A methodology for analysing and evaluating narratives in annual reports: a comprehensive descriptive profile and metrics for disclosure quality attributes

Abstract

Acknowledgments:We would like to thank the P D Leake trust (a charity associated with the Centre for Business Performance of the Institute of Chartered Accountants in England and Wales) for funding this project on stakeholder reporting and user needs. The present paper forms part of the first stage of this project, which is to document company practices. A Methodology for Analysing and Evaluating Narratives in Annual Reports: A Comprehensive Descriptive Profile and Metrics for Disclosure Quality Attributes ABSTRACTThere is a consensus that the business reporting model needs to expand to serve the changing information needs of the market and provide the information required for enhanced corporate transparency and accountability. Worldwide, regulators view narrative disclosures as the key to achieving the desired step-change in the quality of corporate reporting. In recent years, accounting researchers have increasingly focused their efforts on investigating disclosure and it is now recognised that there is an urgent need to develop disclosure metrics to facilitate research into voluntary disclosure and quality (Core, 2001). This paper responds to this call and contributes in two principal ways. First, the paper introduces to the academic literature a comprehensive fourdimensional framework for the holistic content analysis of accounting narratives and presents a computer-assisted methodology for implementing this framework. This procedure provides a rich descriptive profile of a company's narrative disclosures based on the coding of topic and three type attributes. Second, the paper explores the complex concept of quality, and the problematic nature of quality measurement. It makes a preliminary attempt to identify some of the attributes of quality (such as relative amount of disclosure and topic spread), suggests observable proxies for these and offers a tentative summary measure of disclosure quality.

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