the principal-agent theory on information asymmetry within accounting
• 2.2.2.2.1 Solutions of the issues from the principal-agent theory
• 2.2.2.2.2 Application of accounting on the solutions of the issues of the principal-agent theory
• 2.2.3 Accounting reporting
• 2.2.3.1 Financial reporting vs. business reporting
• 2.2.3.2 Holistic business reporting
• 2.2.4 Internationalisation of accounting
• 2.2.4.1 Accounting choice
• 2.2.4.2 Harmonisation and standardisation of accounting
• 2.2.4.3 International Accounting Standards
• 2.3 Conclusive summary
• 3 Analysis of what information International Accounting Standards / International Financial Reporting Standards accounting provides for a holistic business reporting
• 3.1 Overview of International Accounting Standards / International Financial Reporting Standards
• 3.1.1 International Accounting Standards / International Financial Reporting Standards
• 3.1.2 International Accounting Standards Board
• 3.1.3 International Accounting Standards Board Framework
• 3.2 Information of International Accounting Standards / International Financial Reporting Standards
• 3.2.1 Financial information of International Accounting Standards / International Financial Reporting Standards
• 3.2.1.1 Basic financial information
• 3.2.1.1.1 Balance sheet and statement of changes in equity
• 3.2.1.1.2 Income statement
• 3.2.1.1.3 Cash flow statement
• 3.2.1.2 Consolidated and financial information
• 3.2.1.2.1 Individual financial statement and consolidated financial statement
• 3.2.1.2.2 Interim financial reporting
• 3.2.1.2.3 Segment reporting
• 3.2.2 Non-financial information of International Accounting Standards / International Financial Reporting Standards
• 3.2.2.1 Notes
• 3.2.2.2 Management commentary
• 3.3 Conclusive summary
• 4 Analysis of the decision usefulness of information from holistic business reporting in accordance with International Accounting Standards / International Financial Reporting Standards accounting for corporate governance
• 4.1 Business case
• 4.1.1 Organisational structure
• 4.1.2 Institutionalisation of corporate governance
• 4.1.3 Financial reporting in accordance with International Accounting Standards / International Financial Reporting Standards
• 4.1.3.1 Consolidated financial statement
• 4.1.3.1.1 Consolidated balance sheet
• 4.1.3.1.2 Consolidated statement of changes in equity
• 4.1.3.1.3 Consolidated income statement
• 4.1.3.1.4 Consolidated cash flow statement
• 4.1.3.1.5 Notes to the consolidated financial statement
• 4.1.3.1.5.1 Liquid assets
• 4.1.3.1.5.2 Accounts receivable and other assets
• 4.1.3.1.5.3 Property, plant and equipment
• 4.1.3.1.5.4 Revenue Information
• 4.1.3.1.5.5 Sales and marketing
• 4.1.3.1.5.6 Income taxes
• 4.1.3.1.5.7 Supplementary cash flow information
• 4.1.3.2 Segment report
• 4.1.3.3 Management commentary
• 4.1.3.3.1 Nature of business
• 4.1.3.3.2 Objectives and strategy
• 4.1.3.3.3 Key resources, risks, opportunities and relationships
• 4.1.3.3.4 Results and prospects
• 4.1.3.3.5 Key performance indicators
• 4.2 Information needs of corporate governance
• 4.2.1 Entrepreneurial information needs
• 4.2.1.1 Types of entrepreneurial information
• 4.2.1.2 Supplying the entrepreneurial information needs
• 4.2.2 Environmental information needs
• 4.2.2.1 Types of environmental information
• 4.2.2.2 Supplying the environmental information needs
• 4.2.3 Information needs due to interdependence and comparability
• 4.3 Corporate governance based on holistic business reporting in accordance with International Accounting Standards / International Financial Reporting Standards
• 4.3.1 Supplying the entrepreneurial information needs of corporate governance by holistic business reporting in accordance with International Accounting Standards / International Financial Reporting Standards
• 4.3.2 Supplying the environmental information needs of corporate governance by holistic business reporting in accordance with International Accounting Standards / International Financial Reporting Standards
• 4.3.3 Supplying the information needs of corporate governance due to interdependence and comparability by holistic business reporting in accordance with International Accounting Standards / International Financial Reporting Standards
• 4.4 Conclusive summary

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This thesis aims to critically analyze the information provided by International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) for holistic business reporting. It explores the usefulness of this information for value-based management in relation to corporate governance.

• Corporate governance: This thesis delves into the concept of corporate governance and its different models, including shareholder-oriented, stakeholder-oriented, and integrated systems.
• Accounting and information asymmetry: It examines the role of accounting in addressing information asymmetry, a key issue in the principal-agent theory, and how accounting reporting contributes to better decision-making.
• Holistic business reporting: The thesis focuses on the importance of holistic business reporting that goes beyond traditional financial information, highlighting the role of IAS/IFRS in providing a comprehensive picture.
• Decision usefulness: It analyzes the usefulness of information derived from holistic business reporting in accordance with IAS/IFRS for various stakeholders, particularly for value-based management.
• Information needs of corporate governance: The thesis explores the specific information needs of corporate governance and how holistic business reporting can address these needs, promoting effective decision-making and value creation.

Zusammenfassung der Kapitel (Chapter Summaries)

The first chapter introduces the thesis's objective and outlines its structure. The second chapter provides a comprehensive theoretical background on corporate governance and accounting, highlighting key concepts such as information asymmetry, principal-agent theory, and the importance of holistic business reporting. It also discusses the internationalization of accounting and the development of IAS/IFRS. Chapter three analyzes the information provided by IAS/IFRS for holistic business reporting, covering both financial and non-financial information. This chapter examines specific aspects such as the balance sheet, income statement, cash flow statement, segment reporting, and management commentary. Chapter four delves into the decision usefulness of information derived from holistic business reporting for corporate governance. It explores the specific information needs of corporate governance and how IAS/IFRS-compliant reporting can meet these needs. The chapter analyzes the application of holistic business reporting in a specific business case.

Schlüsselwörter (Keywords)

The main keywords and focus topics of this thesis are: corporate governance, accounting, information asymmetry, principal-agent theory, holistic business reporting, International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), value-based management, decision usefulness, and stakeholder information needs.

Details

• Hochschule: FOM Essen, Hochschule für Oekonomie & Management gemeinnützige GmbH, Hochschulleitung Essen früher Fachhochschule
• Note: 1,7
• Autor: Dipl. Wirt.-Inf. (FH), Dipl. Kfm. (FH), BBA Andreas Schutt (Autor:in)
• Erscheinungsjahr: 2006
• Seiten: 128
• Katalognummer: V92905
• ISBN (eBook): 9783638053136
• ISBN (Buch): 9783638945813
• Sprache: Englisch
• Schlagworte: Corporate IAS/IFRS Reporting Corporate Governance risk compliance IAS accounting holistic business reporting