The objective of financial statements is to provide the necessary information to users in making important decisions. Their publication ensures transparency of full data and plays an important role in developing international capital market constituting thus one of the most important factors in setting market rules. The liberalization of financial and capital markets increased the need of using information as a means for providing their stability.
During the last decade, publication and transparency of financial statements is one of the most argued topics in the economic policies, but this matter did not have the proper attention in Albania.
Implementation of International Accounting Standards in Albania is only the beginning of a challenge which conveys problems in publication aspect and the quality of accounting information.
Through this paper, we shall present some issues related to the importance of publication and transparency of financial statements, identify the problems related to them and the measures to be taken for concrete solutions ensuring the user that the information presented on the financial statements meets the qualities required from the standards.
Publication and transparency of financial statements will be the main factor in opening and function of capital markets and growth of investments in Albania in the European integration process.
Key words: Financial statements, transparency, accounting information, publication, International Financial Reporting Standards (IFRS)
It is reasonable to argue that in recent years accounting, auditing and control have attracted considerable attention through a higher awareness raising in the business environment as well as in the structures of professional organizations aiming the improvement of the quality of financial reporting and presentation of legislation requirements. Comprehensive efforts make us optimistic in acknowledging that Albanian accounting is taking important steps toward the European Union as part of the international accounting arena. This material is addressed to a series of important issues of publication and transparency of financial reporting, for serving the investors, lenders and other creditors and audits as well. Without underestimating the achieved results, some problems are critically focused on in order to stimulate more opinions and discussions on financial reporting knowing thus the importance of international consensus on quality and transparency issues of accounting information.
The paper relies on the analysis of the specific literature on financial reporting as the study of actual legislation on accounting. The paper is theoretical in nature. By analyzing the actual situation and its problems, we are able to submit concrete development suggestions as the only way in achieving the European Standards.
Economic role of accounting information transparency could be considered as:
A means for increasing the interior discipline of the best management.
Opportunities and ways for improvement in forecasts and predictions resulting in increased effectiveness of the economic decision-making.
Imposition to institutions to face the reality improving thus the quality of the decision-making.
A way to make the responsible persons more conscious knowing that latter it will need to justify their decisions.
If actions and decisions of individuals are clear then the expenses of their control will decrease. Therefore, the society will be able to monitor better the public institutions, shareholders and respective unit managers will be able to monitor the activity and the creditors would affect the borrowers. As a result, law breakers and unjustifiable decisions will be unidentifiable with no adequate reactions.
During the last decade transparency and accounting are disputed issues in professional circles. These disputes are mainly related to the secrecy of accounting information. On one hand, the secrecy is considered a necessary condition for retaining power, and a precedence in hiding the economic policies. On the other hand, secrecy is considered a barrier toward achieving the needed results.
Changes in the world economy and financial flows brought an increase in reciprocal international relations foregrounding the transparency issues in managing the economic policies.
Considering that ensuring the accounting information is very important for the development and stability of capital markets, regulatory bodies of different countries prioritize the quality of this information. Increasing the demand for qualitative information from participants in operating markets, has made aware regulatory bodies on one hand and companies on the other taking thus measures for improving the information systems. This is the way how foundations of the reputation of the companies offering high quality information are established.
IFRS emphasize that qualitative characteristics are those that make accounting information useful to users. Their completion results in a real and sincere reflection of a company’s situation. If it is missing, the management has not a clear view of the financial panorama of its own company. In service of qualitative characteristics we stress that:
Accounting information should be important, affecting thus the decisions of users helping them in assessing the past, present and future events through confirmations and coordination of prior assessment. Practical importance of accounting information is affected from 2 factors:
The way of presentation
In this point, we will have to consider that the excessive flow of accounting information may interfere in the rational decision making of its users.
2. Accounting information should be reliable without avoidances and mistakes. The main aspects of this quality are provided through implementation of the following principles:
- Loyal presentation
- Precedence of essence above form
- Care and entirety.
3. Information should be presented time-comparable giving a chance to its users to compare the financial statements of a certain unit in order to identify the tendencies of financial position and the performance implementing thus the principle of method sustainability.
4. Information should be easily comprehensible from its users.
Transparency has to do with establishing such environment where accounting information is reachable for all market participants. In our opinion, information publication is based on these four factors:
Existence of Accounting Standards;
Existence of a suitable methodology for announcement;
Simultaneous distribution of this information;
Provision of equal access to all interested users.
As far as International Accounting Standards are concerned, we are witnesses of ongoing changes toward their improvement. The legislative framework on financial reporting recently has evolved considerably. Implementation of IFRS in Albania is not only a necessity for increasing publications and transparency, but it poses a duty and an unavoidable challenge to face toward the European integration and wider. In such a regulatory dynamic international environment their application contributes in increasing transparency in service of market actors.
The advantage of implementing IFRS in Albania not only reduces the capital costs, realizes easier international transactions, but the published and transparent information is improved related to decision making. It is more reliable and clear. Implementation of IFRS has advantages to other users, increasing thus the control in a better implementation of regulations, higher standards of financial information, better skills in attracting and motivating foreign companies, higher credibility to financial professionals, increase of transparency of companies through improved reports, etc.
The International Accounting Standards Committee (IASC) prepared the frame for presenting the financial statements. This frame is necessary to respond to the new strategy of European Union including:
Operation of interior market of financial services;
Investors’ protection and increase of credibility in financial markets;
Transparency and comparability of financial statements of the companies that operate in stock markets.
