Discussion on Information Classification and Presentation Recognized

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Discussion on Information Classification and Presentation Recognized
of Voluntary Accounting Information of Listed Company①
QI Xuan, HE Xianmao
School of Business, Tianjin University of Commerce, P.R.China, 300134
[email protected]
Abstract: This paper analyzes the necessity of distinguishing voluntary accounting information of listed
company from mandatory accounting information firstly. Second, it points out the shortcut about
distinguishing voluntary accounting information which can be called information classification and
presentation recognized. Third, combining with the author’s unscrambling of Standards for Content and
Format of Information Disclosure of Companies Issuing Securities Publicly No.2- Annual Report
Content and Format, the paper categorizes voluntary accounting information into four groups. Finally,
the paper suggests adding content and corresponding format of voluntary accounting information
disclosure into Standards for Content and Format of Information Disclosure of Companies Issuing
Securities Publicly No.2- Annual Report Content and Format.
Keywords: Listed Company, Accounting Information, Voluntary Accounting Information
Although the appraisal of information disclosure from Shenzhen Stock Exchange indicates that the
quality of voluntary accounting information of listed company in China is improving, disclosure status
is still not very good on the whole. The main expression are insufficiency of quantity, arbitrariness of
contents, inconsistent formatting and coexisting of inadequateness of most available information and
surplus of unavailable information. Many scholars proposed lots of measures to solve these problems,
such as: establishing manager market based on reputation mechanism and ex-post punishment
mechanism based on laws (Wang Xiongyuan, 2005); making company information very important to
investor decision-making by perfecting refinancing mechanism and creating investment context (Zhang
Xujun, 2006); strengthening guiding to voluntary information disclosure, perfecting exemption system
and civil compensation of information disclosure, perfecting corporate governance structure and
intensify external supervision (Chen Guohui etc, 2009). This paper will discuss the feasibility of
strengthening voluntary accounting information disclosure of listed company from the standpoint of
information classification and presentation recognized of voluntary accounting information of listed
company in China.
1 Accounting Information Users Need to Distinguish Voluntary Accounting
Information
Voluntary accounting information is accounting information disclosed by listed company actively,
timely and accurately outside what security regulator has stated and those that has be stated by security
regulator while listed company has partly autonomy right in disclosure (Qi Xuan,2009). The most
essential feature of voluntary accounting information disclosure is that management has autonomy right
in disclosure. They can determine whether to disclose, the content of disclosure and the disclosure
position in annual report. At present, the content and format of annual report is compiled by the
document Standards for Content and Format of Information Disclosure of Companies Issuing Securities
①
Project: This paper is the periodical achievement of The 6th Round of Development in Characteristic
Specializations for Tertiary Education (Project Code: TS11882, Major: Financial Management, Research Duration:
May, 2010 –Dec, 2012); The Development in Branding Specializations for Tertiary Education in Tianjin (Project
Code: No. 147, 2010; Major: Financial Management; Research Duration: May, 2010 –Dec, 2012)
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Publicly No.2 –Annual Report Content and Format (using Annual Report Content and Format as the
abbreviation in the following) which was issued by China Securities Regulatory Commission (CSRC) in
2007. Most annual report of listed company contain 12 sections including important notes, company
introduction, abstract on accounting data and business data, and changes in number of shares and
composition of shareholders etc②. Voluntary accounting information was not presented in annual report
individually, but mingled with mandatory information. Even the words “voluntary accounting
information” cannot be found in most annual reports.
So, is it necessary to distinguish voluntary accounting information from mandatory accounting
information for the accounting information users? Yes, it is. It has three advantages at least to
distinguish voluntary accounting information:
1.1 Exploiting the value of voluntary accounting information better
Mandatory accounting information must be disclosed as rules and regulations stipulated no matter it are
good or bad. It will be punished by regulator if the listed company does not disclose. But voluntary
accounting information disclosure is the result of even game between company and stakeholders. The
primary motive for voluntary accounting information disclosure is to contribute more benefit to the
company or decrease the losses. So, listed company hope accounting information users pay more
attention on voluntary accounting information which can bring unexpected benefit to these users.
1.2 Enabling accounting information users draw a comparison among different companies
Signal Theory states that companies with good performance have powerful motivation to disclose
voluntary accounting information to distinguish from companies with medium and bad performance. It
can help accounting information users realize the advantages of listed company and it will be propitious
to the accounting information users to draw a horizontal comparison among different companies in the
same industry after distinguishing voluntary accounting information.
1.3 Prompting listed company to disclose more accounting information voluntarily
Voluntary accounting information will be read as same as mandatory accounting information by
accounting information users if they are not distinguished from the sea of mandatory accounting
information. Accounting information users will find companies which don’t want to disclose extra
accounting information easily and grow a prejudice against them if they are distinguished, that is, they
have bad news and try to conceal bad news no matter they really have or not. The prejudice may cripple
the performance of company stocks in security market. So, they will disclose more accounting
information voluntarily to remove accounting information users’ prejudice unless they don’t mind to
accept it.
