Dolgikh — Does the Auditor Have a Direct Influence on the Financial Statement Quality? (2017)

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Tatiana Dolgikh's article Does the Auditor Have a Direct Influence on the Financial Statement Quality?, from the University of Economics, Prague, published in the European Financial and Accounting Journal, 2017, vol.12, no. 2, pp. 73-90. It scores the 2015 IFRS financial statements of 20 of the largest Russian companies, drawn from the RBC list of 500, against IAS 1 with a 20-question questionnaire. Gazprom ranks first with a total score of 4.61, followed by Lukoil at 4.54 and Aeroflot at 4.47; KPMG audits 35% of the companies, EY and PwC 25% each, and Russian firms 15%. A Kruskal-Wallis test gives p = 0.240, so the hypothesis that each auditing company has similar quality is not rejected, while the conclusion states that the auditor has a direct impact on statement quality.

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Full text

Does the Auditor Have a Direct Influence on
the Financial Statement Quality?
Tatiana Dolgikh*
Abstract:
In the modern process of globalization, IFRS standards are widely used in the
financial world, Russian Federation is one of these examples. The application of
IFRS in Russian Federation first began in the early 90-ies of the twentieth century.
During IFRS adoption many companies were involved in this process. Nowadays, a
big part of all Russian companies obligatory use IFRS standards to prepare their
statements. The purpose of this article is to analyse current practices of financial
reporting procedures, its compliance with the rules of the IAS 1 as well as
identifying the dependencies between the auditor selection and the quality of
reporting. For this paper, a special Questionnaire was developed and for each
selected organization a special profile, which included analysis of all financial
statements for the period of the 2015 year was created. The study shows that the
financial reports quality of the largest Russian companies on a high level. However,
many companies face the problem of RAS and IFRS differences during reports
transformation that directly influences its quality. During the study process it
becomes clear, that auditor has a direct impact on the financial statements quality.
Key words: Reports; Quality; IFRS; Russian Companies.
JEL classification: M41, M42.

1 Introduction
The application of International Financial Reporting Standards (IFRS) aims at
achieving transparency of the company’s activity, as well as it creates the
opportunity to make reasonable managerial decisions, estimate the financial
condition and implement forecasts. Due to the active process of globalization in
world economic systems, IFRS standards are widely used in the modern financial
world. The need for the development of IFRS as a single set of the rules for
accounting and reporting systems was primarily caused by the establishment of
uniform rules on the international financial market. The concept of IFRS as the
global standards has been publicly supported by many international authoritative
organizations, including: the group "Big twenty" (G20), the World Bank, the
International Monetary Fund (IMF), the Basel Committee, the International

*
Tatiana Dolgikh; University of Economics, Prague, Faculty of Finance and Accounting,
Department Accounting and Corporate Financial Management, W. Churchill Sq. 4, 130 67
Prague, Czech Republic, <tatiana.dolgikh@vse.cz>.
This paper has been prepared within the research project Economic Impacts of the IFRS Adoption
in Selected Transition Countries supported by the Czech Science Foundation, No. 15-01280S.

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Dolgikh, T: Does the Auditor Have Direct Influence on the Financial Statement Quality?