Transparency is necessary for three larger groups which are users of accounting information: creditors, investors, government and its agencies. Transparency and accountability complement one another. Transparency increases the accountability whereas accountability increases transparency by making its users to understand the relation among them. Transparency and accountability will:
Increase the discipline increasing in the same time the quality of decision making in the public sector
Result in determining more efficient policies
Transparency and accountability are disposed to contribute the progress of results from economic activities and improve the work of international financial markets raising thus the quality of decision making and risk management for all market participants. Despite the help they give, they do not solve problems and more specifically:
- Firstly, they do not change the character of risks which are present in financial systems;
- Secondly they cannot prevent financial crisis, but can soften the final conclusion related to the crisis. Besides, transparency helps them to accept negative events, minimizing thus the opportunities for panic and inadequate reactions.
Transparency of financial statements is provided through full, reliable and clear publication of financial statements which could be easily interpreted. In the context of a clear presentation, it is better not to display such information than give one which is untrue and false. Therefore, if companies do not comply with the specific reporting demands of IFRS, explanations on inconsistency causes are required. Also, we have to handle one more problem related to transparency and confidentiality. Publication of information which presents commercial secrecy could provide unjust priorities to competitors. These circumstances limit business in publishing full information. For this reason, monitoring bodies often get this confidential information from companies. Presentation of information in this way could have serious effects on market. Given these conditions, units are not disposed to present important information without setting the confidentiality condition. The financial reporting process includes other stages of decision making, limiting thus the amount of provided information. Limitations could be described as follows:
Delays in presenting information could be hopeful as far as practical aspect is concerned.
Generated profits from the information could exceed the expenses level.
Net profits from increasing the transparency should be carefully evaluated and while determining the publication criteria their usefulness should be considered for the community compared to expenses incurred from the economic unit.
To achieve the financial reporting goals after the environment. Individuals that present the information should establish a balance among the above mentioned characteristics.
Presentation in the right time of the accounting information is one of the most important factors for the users. Even if it is complete and reliable, would not make the right effect if not presented in the right time. And the last but not the least we would qualify the equal access opportunity to all the interested persons in this information.
Availability of financial published information is pretty much limited in here. Although, Chapter III, Article 16 of Law Nr.9228, on accounting and financial statements - “Submission and publication of financial statements” regulates this problem, still publication of financial statements in Albania has not been considered as it should. The actual demands for submission and publication of financial statements are not complying with the best international practices in this field such as requirements of the First, Fourth and Seventh Directive of EU of the Law on Trade Societies.
Lack of financial statements publications according the rules, form and content makes them to serve special interests. Lack of confidence in public institutions makes it impossible and unwilling to change the existing situation. In our opinion, the problem with FS publication is due to several main causes:
Domination of “wrong market ideology” which means that everything could be bought and economic units could be motivated only from personal interests.
Presence of continental tradition which prioritize the content to form and not the real and clear presentation.
Lack of public attitude to FS publication.
Insufficient and inadequate relations of the tax system with the FS publication problems.
Insufficient authority from accountants and audits as well.
We could list here other causes on actual practice of publishing annual statements in Albania. The most important of them is that if the same practice goes on publication and transparency, government has not worked as it should, regardless of sanctions provided by law in breaking the transparency criteria. In order this practice changes, it is necessary to throw light on the theoretical and legal basis on important publication issues.
CONCLUSIONS AND RECCOMENDATIONS
As the above, there are three main types of problems we can identify related to information publication:
Units do not wish to publish in the right place and time the information related to their financial situation.
Users of FS information in Albania are not focused on common goal and advantage of the publication.
Government is unable to find the right way to solve the problem.
Solutions could be reduced into two main categories:
Government must stimulate the stakeholders who are users of the accounting information that generate new ideas to the commonweal;
Establishment of administrative legal obstacles to units (not only fines and sanctions) which refuse the financial reporting and publishing.
Here we should answer the question: What is the government doing concerning the FS publication?
In answering this question, we are making our proposals related to measures to be taken in solving the problem:
1. Stimulation of units to publish FS and important information related to them.
2. More serious involvement from financial experts registered in verifying the information displayed on FS and accountant policies used from the unit.
3. Strengthening of the information users’ role in improving the publication quality.
4. Certification of specialized magazines which related to FS publication in order that the whole information is available, comprehensible, clear and timely to all market stakeholders;
5. Publication in media of professional disputes on problems of publication the FS information.
These measures, we think, will provide sufficient access to information users and will result in:
Exposal of argued judgments related to their content;
Sometimes pointing out the weaknesses, but they are useful in developing the publishing position;
Efforts to understand the accounting information from a wider circle of users and building competencies and knowledge in them;
Compliance of the society in general with logical aspects of the economic development.
One thing that FS publication needs is the transparency and strengthening of the relation between financial information of the unit and its users. Through this paper we would like to attract the attention for professional disputes related to publication and transparency of FS in Albania.
Of course, these issues could be seen even in other viewpoints and interpretations.
Hopping for an application of a financial reporting system with higher standards, adequate decision will be made concerning the publication and the transparency of financial statement information in order to balance the interests of many users.
International Federation of Accountants, (2006) Handbook of international auditing, assurance and ethics pronouncements
Law on Independent Financial Audit, Organizing the Profession of Certified Public Accountant and Registered Accountant (2009) Tirana. Albania
National Accounting Standards (2008)- Albania.
IEKA, Magazine „Finance, Accounting, Audit” Albania
www.ieka.org.al, Institute of Certified Public Accountants.