2 A Shortcut to Distinguish Voluntary Accounting Information: Information
Classification and Presentation Recognized of Voluntary Accounting Information
It is well known that voluntary accounting information is accounting information that listed company
disclose voluntarily besides mandatory accounting information disclosure. It can disclose accounting
information besides current rules and regulations have been stipulated through activities and patterns
from investor relations management. Annual Report Content and Format stipulated in detail what
should (shall) be disclosed in annual report. The content that is not required disclosing mandatory in
Annual Report Content and Format will belong to voluntary disclosure category.
② Some companies may have specific changes. For example, 2010 annual report of Shenfazhan A compares to other
companies increased two sections including management discussion and analysis, the board and CEO recognized
written opinion about the annual report of 2010, so it contains 14 sections. Wanke A has no document for future
reference. While some has not list important prompt as a separate section, so it may contain only 11 sections.
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For example, BOD report of annual report 2010 of Juhua(600160) discloses information about
“technology innovation and energy saving & environment protection” which is not stipulated by Annual
Report Content and Format. So this information belongs to voluntary accounting information of Juhua.
As annual report has seventy or eighty pages to two hundred pages, it is impractical for accounting
information users themselves to distinguish voluntary accounting information against Annual Report
Content and Format item by item, even they can, the cost must be very high.
In view of this, the author suggests to add the thirteenth section. Collecting voluntary accounting
information scattering over the former twelve sections and then presents them in the thirteenth section
according to its content with corresponding format. Concrete assumption is as follows:
2.1 Copy, not cut
Many voluntary accounting information and mandatory accounting information are continuous. For
example, the establishment and improvement of internal control policy is mandatory accounting
information while self-appraisal of internal control policy is voluntary accounting information.
Obviously, it is rational to disclose them together. In order not to disrupt this continuity, we can disclose
voluntary accounting information which has been disclosed in the former twelve sections in the
thirteenth section the second time. That is just copy them to the thirteenth section, not cut. It won’t
increase too much cost for that as the compiler of annual report, listed company knows which
information is voluntary accounting information and which information is mandatory accounting
information clearly. The only thing they need to do is just copy and paste according to the specific
format.
2.2 Classifying voluntary accounting information by content
There are many standards used in the classification of accounting information, such as relevance,
reliability and content etc. It maybe very difficult to classify accounting information by relevance as
each accounting information user needs different related information. It is not reliable to classify by
reliability for that reliability of many information cannot be checked easily. The author finds that most
scholars classify voluntary accounting information by content when carding literature about voluntary
accounting information disclosure. For example, FASB steering committee classifies voluntary
accounting information into six categories: business data, management’s analysis of business data,
forward-looking information, information about management and shareholders, background about
company and information about unrecognized intangible assets. Qi Xuan (2009) classifies voluntary
accounting information into eight first grade indexes: background about company, reviews of financial
status, forward-looking accounting information, social responsibility accounting information, R&D
information, foreign exchange information, stock price information and fluctuation of price. Guo Wei
etc.(2010) classify voluntary accounting information into five first grade indexes: corporate governance
information, social information, market information, earnings information and managements' discussion
and analysis, which can be further divided into twenty three second indexes. The author’s view on the
content of voluntary accounting information will be set forth at the final part of this paper.
2.3 Setting a classification item “the others”
The content of voluntary accounting information can’t belong to the mandatory accounting information.
But it hasn’t and can’t be restricted what voluntary accounting information particularly contains. If we
do not adopt the classification method of “right and wrong” (for example, dividing accounting
information into financial information and non-financial information), we had better set a classification
item “the others” to generalize all possible voluntary accounting information. Someone may think that
we can generalize all voluntary accounting information via reading all published annual reports. But this
can just generalize the past voluntary accounting information. We can not forecast the voluntary
accounting information in the future as it will vary with economy, society, culture and the demand of
accounting information users. So it is a good choice to set a classification item “the others” to generalize
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those voluntary accounting information that may appear but will not have a high probability. Thus, the
author puts uncommon voluntary accounting information into “the others” after listing the common
voluntary accounting information.
3 Supplementary Understanding of Standards for Content and Format of
Information Disclosure of Companies Issuing Securities Publicly No.2- Annual
Report Content and Format
Most scholars study voluntary accounting information disclosure on the basis of their understandings of
Standards for Content and Format of Information Disclosure of Companies Issuing Securities Publicly
No.2- Annual Report Content and Format. The author’s supplementary understanding is as follows:
3.1 “Includable” item and “hortative” item
Voluntary accounting information include the content that is not mentioned in Annual Report Content
and Format or it is mentioned but just stated by gentle words “includable” and “hortative”. “includable”
means that the company can choose itself voluntarily and so does “hortative”. There are seven
“includable” items and one “hortative” item according to the author’s statistics③. These all belong to
voluntary accounting information.
3.2 Business plan and development strategy of company
Many scholars think that business plan and development strategy of company are belong to voluntary
accounting information. While the author thinks that these are mandatory accounting information
disclosure after unscrambling the article 33 “prospect of the company’s future” of Annual Report
Content and Format.