Organization of Securities Commissions (IOSCO) and the International Federation
of Accountants (IFAC).
The application of IFRS in Russian Federation first began in the early 90-ies of the
twentieth century. One of the first Russian companies that have prepared financial
statements in accordance with IFRS were JSC "Avtovaz" (1994) and JSC
"Gazprom" (1996). Financial statements in accordance with IFRS were demanded
from companies in the oil and energy sector because of their listing on the London
stock exchange. The first obligatory using of IFRS started from the letter of
Central Bank of the Russian Federation (No. 181-T from 25.12.2003) by which all
companies in the banking sector had to prepare financial statements in accordance
with IFRS starting from January 2004. Open joint stock companies whose shares
were traded on the securities markets started to prepare quarterly and annual
financial statements in accordance with IFRS or US GAAP from January 2005
(order No. 05-5/PZ-n from 16.03.2005 of the Federal Service for Financial
Markets of Russia). Since January 2007 the companies issuing debt instruments
also began to prepare financial statements in accordance with IFRS or US GAAP.
The legal basis for the adoption of IFRS on the territory of the Russian Federation
is the Federal Law No. 208-FZ from 27.07.2010 "On consolidated financial
reporting". Russian Federation chose the way of IFRS adoption to national
standards. Currently, some national standards have direct references to IFRS.
Formal recognition of IFRS standards and their Clarifications was received at the
end of 2011 (the order of the Ministry of Finance No. 160n from 25.11.2011).
Thus in 2011 Russian Federation recognized the first 63 IFRS standards and
interpretations for them.
Including the latest updates Jurisdictional Profile of Russian Federation according
to IFRS Foundation presents next: in addition to listed companies, the following
companies are required to use IFRS Standards for consolidated financial
statements:
 banks,
 insurance companies,
 non-state pension funds,
 management companies of investment funds, investment unit trusts and non-
state pension funds,
 clearing organizations,
 federal state-owned enterprises as well as joint-stock companies, whose
shareholder is the Russian Federation (per the Russian Government decision),
 any other company that prepares consolidated financial statements due to
requirements of other laws or its charter documents.

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Besides, all non-listed companies that control subsidiaries, consolidated financial
statements into a prospectus are required to include the IFRS (IFRS Foundation,
2016).
So, Russian Federation had a quite long journey of IFRS adoption. This fact
allows to conduct a study regarding the quality of prepared financial statements
and make the conclusion about the success of adaptation procedures and the
informatively content of Russian financial statements.
The relevance of the research topic can be explained by the globalization process.
Despite the current sanctions, European Union is still one of the most important
trade partners of Russian Federation (45.7% - according to the Federal customs
service of Russia, 2016). For both sides of commercial relationships is very
important to know the actual and relevant information about the partner’s financial
condition. Thus, this article presents a review of the financial reports quality of the
largest Russian companies for the year 2015 prepared in accordance with IFRS.
The purpose of this article is to analyse current practices of financial reporting
procedures, its compliance with the rules of the IAS 1 as well as identifying the
dependencies between the auditor selection and the quality of reporting.
The article is divided into five sections. The introduction outlines the paper’s goal,
literature review describes basic literature. Methodology section provides data for
research, next section provides discussion and results, the final section concludes.

2 Literature Review
Since 2013 Deloitte started to publish an Annual review of the practical
application of IFRS by Russian companies. The impact of IFRS adoption on the
preparation of financial statements was examined by accounting researchers as
well. (Chaya, 2015) argues that IFRS implementation becomes an advantageous
mechanism not only for the enterprises themselves but also for potential investors,
which positively affects the state of the entire financial market. In addition, the
preparation of financial statements according to IFRS takes into account the
specifics of activity of the enterprise and improves the quality of the reporting.
(Getman, 2014) analyses the system of IFRS: its principles, formation, advantages,
and feasibility of implementation. Special attention is paid to the selection of the
auditing company. (Vahrushina, 2014) deals with the theoretical and
methodological problems of preparation financial statements in accordance with
IFRS, including the techniques that allow transforming the Russian accounting
statements to the IFRS format.
As it was noted by Alon (2013, 2014), the process of harmonization with the IFRS
in Russia is very specific because of some reasons. Russia is an example of a

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Dolgikh, T: Does the Auditor Have Direct Influence on the Financial Statement Quality?

