REply Transparency in Markets and Society

Reply, Discussion: Accounting
You will review your classmates initial postings in discussion forum 3 for last week. Choose one classmate and complete the following:

Write a 250 to 300 word response to your classmate.  Your reply must make a recommendation to your classmate of a peer reviewed journal article that provides additional information on their topic. In your response, you should give a summary of the article in your own words and discuss why it is relevant to their forum topic. It must  be different than articles they reference in their forum. Include an APA formatted citation at the bottom of the reply.

Transparency in Markets and Society

Transparency in markets and society may seem intuitive, but it has only been until recently that firms have started to become more transparent with their financial records. It has become essential for both public and private entities to be more transparent with their financial records. Transparency also improves accountability and governance practices (Bourguignon & Yon, 2018), it has been found that gift granting in order to obtain business is less likely to happen in countries where financial reporting is greater than in countries where businesses are not required to be as transparent (Khalil et al., 2015). The fear of an external audit in a country where the possibility of sanction or litigation may be higher curbs the likelihood of bending the rules to obtain business.

Improving members perception that their views are being considered is also another benefit of financial transparency. Financial transparency reforms in France led to union members being more readily able to see where their dues were going. Union membership is not compulsory so having some transparency has encouraged unions to take their points of view into accounts when making decisions (Bourguignon & Yon, 2018). While the disclosure of union financial records is seen by many as political only and not particularly welcomed in some circles …the new visibility of accounting practices brought about by the transparency obligation has strengthened reputational risk… (Bourguignon & Yon, 2018, p. 436).

The role of transparency is greater when dealing with sovereign states. The problem with fiscal transparency where governments are concerned is the requirement for … more extensive reporting than in the corporate sector (Heald & Hodges, 2018, p. 797). While the reporting may be more intensive engendering the peoples trust through fiscal transparency and may also enable more consistent budgeting practices (Heald & Hodges, 2018).

An interesting research finding regarding the effect that transparency had on family owned firms, at least where Greek firms are concerned. The cost of capital of a family owned firm vs a public firm was only marginal. A family firm with less transparency is only marginally affected when obtaining capital as compared to a public entity (Bethani et al., 2019). It is also notable that the size of the firm plays a role in the cost of debt also, larger firms benefit from better borrowing terms in relation to smaller businesses, but this may have more to do with longer relationships with the financial institutions (Bethani et al., 2019).

Businesses are required to pay taxes, to this extent it is important that a firm has some degree of transparency in order to disclose that they are paying their fair share and ensure that the proper tax practices are being adhered to (Morton, 2019). Companies for the most part place a great significance on tax compliance (Morton, 2019). In order to achieve true transparency, it is important to take not of what is disclosed and what is withheld (Morton, 2019).

Further Exploration

One area which might warrant further study is how financial transparency and accounting standard setters interact (Heald & Hodges, 2018). The how and why those entities who set standards for accounting and financial transparency will enable others to interact more easily. Another area in need of closer consideration is the disparity between accounting and taxation (Morton, 2019, p. 29) enabling the conversation between tax transparency and tax policy (Morton, 2019). Further investigations might also research the likelihood and magnitude of a bribery vary following the adoption of financial reporting standards, and/or following a change in the litigation environment against audit firms (Khalil et al., 2015, p. 397). This will enable the analysis of the implications of the adoption of controls and the affect firms are willing to bribe officials. (Khalil et al., 2015, p. 397) Achievement of effective fiscal transparency will depend in part on the robustness and timeliness of the evidence that academics can provide (Heald & Hodges, 2018, p. 800).

Word Count: 649

References

Bethani, A., Chalevas, C. G., & Tzovas, C. (2019). Cost of debt and corporate information transparency under economic depression: The case of greek family-controlled firms. [Cost of debt and corporate information transparency under economic depression: the case of Greek family-controlled firms] Journal of Accounting and Management Information Systems, 18(2), 173-197. doi:10.24818/jamis.2019.02002

Bourguignon, R., & Yon, K. (2018). The political effects of accounting normalization on trade unions: An analysis of financial transparency reform in france. British Journal of Industrial Relations, 56(2), 418-44Morton, E. (2019). Corporate tax transparency reporting and benford’s law. Australian Tax Forum, 34(1), 1-29. Retrieved from 1. doi:10.1111/bjir.12276

Heald, D., & Hodges, R. (2018). Accounting for government guarantees: Perspectives on fiscal transparency from four modes of accounting. Accounting and Business Research, 48(7), 782-804. doi:10.1080/00014788.2018.1428525

Samer Khalil, Walid Saffar, & Samir Trabelsi. (2015). Disclosure standards, auditing infrastructure, and bribery mitigation. Journal of Business Ethics, 132(2), 379-399. doi:10.1007/s10551-014-2321-6