3.3 Analysis of future development trend of its industry and competition situation it facing to
Hou Lixin etc. (2010) categorize this information into voluntary accounting information. But article 33
of Annual Report Content and Format stipulates that company should analyze future development trend
of its industry and competition situation it facing to combining with the company review status. Thus,
the author thinks that this information should be categorized into mandatory accounting information.
3.4 Risk facing in the future of the company and countermeasures
Unlike those who categorize both risk facing in the future of the company and countermeasures into
voluntary accounting information, the author thinks that risk facing in the future of the company should
belong to mandatory accounting information while countermeasures has been adopted or will be
adopted belong to voluntary accounting information on the basis of unscrambling on the fourth items in
article 33 of Annual Report Content and Format.
4 Proposal on Content and Format of Information Classification and
Presentation Recognized of Voluntary Accounting Information of Listed
Company
On the basis of carding literature about voluntary accounting information disclosure and unscrambling
of Annual Report Content and Format, the author classifies voluntary accounting information into four
categories: information reflecting company itself, information reflecting the relationship between
company and society, information reflecting the relationship between company and market and other
③ Please see article10, 30, 33 of Standards For Content and Format Of Information Disclosure Of Companies
Issuing Securities Publicly No.2- Annual report Content and Format.
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voluntary accounting information which do not belong to the former three categories. The author put
forward to add a new section about the content and format of voluntary accounting information in
Annual Report Content and Format. Voluntary accounting information disclosure should lies in the final
section of annual report, namely that is article56 sections13 chapter2 after sections12 the document for
future reference. Detailed content and format is as follows:
Section13: Aggregation of voluntary accounting information
Article56: Company should collect all voluntary accounting information scattered over the former
twelve sections and present them in this section the second time; other voluntary accounting information
which hasn’t been disclosed in the former twelve sections should also be presented in this section. What
can be disclosed is as follows:
4.1 Self-appraisal of internal control policy, internal audit, capital expenditure, R&D cost, dividend
payout policy, employee training cost, technological innovation and new product, capacity utilization,
changes of chief technical personnel; other information reflecting company itself.
4.2 Social responsibility accounting information about environmental protection and resource utilization,
energy saving and pollutant reducing, commonweal activity including donation cost, medical treatment
cost and education cost, safety in production, other information reflecting the relationship between
company and society.
4.3 Market movement of main business; changes of the structure of operating cost; output, sales volume
and market share of main products; earnings forecast; measures for the risk facing of the company; price
changes and exchange rate fluctuation; continuity and stability of operating capacity and profitability;
order acquisition; product quality and client relations; other information reflecting the relationship
between company and market.
4.4 Other voluntary accounting information which do not belong to the former three categories.
5
Conclusion
，
Nowadays voluntary accounting information serves as a supporting role in information disclosure of
listed company in China, while its positive function cannot be neglect. Annual Report Content and
Format from CSRC stipulates mandatory information disclosure explicitly and inflexibly. In order to
pull the advantage of voluntary accounting information disclosure into full play, we can try to stipulate
voluntary accounting information disclosure in Annual Report Content and Format flexibly, that is, do
not stipulate what should be disclosed, but stipulate where should be disclosed. This will not betray the
character of “voluntary”. The author proposes that all voluntary accounting information scattered over
the former twelve sections and other voluntary accounting information which hasn’t been disclosed in
the former twelve sections should be collected and presented in this last section of annual report. This is
not just string them together, but should classify them properly. There are two limitations of this paper
and deserve further discussion although the author classifies voluntary accounting information at the end
of this paper. First, scholars pay more attention on voluntary information disclosure but few of them
focus on voluntary accounting information disclosure. A distinct definition of voluntary accounting
information needs further study. Second, we can never forecast the voluntary accounting information in
the future as it will vary with economy, society, culture and the demand of accounting information users.
And for this matter, classification needs changing at the same time.
Author in brief and Contact information:
Qi Xuan (1970- ), female, Tianjinese, Associate Professor of School of Business of Tianjin University of
Commerce, Deputy Dean of International Education School of Tianjin University of Commerce, PhD of
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Tianjin University of Finance and Economics, research orientation: accounting theory. Email:
[email protected];
He Xianmao (1990- ), male, Jiujiangnese of Jiangxi Province, postgraduate candidates, research
orientation: accounting theory. Email: [email protected].
References
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[2]. Wang Xiongyuan. Voluntary Information Disclosures: Information Rent and Regulation,
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[3]. Zhang Xujun. Discussion on Value of Voluntary Information Disclosure, Finance and Economy, 10
(2006): p93~94 (in Chinese)
[4]. Chen Guohui and Han Haiwen. Analysis of the Current Situation of Voluntary Information
Disclosure and Countermeasures, Financial Supervision, 10 (2009): p11 (in Chinese)
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[6]. Guowei and Deliger. Empirical Study on Influencing Factors of Voluntary Information Disclosure
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