Implementing principles of transparency in business entities

Abstract

The article considers the concept of transparency, specifically transparency of financial reporting and prerequisites of transparency development. The paper also outlines areas of researching transparency within the framework of comprehensive approach.

The major attributes of transparency through which the latter is implemented are as follows: qualitative characteristics of an enterprise; integrated indicators of openness of enterprise information; qualitative characteristics of information presented in financial statements and principles of providing financial statements. It is proved that transparency improves the quality of forecasts on enterprise performance, increases investment appeal and potentially acts as intangible assets that enhance the market value of an enterprise.

The concept of assessment of domestic enterprises’ openness is viewed and a list of measures for enhancing enterprise transparency is proposed.

The methods that are used for calculating transparency indicators of the biggest Ukrainian enterprises and published in the bulletin of the Development of Corporate Social Responsibility Centre are studied, and the given data is analysed.

The three-tier system of transparency implementation is considered in terms of the regulatory and legislative framework (IFRS, International Audit Standards, International Assessment Standards, Information Disclosure Rules); business entities, where transparency is developed through reporting; analytical level of experts, agencies and organizations that assess entity transparency. The background of forming the demand for transparent financial statements is highlighted.

The main characteristics of transparent statements, namely, rationality, accessibility, representativeness, reliability, efficiency, relevance, transparency, and quality are outlined.

In addition, the article considers some challenges of preparing financial statements and procedures of disclosing information on enterprise performance related to financial and nonfinancial activities. The major challenges are as follows: 1) arrangement of performance indicators under the tax legislation; 2) lack of unified methods for assessing transparency of information presented in financial statements; 3) the need for common information environment; 4) corruption; 5) extra expenditures related to reporting under IFRS; 6) provision of “appropriate” indicators in order to reduce the tax base, win tenders or report to investors; 7) the trend to present indicators in response to external requirements and for making “good images” for external users.