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Notes to the Financial Statements: Current State and Improvement

Author

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  • Rep Ana

    (The University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia)

Abstract

Background: Prior studies have revealed a disclosure problem in financial statements, primarily in narrative reports. Three main problem areas have been identified: insufficient relevant information, too much irrelevant information, and low-level communication. Micro and small entities face the most difficulties. Objectives: The main objective of this research is to propose a solution to existing disclosure problems to contribute towards improving the quality of financial reporting of smaller entities. Methods/Approach: To improve the reporting model for smaller entities, a survey has been conducted using a structured questionnaire on a sample of non-financial entities registered in Croatia. Based on results interpretations, standardized notes have been proposed. Results: 167 respondents have shared their thoughts about current disclosure issues and possible improvements, showing their awareness of disclosure problems and willingness for change. Given their opinions, the proposal has been made. Conclusions: The main contribution of the paper is the creation of a proposal for standardized, integrated, and digitalized notes to the financial statements based on the principle of materiality, primarily addressed to micro but also small entities from the non-financial sector. The paper extends previous proposals which did not focus on their structure and digitalization.

Suggested Citation

  • Rep Ana, 2021. "Notes to the Financial Statements: Current State and Improvement," Business Systems Research, Sciendo, vol. 12(2), pages 60-78, December.
    • Handle: RePEc:bit:bsrysr:v:12:y:2021:i:2:p:60-78:n:6
    DOI: 10.2478/bsrj-2021-0019
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    References listed on IDEAS

    as
    1. Niclas Hellman & Jordi Carenys & Soledad Moya Gutierrez, 2018. "Introducing More IFRS Principles of Disclosure – Will the Poor Disclosers Improve?," Accounting in Europe, Taylor & Francis Journals, vol. 15(2), pages 242-321, May.
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    4. Ayman E. Haddad & Fatima Baalbaki Shibly & Ruwaidah Haddad, 2020. "Voluntary disclosure of accounting ratios and firm-specific characteristics: the case of GCC," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 18(2), pages 301-324, February.
    5. R. H. Parker, 1996. "Harmonizing the notes in the UK and France: a case study in de jure harmonization," European Accounting Review, Taylor & Francis Journals, vol. 5(2), pages 317-337.
    6. Adriana Galant & Ksenija Cerne, 2017. "Non-Financial Reporting in Croatia: Current Trends Analysis and Future Perspectives," Management, University of Primorska, Faculty of Management Koper, vol. 12(1), pages 41-58.
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    8. repec:cii:cepiei:2011-q4-128-1 is not listed on IDEAS
    9. Richard Barker & Elisabetta Barone & Jacqueline Birt & Ann Gaeremynck & Anne Mcgeachin & Jan Marton & Rucsandra Moldovan, 2013. "Response of the EAA FRSC to the EFRAG/ANC/FRC Discussion Paper: Towards a Disclosure Framework for the Notes," Accounting in Europe, Taylor & Francis Journals, vol. 10(1), pages 1-26, June.
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    More about this item

    Keywords

    disclosure problems; financial statements; notes; micro and small entities; standardization; integration; digitalization; the principle of materiality;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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