country facing to so-called dual institutionalism. It means that IFRS didn’t replace
RAS, but companies use RAS and IFRS simultaneously, even in the case of
mandatory use of IFRS standards. This leads to the use of two different logics of
the accounting process. Thus, Russian companies are insufficiently motivated to
apply the IFRS, and sometimes do not understand the usefulness of international
practices and views (Dolgikh, 2017). On the other hand, there is an empirical
evidence that Russia leading firms cross-listed on the London Stock Exchange
provide users with more value-relevant information. This might result in improved
accounting quality once the adoption process is finished (Kim, 2013). Some of the
researchers find that there is no evidence of increased value relevance of financial
reporting to external users of financial information after adopting IFRS when
comparing and evaluating the two regimes (RAS and IFRS) unconditionally
(Garanina and Kormiltseva, 2014).
Big attention in the literature is paid to the independence of the auditor. As an
example, (Sucher and Bychkova, 2010) find out that companies with foreign
investments are more likely to establish a comparatively desirable audit system
than other firms. From another perspective, they concluded that the less
independent and professional audit system of Russian firms than the international
practice is deeply rooted in a weak countervailing power of outsider board
directors against management executives, low foreign direct investment within the
country, and a loose management discipline of independent companies that are
operating in isolation in terms of their capital relationship. The same conclusion
can be found in a study of (Iwasaki, 2013).
Thus, the following hypothesis was formulated during the study:
H: Auditor has the direct influence on the financial statements quality.

3 Data and Methodology
3.1 Companies selection methodology for the research
Empirical data were collected from the website of RBC (Ros Business
Consulting). This company exists for over 20 years and it is the largest Russian
business media holding company, which is represented on the Internet, television,
and press. Every year RBC makes the list of 500 largest Russian companies.
Companies which formed their statements on the managerial basis have been
removed from this list. Among these 474 just 193 companies prepare their
financial statements in accordance with IFRS, 266 prepare their statements in
accordance with Russian Accounting Standards (RAS) and remaining 15 firms
publish their statements in accordance with US GAAP. (Fig. 1).

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Fig. 1 Standards applied for financial reporting

IFRS

US GAAP

RAS

0 50 100 150 200 250 300

Source: Authorial computation based on RBC list of 500 largest Russian companies.
82 out of 474 companies are Public sector companies, 375 of the companies are
from Private sector and 17 submit to the Joint enterprise (Fig. 2).
Fig. 2 Company status

State

Private

Joint enterprise

0 100 200 300 400

Source: Authorial computation based on RBC list of 500 largest Russian companies.
By dividing the companies into different sectors of the economy, we can notice
that most of the companies belong to the manufacturing industry - 126 firms
(43%). The largest percentage of companies that use IFRS is observed in the
financial sector - 92%, which follows from the mandatory application of IFRS by
banks and insurance organizations (as described in the introduction). A second and
third place for the largest percentage of reporting in accordance with IFRS is
mining industry and IT - 58% and 50% respectively. The lowest percentage has
the construction and trade – 19% and 21% respectively (Fig. 3).

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Dolgikh, T: Does the Auditor Have Direct Influence on the Financial Statement Quality?

Fig. 3 Percentage and sector of the economy which uses IFRS for the
preparation of the financial statements (in %)

Construction

Energy

Extractive industries

Trade

Transport

Agro and food

IT technologies

Manufacturing

Oil and gas industry

Finance

0 20 40 60 80 100

Source: Authorial computation based on RBC list of 500 largest Russian companies.
As the study examines the effects of IFRS adoption, only IFRS adopters are
included in the sample, but without firms operating in the financial sector. Sample
companies are divided into following economy sectors (Oil and gas industry,
Manufacturing, IT Technologies, Agro and food, Transport, Trade, Extractive
industries, Energy, Construction). And finally, there were selected first two
companies from rating list of each economic sector in the study. For Agro and
food sector only one company was selected, because of unavailability of other
companies’ financial statements. From manufacturing industry first five
companies sector were selected because of the big size of this sector (Fig. 4).

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Fig. 4 Companies selection methodology for the study

500 biggest Russian companies

Companies which prepare their
statements on the managerial basis Other companies
26 474

Companies which Companies which Companies which
prepare their prepare their prepare their
statements in statements in statements in
accordance with accordance with accordance with
IFRS RAS US GAAP
193 266 15

Oil and gas industry 2
Manufacturing 5
IT Technologies 2
Agro and food 1
Transport 2
Trade 2
Extractive industries 2
Energy 2
Construction 2

Source: Authorial computation based on RBC list of 500 largest Russian companies.
Selection of the companies for this study can be explained by the fact that all these
companies are the largest representatives of every sector of the economy, and also
they could be potential partners not only for domestic but also for international
cooperation. Thus, annual reporting of these companies should be informative,
qualitative, and assume all information about their activities. The study was
conducted on the basis of the financial statements of these companies (Table 1).

