Human Capital Disclosure in the MD&A Statement: An Analysis on Italian Public Utilities
Over the last years, the relevance of human capital disclosure has been widely recognized by academics, regulators and professional standards setters. In 2003, the EU issued Directive 2003/51/EC, which required companies to provide in their management discussion and analysis statement information relating to human capital. In Italy, the Accounts Modernisation Directive was implemented through Legislative Decree 32/2007, which became effective for reports for the financial years beginning on or after April 12th, 2007. In March 2009, the Italian professional standards setter issued a more explicit guidance on the type of human capital information a firm could discuss in its management discussion and analysis. This study examines the disclosure on human capital provided by a sample of Italian listed public utilities in their management discussion and analysis in 2008 and 2009. The aim of the study is to determine the amount and the content of human capital disclosure released by Italian listed public utilities after the issuing of the new rule. This is an explorative study conducted through a qualitative approach and the use of multiple case study methodology. The sample is composed of 7 Italian public utilities selected using a random procedure. To collect data on human capital disclosure it has been used content analysis, that is the research method most utilized in intellectual capital disclosure studies. The items of human capital information have been identified using the new legal requirements and the guidance issued by the Italian professional standards setter. The results are consistent with prior studies on intellectual capital disclosure showing that the amount of human capital information provided is very small. However, the findings show a slight improvement in the amount of human capital disclosures released during the years. With respect to the content, companies mainly released information on the number of employees, the investments in human capital and the description of the program of training. This paper contributes to the intellectual capital literature in two ways: first, it shows the human capital disclosure practices of Italian public utilities after the issuing of a new rule, rather than analyze the information voluntarily provided, and compares these findings with previous studies; moreover, it identifies the items of human capital information on the basis of the new requirements, rather than use the models developed in the intellectual capital literature, suggesting a framework that could be used in future researches conducted on companies listed in other European Union member states.
Human Capital Disclosure in the MD&A Statement: An Analysis on Italian Public Utilities, Journal of Human Resource Management. Special Issue:Challenges and Opportunities in the Performance Measurement and Control Systems of Human Resources Management for the Services Industry.
Vol. 3, No. 2-1,
2015, pp. 39-46.
J. Francis, and K. Schipper, “Have financial statements lost their relevance?”, Journal of Accounting Research, vol. 37, pp. 319-352, 1999.
B. Lev, and P. Zarowin, “The boundaries of financial reporting and how to extend them”, Journal of Accounting Research, vol. 37, pp. 353-385, 1999.
G. Breton, and R.J. Taffler, “Accounting information and analyst stock recommendation decision: a content analysis approach”, Accounting and Business Research, vol. 31, pp. 91-101, 2001.
B. Lev, and J.H. Daum, “The dominance of intangible assets: consequences for enterprise management and corporate reporting”, Measuring Business Excellence, vol. 8, pp. 6-17, 2004.
S. Wallman, “The future of accounting and disclosure in an evolving world: the need for a dramatic change”, Accounting Horizons, vol. 9, pp. 81-91, 1995.
American Institute of Certified Public Accountants AICPA, Improving business reporting – A customer focus. Meeting the information need of investors and creditors, comprehensive report of the special committee on financial reporting (the Jenkins report), New York, NY: American Institute of Certified Public Accountants, 1994.
Accounting Standard Board ASB, Reporting statement: operating and financial review, London, UK: Accounting Standard Board, 2006.
Canadian Institute of Chartered Accountants CICA, Management’s discussion and analysis; guidance on preparation and disclosure, Toronto, Ontario: Canadian Institute of Chartered Accountants, 2009.
Financial Accounting Standards Board FASB, Improving business reporting: insights into enhancing voluntary disclosures, Steering Committee Report, Business Reporting Research Project, Norwalk, Connecticut: Financial Accounting Standards Board, 2001.
International Accounting Standards Board IASB, Management Commentary, IFRS Practice Statement, London, UK: International Accounting Standards Board, 2010.
L. Edvinsson, “Developing intellectual capital at Skandia”, Long Range Planning, vol. 30, pp. 366-373, 1997.
K. Sveiby, The New Organizational Wealth, Managing & Measuring Knowledge-based Assets, Berrett-Koehler Publishers Inc, San Francisco, CA, 1997.
L. Edvinsson, “Some perspectives on intangibles and intellectual capital 2000”, Journal of Intellectual Capital, vol. 1, pp. 12-16, 2000.
J. Guthrie, and R. Petty, “Intellectual capital: Australian annual reporting practices”, Journal of Intellectual Capital, vol. 1, pp. 241-251, 2000.
G. White, A. Lee, and G. Tower, “Drivers of voluntary intellectual capital disclosure in listed biotechnology companies”, Journal of Intellectual Capital, vol. 8, pp. 517-537, 2007.
N. Brennan, “Reporting intellectual capital in annual reports: evidence from Ireland”, Accounting, Auditing & Accountability Journal, vol. 14, pp. 423-436, 2001.
S.M. Williams, “Is intellectual capital performance and disclosure practices related?”, Journal of Intellectual Capital, vol. 2, pp. 192-203, 2001.
S. Bozzolan, P. O’Regan, and F. Ricceri, “Intellectual capital disclosure (ICD). A comparison of Italy and the UK”, Journal of Human Resource Costing & Accounting, vol. 10, pp. 92-113, 2006.
S. Bozzolan, F. Favotto, and F. Ricceri, “Italian annual intellectual capital disclosure. An empirical analysis”, Journal of Intellectual Capital, vol. 4, pp. 543-558, 2003.
P.N. Bukh, C. Nielsen, P. Gormsen, and J. Mouritsen, “Disclosure of information on intellectual capital in Danish IPO prospectuses”, Accounting, Auditing & Accountability Journal, vol. 18, pp. 713-732, 2005.
E. García-Meca, and I. Martínez, “Assessing the quality of disclosure on intangibles in the Spanish capital market”, European Business Review, vol. 17, pp. 305-313, 2005.
L. Oliveira, L.L. Rodrigues, and R. Craig, “Firm-specific determinants of intangibles reporting: evidence from the Portuguese stock market”, Journal of Human Resource Costing & Accounting, vol. 10, pp. 11-33, 2006.
I. Singh, and J-L.W.M. Van der Zahn, “Determinants of intellectual capital disclosure in prospectuses of initial public offerings”, Accounting and Business Research, vol. 38, pp. 409-431, 2008.
R.H. Whiting, and J.C. Miller, “Voluntary disclosure of intellectual capital in New Zealand annual reports and the “hidden value””, Journal of Human Resource Costing & Accounting, vol. 12, pp. 26-50, 2008.
F. Giunta, and M. Pisani, Il bilancio, Milano, IT: Apogeo, 2005.
A. Quagli, Comunicare il futuro. L’informativa economico-finanziaria di tipo previsionale delle società quotate italiane, Milano, IT: FrancoAngeli, 2004.
Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili [CNDCEC], “La relazione sulla gestione art. 2428 codice civile. Informativa sull’ambiente e sul personale”, March, 2009.
K. Krippendorf, Content Analysis: An Introduction to Its Methodology, Beverly Hills, CA : Sage publications, 1980.
J. Guthrie, R. Petty, K. Yongvanich, and F. Ricceri, “Using content analysis as a research method to inquire into intellectual capital reporting”, Journal of Intellectual Capital, vol. 5, pp. 282-293, 2004.
V. Beattie, B. McInnes, and S. Fearnley, “A methodology for analyzing and evaluating narratives in annual reports: a comprehensive descriptive profile and metrics for disclosure quality attributes”, Accounting Forum, vol. 28, pp. 205-236, 2004.