7.2 Perceptions of key actors on the use of financial reporting information and the impact
7.2.3 Perspectives from the users of financial statements
It is an important role of financial statements that they reproduce an image, which represents a constructed and specific reality, whose meaning does not exist in a social and power vacuum, but rather provides evidence in terms of ‘financial information for whom and for what’. Evidence regarding the users of information obtained from financial statements allows for a more thorough understanding of the actual audience for financial reporting information.
One of the initial interview questions raised related to interviewees’ perceptions about who they consider to be the people or institutions that actually read a company’s financial statements. In many cases, the immediate response was ‘you mean the users of the financial statements?’ thereby setting the discussion indirectly into the decision-usefulness conceptual context. Although perceptions about who reads companies’ financial accounting reports were diverse, opinions varied depending on the size of the companies and the role of each interviewee; a broad list of potential readers of financial statements emerged. These can be roughly grouped into internal users, including the manager-owners of the company, internal auditors, general members of the companies’ administration and, external users. The second group included (potential) investors, creditors, government agencies and regulators, competitors, customers, suppliers and employees.
Investors were considered a narrow group, since, the size of companies and the lack of a developed and active financial market in Greece meant that companies do not have multiple shareholders. Companies, usually have a single shareholder (who is either the owner or a family member) who uses financial statements as a guide to investment decisions. Other investment vehicles, in the form of mutual funds, were rarely mentioned. The investors’
group comprises investors’ advisors, and particularly financial analysts, working for investment institutions. Analysts extract information from financial reports to express an opinion or make recommendations that may possibly influence investors in their decision- making. Similarly, rating agencies responsible for assigning credit ratings for debt issuers, in
132
terms of their business and financial risks are also considered as users of the companies’
financial statements.
On the other hand, creditors as capital providers, hold an important position in the users list.
Within this group banks are considered the main users of companies’ published financial statements; they are aptly described as ‘being an essential part of the company’s capital’, while according to a CFO ‘it could be said that the banks are actually the shareholders of Greek companies’. The dependence of companies on banks for the provision of funding resources was justified on the grounds of a less active stock market and its significant decline following the bursting of the Stock Market Bubble in the early 2000s.
Statutory users of financial reports include government agencies and regulators, such as, the tax authorities (Ministry of Finance), the Hellenic Capital Market Commission (HCMC) and Athens Stock Exchange (ASE). The Greek state, through the Ministry of Finance and relevant tax authorities will be discussed later; as recipients of financial information play a determining role in shaping the financial information presented in a companies’ reports, justifying the notions of international accounting literature of tax-oriented accounting practice. Tax authorities are not included as the main users of IFRSs financial statements, since companies have to prepare two sets of accounts, one for financial reporting purposes according to the IFRSs and one for tax purposes following the prescriptions of the GGAP and other relevant legislation.
External auditors are part of the users’ group; they are users performing financial audits as prescribed by law for a category of (larger) companies. Part of the project of modernisation was the privatisation or liberalisation of the auditing function in the 1990s and the emergence of the Big Four audit firms, as auditing was mainly a public task. The Big Four undertook the auditing of the largest companies, together with SOEL (Soma Orkoton Elengton-Logiston), which was established after the abolition of the state auditing body, SOL (Soma Orkoton Logiston). The role of auditors in preparing financial statements as external auditors, to achieve compliance with IFRSs, was considerable. A common remark made was that auditors were essentially preparing annual reports, especially during the initial years of the IFRSs adoption. The fact that auditors are preparing the annual accounts raises interesting questions regarding auditor independence. Interviewees’ experience and claims (including auditors of the Big Four) seem to confirm that external auditors’ involvement in the preparation of annual reports calls into question the efficiency and independence of the auditing process.
133
The same auditors that are appointed to deliver audits may also provide advice on accounting treatments and the compilation of the financial statements. Auditors are directly remunerated by auditees, and auditing firms are also driven by commercial incentives, which means that on occasion they may not be willing to go against the interests of executive directors. As will be discussed later, many directors are more willing to ‘listen to the tax man’ than to try to implement IFRSs in an appropriate manner, which inevitably leads to serious concerns about the quality and comparability of companies’ reports or their claims to be serving the public interest.
Another user group mentioned was managers interested in their main competitor’s financial reports. It seems, however, that companies rarely look at the financial reports of suppliers or clients, apart as individual cases; for instance, for mediating concerns over a vital client or supplier for a company’s operations. Suppliers and clients were occasionally identified as external users, mainly by chief accountants rather than the manager-owners or the CFOs.
‘As far as clients and suppliers are concerned, I don’t think they bother. Suppliers are interested in making sure that a company gives them checks, this is what they care about. As a chief accountant I am interested, for example, in whether our clients pay well and by the due date. It is very important that the checks do not result in protests, something which happens quite often recently...’ [ACT1]
The above comment suggests that the interviewees’ perceptions of potential users are influenced by who they think the users are in ‘theory’ and/or as proclaimed by the state, the profession and the standard-setting bodies, rather than explicitly identifying them in a Greek context. It appears that communication between companies and their suppliers and clients is mainly achieved through personal contact, and is based on relations of trust that have developed throughout the period of their cooperation. Moreover, in many cases, major suppliers and clients are large in number and small in size, resulting in a limited body of public financial information being disclosed. One of the interviewees, for example, defines and separates users into those that exist in ‘theory’ and those that exist in practice, based on the ‘Greek reality’ [MA3].
Employees are mentioned rarely as being a group interested in examining the financial statements of the company by which they are employed. One auditor reported that employees seek information about the financial viability of a company in order to provide ‘some assurance’ about their future employment [AUD3]. He had to acknowledge, nevertheless, that
134
this claim is mainly a theoretical assumption, since, based on his experience, the majority of employees were not in a position to understand the financial information included in the financial reports, especially after the adoption of the IFRSs. Similarly, there was no notion of a broader accountability to the ‘public’ or the social groups affected by the operations and resource allocation decisions made by companies and affecting the national economy.
The perceptions of interviewees about the users of the financial reports referred to financial information without specifying whether it was prepared according to the GGAP or the IFRSs.
The group of users identified became narrower as the size of the companies reduced and the accounting disclosure requirements became simplified. Non-publicly listed companies’
financial reports are mainly used by a company’s management, banks and tax authorities and less by investors, customers, suppliers and employees. Thus, actual users are fewer than pronounced by standard setters, regulators or the accounting research on potential users.
Simply, users other than investors, banks, tax authorities, auditors and, partially, the management of the company lack the appropriate and necessary technical knowledge and education to comprehend or analyse financial reports. With the adoption of the IFRSs, a wider user group is restricted to a narrower group of IFRSs knowledgeable individuals and
‘IFRSs experts’. Perceptions on the use of financial reporting information and the impact of the IFRSs on the performance of the key actors’ roles are explored in the next section.