The Concept of Corporate Reporting and Audit Quality

The Concept of Corporate Reporting and Audit Quality

George Silviu Cordoș (Babeş-Bolyai University, Romania), Melinda Timea Fülöp (Babeş-Bolyai University, Romania) and Nicolae Măgdaș (Babeş-Bolyai University, Romania)
Copyright: © 2020 |Pages: 21
DOI: 10.4018/978-1-7998-0178-8.ch014
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The responsibility of auditors is a controversial topic that has brought much debate amongst academics and experts alike in recent years. This chapter's aim is to set the framework in which audit reporting exists: part of the wider landscape of corporate reporting and the final fragment of the sphere of the financial statements audit quality. By using a general-to-specific deductive approach, the authors discuss the international and European perspectives on the process of financial statement audits, as well as the stakeholders or audit and audit reporting, in order to clearly define the regulatory space in which any changes in this field occur. The authors also discuss the theories that explain the process of audit reporting, with an emphasis on the lending credibility theory, the inspired confidence theory, and the sociology of education theory. The authors consider that these theories explain the improvements undertaken to improve the communicative value of the audit quality.
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The Concept Of Corporate Reporting

Corporate reporting is the concept that connects the company to its stakeholders. Audit reporting is part of corporate reporting, along with financial reporting, corporate governance, corporate responsibility, integrated reporting and others.

Taking these elements into account, the objective of the chapter is to set the framework of audit reporting, as part of the larger sphere of corporate reporting, while analysing its strong link to corporate governance and, in particular, to the transparency principle. By using a general to specific deductive approach, we start our analysis from the concept of corporate reporting, taking into consideration the insights provided by academic research and professional organisations. Another part of this chapter is to provide a starting point to auditing theories that explain the objectives and outcomes of our research.

Corporate reporting is a company’s means of communication with stakeholders, as part of their accountability and stewardship obligations (FEE, 2015). The meaning of corporate reporting is in a continuous transformation, as Professor Mervyn E. King posits: “corporate reporting is not what is used to be” (Centre for Tomorrow’s Company, 2011). Some possible explanations for this statement are exposed subsequently. The economic world has changed in the last decade. Financial scandals have had an adverse effect on the confidence and perception of the stakeholders regarding the figures provided by reports – financial and audit reports equally. Around 80% of investors are looking for better reporting quality, because the company’s reporting quality has an unswerving impact on their investment decisions (PwC, 2014). Thus, although the auditor still focuses on the financial statements, whether they provide a”true and fair view of the company’s financial position, the communicative value of the audit report has significantly improved in recent years. And it is all because of the trend of changes in the corporate reporting framework, with the purpose of better fulfilling the needs of stakeholders.”

Key Terms in this Chapter

Key Audit Matters (KAM): Those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from matters communicated with those charged with governance.

Financial Reporting: At the core of the corporate reporting model is the financial reporting model, consisting of financial statements and accompanying notes that comply with generally accepted accounting principles (GAAP).

Financial Statements: Are written records that convey the business activities and the financial performance of a company.

Corporate Reporting: Is the concept that connects the company to its stakeholders. Audit reporting is part of corporate reporting, along with financial reporting, corporate governance, corporate responsibility, integrated reporting, and others.

Corporate Governance: The processes by which companies are directed and controlled. Levels of disclosure differ worldwide but might include information on board composition and development, accountability and audit and relations with shareholders.

Financial Statement Audit: Is the examination of an entity's financial statements and accompanying disclosures by an independent auditor.

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