ICAEW’s Information For Better Markets (IFBM) thought leadership programme will take a leading role in advancing private company accounting research. Our intention is to raise the profile of private company research and challenge the predominance of research into the minority of companies globally that are publicly listed.

The decision was taken in light of ICAEW’s recent thought leadership work on private company financial reporting, such as the 2016 Information For Better Markets conference, which clearly identified the need for more research in this area. This was also the finding of ICAEW’s 2015 thought leadership report SME accounting requirements: basing policy on evidence, which concluded that ‘public policy debates on SME financial reporting requirements are not well informed’.

Academic roundtable on private company financial reporting

As a first step to advancing discussions on private company accounting research, ICAEW held an academic roundtable at Chartered Accountants Hall on 15 September 2017. The event was held as a follow-up to the 2016 IFBM conference.

The event was attended by representatives from the academic community, practice and the IASB, as well as ICAEW staff. The objective of the day was to identify gaps in private company accounting research and to scope questions for future research.

Below is a summary of the research questions that were developed at the roundtable.

1. What are the influential factors that determine the use and value of financial reporting in private companies?
   Research in this area would help to move discussions beyond the subject of size which, in the context of private companies, can be misleading.
2. Who are the users of private company financial reporting and what are their needs?
   Research in this areas would consider what information users use, what they use it for and what other information they would they like.
3. What determines the international differences in private company reporting regimes?
   Research in this area would identify how regimes are different and why. It would also contribute to a better understanding of regulatory efficiency and economic growth prospects.

What happened next? 

Following the roundtable, some of the academics in attendance have started new research projects which will consider some of the themes and questions raised at the event. 

1. Ann Jorissen and Ronita Ram, are collaborating on a research project that will explore the global adoption of IFRS (for SMEs).  An overview of the project is provided below.
   
   ‘The Jorissen-Ram project deals with aspects of the third research question developed at the Roundtable, ‘What determines the international differences in private company reporting regimes?’ Private company financial reporting is much more embedded and influenced by local institutions than public company reporting. Therefore an in depth study of these local institutions will shed more light on which environments (and countries) are more munificent to accept information from financial reports (prepared in compliance with local GAAP or IFRS (for SMEs)) as a “trusted” language in the business community. The results of this first study will help to single out a number of countries which adopted IFRS (for SMEs) for private company reporting and which are an appropriate setting to examine the incentives of private companies choosing  IFRS as their reporting regime, when they are permitted to do so and to observe the consequences for these individual companies that comply with IFRS.’
   
   
2. Mark Clatworthy, Martin Glaum, Joachim Gassen and Annita Florou have started a survey-based project. ICAEW has agreed to investigate ways in which it can help distribute the survey. An overview of the project is given below. 
   
   ‘Prior literature tends to treat private firms as a homogeneous group with distinct differences compared to the group of listed firms. But, there is significant heterogeneity in the characteristics and informational needs among private firms as well. Accordingly, the primary objective of the project is to provide a detailed and comprehensive analysis of the typology of private firms as well as their financial reporting needs and practices. To this end, the researchers will conduct a large-scale survey with private firms and various related parties (e.g. auditors, banks etc.).'

Further information 

• Recordings of the 2017 IFBM Conference: Private company financial reporting
• Thought leadership paper: SME accounting requirements: basing policy on evidence
• ICAEW panel at the 2017 European Accounting Association conference. Is the IFRS for SMEs good for SMEs?