An examination of voluntary financial instruments disclosures in excess of mandatory requirements by UK FTSE 100 non‐financial firms

Acknowledgements:

The authors would like to thank seminar participants at the British Accounting Association Conference in Dundee (2009), the Financial Reporting and Business Communication Conference in Cardiff (2009), University of Bristol and the University of Exeter who all provided helpful comments on earlier drafts of this paper. A special thanks also to the editors and two anonymous referees for their helpful suggestions and guidance.

Abstract:

Purpose

– The purpose of this paper is to address “the existing literature gap on the information content of derivatives reporting”. Prior work finds failings in compliance with mandatory reporting requirements in respect of financial instruments and derivative financial instruments. Instead of identifying weaknesses in compliance the paper identifies where firms over‐comply or in other words, where firms voluntarily disclose more than they are required and whether this is incremental information or serves another purpose.

Design/methodology/approach

– The paper reviews the financial instruments disclosures of the FTSE 100 non‐financial IFRS 7 compliant firms. Based on these results, on a case‐by‐case basis the authors address potential causes and rationale for this extra disclosure.

Findings

– Prior research suggests that it is counter intuitive to argue that firms will provide voluntary disclosure in a mandatory reporting environment because information of this sort tends to be proprietary and competition sensitive, not to mention costly to prepare. However, it is found that firms have voluntarily published information in excess of the requirements and the authors suggest that this extra detail is most commonly associated with a legitimation strategy.

Originality/value

– In spite of the importance of derivatives usage and management in addition to the increased and often complex reporting requirements, the authors are not aware of any previous study of this type.

Article

1 Introduction

Few disclosure researchers have chosen to investigate financial reporting driven mandatory disclosure. Instead there is a vast and growing body of work investigating voluntary disclosures. In particular, these studies focus on specific unaudited areas of the annual report such as the financial review, chairmans statement and the social, ethical and environmental report. The studies of mandatory disclosure that do exist tend to focus on either audit (failure)/compliance or information value relevance. Our study instead asks two inter‐related questions and answers these issues in a unique way[1]:

[hellip;] do firms voluntarily disclose information in excess of the mandatory requirements; and if so, why, when this information is costly to prepare (time spent and data availability), proprietary in nature, and competition sensitive?

The sample chosen for this study was the non‐financial FTSE 100 firms reporting under International Financial Reporting Standard 7 Financial Instruments: Disclosures (IFRS 7). The Standard became effective for reporting purposes for UK listed group entities for annual periods commencing on or after 1 January 2007 (although early adoption was allowed) (International Accounting Standards Board, 2007). Financial firms were omitted from the sample because of the complexity of their derivatives usage and hedging arrangements which ultimately affects the intricacy and volume of their disclosure practices. FTSE 100 companies were chosen because they are exposed to greater levels of risk, use financial instruments more frequently and disclose more information than other UK firms.

This study makes certain key contributions to the existing literature. First, we find evidence that firms do voluntarily provide information over and above the requirements of IFRS 7. Second, we find empirical evidence that in some parts substantiates prior statistical disclosure modelling papers and in some parts runs contrary to it. We find that there is evidence of voluntary disclosure and that this information holds some incremental value but there is generally a qualifying underlying purpose for this information. Third, we find that within a mandatory reporting environment there is evidence that corroborates legitimacy theory. Finally, we use a novel method to extract and analyse voluntary disclosure that tests whether firms report information above and beyond what is required by IFRS 7.

The remainder of the paper is organised as follows. The next section presents an overview of the previous literature. Section 3 outlines the conceptual framework and methodology adopted in the paper. Section 4 presents and discusses the key issues and results. Section 5 draws some conclusions and sets out the limitations of the study alongside providing some areas and recommendations for further research.

2 Literature

There is a vast body of research investigating disclosure practices and purposes which has been summarised by other commentators (Healy and Palepu, 2001; Verrecchia,

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审查英国富时100指数非金融公司超出强制性要求的自愿金融工具披露

摘要

本文的目的是解决“衍生品报告信息内容存在的文献差距”。先前的工作发现有违反金融工具和衍生金融工具的强制性报告要求。该文件不是确定合规的弱点，而是识别公司过度遵守的地方，或者换句话说，企业自愿披露的内容超过了要求，以及这是增量信息还是用于另一目的。

本文件审查了富时100指数的非财务国际财务报告准则第7号公司披露的金融工具。基于这些结果，作者在个案的基础上解决了这一额外的披露的潜在原因和理由。

先前的研究表明，反驳直觉是企业将在强制性报告环境中提供自愿披露，因为这种信息往往是专有和竞争敏感的，更不用说准备成本高昂。然而，发现企业自愿发布超出要求的信息，作者认为，这种额外的细节最常见于合法化策略。

尽管除了增加和经常复杂的报告要求之外，衍生品使用和管理的重要性，作者并没有意识到任何此前对此类型的研究。

正文

1 简介

很少有披露研究人员选择调查财务报告驱动强制性披露。相反，有大量和不断增加的工作调查自愿披露工作。特别是，这些研究集中在财务审查，主席声明，社会，伦理和环境报告等年度报告的具体未经审计的领域。确实存在的强制性披露的研究往往侧重于审计（失败）/合规性或信息价值相关性。我们的研究要求两个相互关联的问题，并以独特的方式回答这些问题：企业自愿公开超出强制性要求的信息; 如果是这样，为什么这些信息在准备（花费时间和数据可用性）时是昂贵的，具有专有性质和竞争敏感性？

本研究选择的样本是根据国际财务报告准则7“金融工具：披露”（IFRS 7）报告的非财务富时100指数。该标准自2007年1月1日或之后开始的年度期间（尽管早日获得通过）（2007年国际会计准则委员会），为英国上市集团实体报告目的。由于衍生品使用和套期保值安排的复杂性最终影响其披露做法的复杂性和数量，所以金融公司被从样本中省略。选择富时100家公司，因为他们面临更高的风险水平，更频繁地使用金融工具，并披露比其他英国公司更多的信息。

本研究对现有文献作了一些重要贡献。首先，我们发现企业自愿提供超过国际财务报告准则第7号要求的信息。其次，我们发现实证证据表明，在某些方面证实了以前的统计披露模型论文，并且在某些方面与之相反。我们发现有证据显示自愿披露，并且这些信息具有一定的增值价值，但是这个信息通常是合格的基本目的。第三，我们发现在一个强制性的报告环境中，有证据证明了合法性理论。最后，我们使用一种新颖的方法来提取和分析自愿披露，测试企业是否报告超出国际财务报告准则第7号要求的信息。