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Dolgikh, T: Does the Auditor Have Direct Influence on the Financial Statement Quality?

Tab. 1 List of analyzed companies
No. of
Rev. Rev.'s P/L P/L
Company Main employees
No. Status Specialization (bil.rub) dynamic (bil.rub) dynamic
name office (ths.
2015 (%) 2015 (%)
people)
Company PJSC
1 State Moscow Oil and gas 5 985 9 805 412 450
Gazprom
2 PJSC LUKOIL Private Moscow Oil and gas 5 174 10 293 -26 110
Russian
5 State Moscow Railway transport 1 991 11 8,182 - 1085
railways
8 PJSC Magnit Private Krasnodar Retail sale 951 25 59 24 255
X5 Retail
10 Private Moscow Retail Sale 809 28 14 12 117
Group
JSC INTER
11 State Moscow Electroenergetics 805 9 24 145 58
RAO
13 PJSC Rosseti State Moscow Electroenergetics 767 1 82 - 218

17 EVRAZ Private Moscow Black metallurgy 534 6 -44 - 94

18 UC Rusal Private Moscow Colour metallurgy 529 47 34 - 61

20 Norilsk Nickel Private Moscow Colour metallurgy 501 12 104 11 82
Aeroflot -
24 State Moscow Aviation transport 415 30 -6,494 - 32
Russian airlines
25 PAO Severstal Private Moscow Ferrous metallurgy 387 22 34 - 52
PAO Sibur Chemicals and
27 Private Moscow 380 5 6,505 -74 26
holding petrochemicals
34 PJSC MegaFon Private Moscow Telecommunications 313 0 39 6 31
PJSC
37 State Moscow Telecommunications 297 -1 14 9 -
Rostelecom
PJSC United
39 Aircraft State Moscow Aircraft building 279 18 5,373 101 99
Corporation
46 SUEK Group Private Moscow Coal mining 252 30 12 - 31

49 PJSC Alrosa State Moscow Diamond mining 225 8 32 - 30
PJSC Infrastructure
74 State Moscow 143 -5 4,232 -30 29
MOSTOTREST construction
ROS AGRO
143 Private Moscow Agro and food 72 23 24 17 9
PLC
Source: (RBK statistics, 2016).
As the Table shows there are 20 companies from different sectors of the economy,
95% of them have a Head office in Moscow. 55% of these companies have private
status and 45% of them are state companies. Except for two, all companies have a
positive revenue’s dynamic in 2015. Sixteen of these companies (80%) have profit

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at the end of the reporting period and nine of them (56%) have positive profit
dynamic. The largest number of employees have Russian railways (1 085 000
people) and the smallest number of employees have the company from Agro and
food area – Ros Agro PLC (only 9 000 people).
3.2 Financial statement analysis of the selected companies
A special questionnaire that includes 20 questions (Appendix 1) was developed to
assess the selected aspects of reporting quality. A special profile assessing
financial statements for the 2015-period (Table 2), was constructed for each firm.
All processed data were entered into a table, where each answer was assigned the
highest rating of 5 (fully meets) and the lowest rating of 0 (completely
inappropriate). Additionally, each assessment was assigned a weight indicator in
the General scale (in accordance with the importance of the applicable
requirements). The company whose statements are most consistent with the
requirements of the IAS 1 was chosen by the total score. The questionnaire also
includes additional questions to better understanding the quality of the prepared
statements.
Tab. 2 Profile of the company PJSC Alrosa
Weight Final
N PJSC ALROSA Mark
(%) result
1 Yes – company has full set of financial statements 5 12 0,6
Yes - financial statements of the company match the
2 5 8 0,4
structure in accordance with IAS 1
Yes – The Statement of Financial Position includes
3 5 9 0,45
minimum line items
Yes - discloses additional lines in The Statement of
4 Financial Position (Disaggregated some line items listed in 2 7 0,14
paragraph 5)
85% entity does not disclose the full information about
each class of share capital in the financial statements (not
5 4 8 0,32
specified shares held by the entity or by its subsidiaries or
associates)
Yes – Profit and Loss Statement and Other Comprehensive
6 Income includes minimum line items in accordance with 5 9 0,45
the paragraph 82 of IAS 1
No - the entity does not disclose the amount of income tax
7 0 7 0
relating to each item of other comprehensive income
Yes - the entity makes Statement of Changes in Equity in
8 5 9 0,45
accordance with IAS 1

