Week 1: Financial reporting
The external reporting of companies nowadays involves more than just disclosing financial
information. Companies, especially those of public interest, release a plethora of reports to inform
their stakeholders. In addition to financial statements, these concern sustainability reports, fiscal
accounts, corporate governance reports, and social reports. Companies even combine some reports
into an integrated report in which they want to depict a more holistic view of their performance
, Week 2: Financial reporting
Corporate reporting theories explain why we observe corporate reporting and why there are 3 ways
of reporting practices (voluntary, mandatory, and non-reporting).
Mandatory reporting practices; standards and regulation provide a minimum of disclosure of
what corporations have to disclose to see the reporting as ‘good’. Regulation of disclosure of;
o Financial statements and financial accounting information; since companies
became larger and public financing became more important, the regulation and
standardization of the financial accounting started
o Governance reports; nowadays these are also up to certain regulations, like the
Sarbanes Oxley Act in the US and the corporate governance codes in the EU.
However, these are still to a certain extend voluntary
o Sustainability report; still to a large extend voluntary, but most of the large
companies do have sustainable reports. In the EU there are 3 directives; non-
financial directive, directive of non-financial disclosure, and, the CSR directive
(corporate sustainability reporting directive)
o Tax reporting; financial reporting. Important reason for standardization of
accounting, because taxes had to be paid and earnings had to be determined
Voluntary disclosure; up and above the minimum, given the standards and regulations. More
operations, more disclosers than they have to do according to the requirements
Non-disclosure; there are good reasons not to disclose information, for example because of
the costs of disclosure like private cost and information
CSRD: new directive from 2023 that is more demanding. It applies for many more companies than
nowadays, its for the larger companies in the EU. An important aspects is that there is a mandatory
assurance of the sustainability reports too.
Regulation: mandatory disclosure, with respect to the standardization regulation theories. There is
regulation because of 4 reasons:
Improve users’ decision making processes; inform investors and monitors like contracting
parties about corporate reporting
Provide necessary amount of information for the well-functioning of (capital) markets; It’s
not just for individual users, investors and contracting parties, but for the larger scale its
important too. If there is information asymmetry there is a logical reason for disclosure
Compensate for market failures; large scandals prove that regulation didn’t function well. In
that cases the regulators have to look improve the regulation or chose other options.
Regulation is also there to prevent (market) failures and scandals to happen
Regulators should prevent information overload; In the present framework industry there
are many frameworks, especially at the sustainability reporting area (financial reporting area
there are just a view frameworks; FASB, IASB, IFRS, US GAAP). Many non-governmental
organizations have entered this market and deliver standards, directives, good practices, or
frameworks. In this market the regulators compete for their market share
There are 2 theories of regulation; best interest theory that look at public society interest, and the
personal interest theory where the regulatory parties want to protect their market share
Cost of regulation: don’t take regulation for granted, regulators and monitoring parties have to be
paid too! There is a market for regulation where regulators compete for their market share and own
interest with the other regulators and standard setting organizations.
If you want to determine what the optimal degree of regulation is you want to do it from a societal
perspective, so you should trade off the costs.
The external reporting of companies nowadays involves more than just disclosing financial
information. Companies, especially those of public interest, release a plethora of reports to inform
their stakeholders. In addition to financial statements, these concern sustainability reports, fiscal
accounts, corporate governance reports, and social reports. Companies even combine some reports
into an integrated report in which they want to depict a more holistic view of their performance
, Week 2: Financial reporting
Corporate reporting theories explain why we observe corporate reporting and why there are 3 ways
of reporting practices (voluntary, mandatory, and non-reporting).
Mandatory reporting practices; standards and regulation provide a minimum of disclosure of
what corporations have to disclose to see the reporting as ‘good’. Regulation of disclosure of;
o Financial statements and financial accounting information; since companies
became larger and public financing became more important, the regulation and
standardization of the financial accounting started
o Governance reports; nowadays these are also up to certain regulations, like the
Sarbanes Oxley Act in the US and the corporate governance codes in the EU.
However, these are still to a certain extend voluntary
o Sustainability report; still to a large extend voluntary, but most of the large
companies do have sustainable reports. In the EU there are 3 directives; non-
financial directive, directive of non-financial disclosure, and, the CSR directive
(corporate sustainability reporting directive)
o Tax reporting; financial reporting. Important reason for standardization of
accounting, because taxes had to be paid and earnings had to be determined
Voluntary disclosure; up and above the minimum, given the standards and regulations. More
operations, more disclosers than they have to do according to the requirements
Non-disclosure; there are good reasons not to disclose information, for example because of
the costs of disclosure like private cost and information
CSRD: new directive from 2023 that is more demanding. It applies for many more companies than
nowadays, its for the larger companies in the EU. An important aspects is that there is a mandatory
assurance of the sustainability reports too.
Regulation: mandatory disclosure, with respect to the standardization regulation theories. There is
regulation because of 4 reasons:
Improve users’ decision making processes; inform investors and monitors like contracting
parties about corporate reporting
Provide necessary amount of information for the well-functioning of (capital) markets; It’s
not just for individual users, investors and contracting parties, but for the larger scale its
important too. If there is information asymmetry there is a logical reason for disclosure
Compensate for market failures; large scandals prove that regulation didn’t function well. In
that cases the regulators have to look improve the regulation or chose other options.
Regulation is also there to prevent (market) failures and scandals to happen
Regulators should prevent information overload; In the present framework industry there
are many frameworks, especially at the sustainability reporting area (financial reporting area
there are just a view frameworks; FASB, IASB, IFRS, US GAAP). Many non-governmental
organizations have entered this market and deliver standards, directives, good practices, or
frameworks. In this market the regulators compete for their market share
There are 2 theories of regulation; best interest theory that look at public society interest, and the
personal interest theory where the regulatory parties want to protect their market share
Cost of regulation: don’t take regulation for granted, regulators and monitoring parties have to be
paid too! There is a market for regulation where regulators compete for their market share and own
interest with the other regulators and standard setting organizations.
If you want to determine what the optimal degree of regulation is you want to do it from a societal
perspective, so you should trade off the costs.