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Dolgikh, T: Does the Auditor Have Direct Influence on the Financial Statement Quality?

Weight Final
N PJSC ALROSA Mark
(%) result
Yes - the entity discloses the amount of paid dividends to
9 5 7 0,35
shareholders during the period
80% - The Cash Flow Statement does not include
10 minimum line items in accordance with IAS (there are 4 9 0,36
were not classified cash flows from operating activities)
Yes - the entity discloses the significant amount of cash
11 and cash equivalents that are not available for use by the 5 6 0,3
group
Yes – the entity creates Provisions for Post-employment
benefit obligation, Currency translation differences, and
Change in fair value of available for sale investments.
12 Also, company makes some Accruals on Provision for land 5 9 0,45
recultivation, Accrual for employee flights and holidays
and other accruals on taxes and different expenses which
are not directly mentioned in Notes)

Total score x 100 4,27

Additional questions
The entity uses mixed method of short-term/long-term assets and liabilities classifications
1
in a Statement of Financial Position
2 The entity discloses revenues and expense for the period in one statement
The entity classifies expenses in The Profit and Loss Statement and Other Comprehensive
3
Income for the period by function
4 The entity uses direct method of reporting cash flows from operating activities
The entity discloses such critical accounting estimates and judgments in applying
accounting policies like Impairment provision for receivables, Impairment of property,
5
plant, and equipment, Estimated impairment of goodwill, Tax legislation, Useful lives of
property, plant, and equipment, Pension benefits, Asset retirement obligations
6 PWC company verifies the financial statements of the entity
Yes - the entity discloses both indexes of EPS (earnings per share) in The Profit and Loss
7
Statement
8 The entity uses new titles for its statements

9 51 pages contains Notes section
Source: Authorial computation.

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4 Results and Discussion
Such profiles were created for each of 20 companies. In general, the analysis of
the financial reports quality allows to make following conclusions:
 Structure of all financial statements has a good quality, but some of the
companies do not divide long-term debt on long-term debt and current portion
of long-term debt and do not classify cash flows from operating activities;
 All statements include minimum line items in accordance with the IAS 1 and
85% of all companies also including additional line items in their reports;
 Information about share capital has the different level of disclosure. Some
companies describe in detail establishment procedure of the company, types of
issued shares and the rights of each of them also paid great attention to
dividend policy. However, a few companies do not specify shares held by the
entity or by its subsidiaries or associates;
 Only a few companies disclose the amount of income tax relating to each item
of other comprehensive income (40%), mainly this information included in
Notes section;
 All the companies inform in Notes section the amount of paid dividends to
shareholders during the period and 10% of them resolved not to pay dividends
for 2014;
 Only 25% of the companies disclose the significant amount of cash and cash
equivalents that are not available for use by the group;
 Not all the companies have some estimation of uncertainty at the end of the
reporting period. Notes section rarely describes or specifies kinds of created
reserves or accruals. Mostly, the companies create some reserves connected
with different types of payments to employees, and only a few companies
estimate the risk of goods return, legal proceedings, or bad debts. Many of the
companies include such item as other accruals in their statements, but the
reasons for creation this type of accruals are not clear and no calculation
cannot be found.
The final result of the study shows that the best quality of statements has Company
Gazprom with total score 4.61, Lukoil Company and Aeroflot-Russian airlines
with total score 4.54 and 4.47 respectively (Fig. 5).

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Dolgikh, T: Does the Auditor Have Direct Influence on the Financial Statement Quality?

Fig. 5 Total score of the financial statements quality

Source: Authorial computation.
The study also included additional questions that had no influence on the final
assessment, however, they highlighted the specificity of disclosing information in
the financial statements. 80% of the companies use mixed method of disclose
short-term/long-term assets and liabilities in a statement of financial position. The
companies more frequently disclose revenues and expenses for the period in one
statement (60%) than in two separate statements. Classifying of expenses in the
statement of profit or loss and other comprehensive income for the period by
function or by nature divided the following way - 65% and 35% respectively. The
more popular method of reporting cash flows from operating activities is indirect,
85% of the companies use this method. The study shows that the companies use
oftener services of KPMG auditor company (35%), EY (Ernst & Young Global
Limited) and PwC (PricewaterhouseCoopers) took the second place and have the
same percent – 25%. It is interesting to note that 15% of all companies use the
services of Russian auditor companies. As an example, the auditor of Company
Gazprom is Limited Liability Company Accountants and business advisors (FBK,
LLC) that do not belong to the so-called Big four. All companies except one
disclose both indexes of EPS (earnings per share) in the Statement of profit or loss
and other comprehensive income for the period in accordance with IAS 33. 32%

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of all studied companies has a medium size Notes section – from 51 to 80 pages,
26% of companies have a long part of this statement and the rest part has not so
big part of Notes – less than 50 pages.
Based on the study, the disclosure of the sources of uncertainty is the most
challenging issue for many companies during the preparation of financial
statements. Russian accountants wary of these estimated items (such as provisions
and assets impairment) because they represent an approximate value, which is
determined on the basis of calculations and professional judgment. The Russian
Accounting Standards (RAS) mention the following types of provisions: doubtful
debts, impairment of financial investments, impairment of inventories, warranty
service and warranty repairs, vacation payments, remuneration payments based on
the year’s results, obligations for termination of business activities. RAS and IFRS
put a different meaning to the same terms. As it can be seen from the previous list,
provisions under RAS include not only provisions (as liabilities), but also
impairment of assets. This problem was clearly visible in the study and it might
endanger the expected improvement in accounting quality following the IFRS
adoption.
Summarized study’s results show that different auditing companies have the
different total score of financial reports quality and different variation of this
indicator (Fig. 6).
Fig. 6 Total score of each company depending on selected auditing company

4,5
PWC

4 KPMG

EY
3,5
Russian

2,5

Source: Authorial computation.
As it shown in the figure 6, we cannot estimate the homogeneity of data and their
deviation from the mean value, which would help to confirm or reject the
hypothesis. Therefore, based on available outcome data following indicators for
the analysis were calculated (table 3).

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Tab. 3 Variability indexes of individual auditing firms
Russian
Indicator PWC KPMG EY Auditing
Companies
Standard deviation 0,1678 0,3499 0,6647 0,4026
Variance 0,0282 0,1224 0,4418 0,1621
Mean (average) 4,24 3,91 3,89 4,26
Coefficient of variation (%) 4 9 17 9
Source: Authorial computation.
The most important indicators are Standard deviation and Coefficient of variation.
Standard deviation is a measure that is used to quantify the amount of variation or
dispersion of a set of data values. The coefficient of variation shows the measure
of data variation in percent. As we can see Standard deviation for all of these
auditing companies is not so high. Thus, the reporting quality of an individual
company within a single auditor is not much different from the mean (average).
The coefficient of variation also shows that the deviation from the mean value on
the low percentage level and fluctuates from 4% to 17%.
In addition, one more criteria was tested in the study - Kruskal–Wallis test, which
tool is used to compare two or more independent samples of equal or different
sample sizes. The hypothesis that will be tested by using the Kruskal-Wallis test,
is that each auditing company has similar quality of audited financial statements
(i.e. the observed differences in group median values of the total score of each
company is not essential). For this test was used statistic program SPSS Statistics.
Regarding calculations, Kruskal-Wallis chi-square is 4.21 with 3 df, the
significance level is α= 0.05, p-value = 0.240. (The critical chi-square values for
df=3, p=0.05 is 7.82). Using the P-value approach: The p-value is p = 0.240, and
since p≥0.05, it is concluded that the hypothesis is not rejected. Therefore, there is
not enough evidence to claim that some of the total scores of each company
medians are unequal, at the alpha = 0.05 significance level.

5 Conclusion
The study shows that the financial reports quality of the largest Russian companies
for 2015 are prepared in accordance with IFRS on a high level. However, many
companies face the problem of RAS and IFRS differences during reports
transformation that directly influences their quality. The different content of the
term “provisions” under RAS and IFRS can be mentioned as a typical example,
when entities struggle to reconcile RAS figures to IFRS figures. That’s why Notes
section rarely describes or specifies kinds of created provisions or accruals.
Mostly, companies create some provisions connected with different types of

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payments to employees, and only a few companies estimate the risk of goods
return, legal proceedings, or bad debts. Many companies have in their statements
such item like other accruals, but the reasons for creation this type of accruals are
not clear and no calculation cannot be found.
Best reporting quality has Gazprom company, which has a long-term practice of
reporting in accordance with IFRS (from 1996, Gazprom was one of the first
Russian companies that have prepared financial statements in accordance with
IFRS). The same result can be seen in Oil and gas industry because of rich
experience in the international market. Also, during the study process it became
clear, that the auditor has a direct impact on the financial statements quality. On
the other hand, the study does not provide a complete view on reporting and
disclosure quality, as it focuses only on the fulfillment of IAS 1 requirements. An
alternative research setting might thus lead to the different findings. The
inspection of more complex disclosure scores is our suggestion to the future
research.

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Appendix 1: Questionnaire
Yes/No
1. Does the entity have the whole set of financial statements?
2. Do the financial statements match the structure in accordance with IAS 1?
3. Does the Statement of Financial Position include minimum line items in
accordance with paragraph 54 of IAS 1?
4. Does the entity disclose additional lines in the Statement of Financial position,
which are important for understanding its financial situation?
5. Does the entity disclose information about each class of share capital in the
financial statements in accordance with the paragraph 79 of IAS 1? (and in
which statement – Statement of Financial Position, Statement of Change in
Equity or in Notes)
6. Does the Profit and Loss Statement and Other Comprehensive Income include
minimum line items in accordance with paragraph 82 of IAS 1?
7. Does the entity disclose the amount of income tax relating to each item of other
comprehensive income, including reclassification adjustments in accordance
with paragraph 90 of IAS 1? (in which statement - statement of profit or loss
and other comprehensive income or in notes)
8. Does the entity make Statement of Changes in Equity in accordance with
paragraph 106 IAS 1?
9. Does the entity disclose the amount of paid dividends to shareholders during
the period?
10. Does the Cash Flow Statement include minimum line items in accordance with
IAS 7?
11. Does the entity disclose a significant amount of cash and cash equivalents that
are not available for use by the group? (restricted cash)
12. Does the entity disclose information of estimation uncertainty at the end of the
reporting period, which has a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year in accordance with paragraph 125 of IAS 1?
Additional questions
1. Does the entity disclose short-term/long-term assets and liabilities in a
Statement of Financial Position as separate classifications or disclose items
sorted in accordance with the liquidity, or use a mixed method?
2. Does the entity disclose revenues and expense for the period in one statement
or in two separate statements?

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3. Does the entity classify expenses in the Profit and Loss Statement and Other
Comprehensive Income by function or by nature?
4. Which method of reporting cash flows from operating activities does the entity
use? (direct or indirect)
5. Which significant accounting policies does the entity disclose in its Notes in
accordance with paragraph 117 of IAS1?
6. Which company verifies the financial statements of the entity?
7. Does the entity disclose both indexes of EPS (earnings per share) in the Profit
and Loss Statement and Other Comprehensive Income in accordance with IAS
33?
8. How many pages are there in Notes section?

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