Financial Reporting in Non-listed Family Firms: Insights from Interviews with CFOs

Abstract

Analysing 20 interviews with CFOs of German non-listed family firms, I report how the firms' financial reporting is organised, who are the financial statement addressees, how the CFOs define accounting quality, whether they manage earnings, and how owner families influence reporting. I also discuss the firms' costs of reporting and disclosure. Most CFOs see the requirement to disclose financial statements as a burden. They react by disclosing statements as late as possible and by providing only the minimum content necessary. As regards accounting quality, the CFOs value formal correctness, but also sustainability, persistence, and conservative estimation of net income. Most CFOs engage in earnings management, above all to achieve a positive trend in net income, in some cases also to comply with debt covenants. The influence of the owner families differs; however, in most cases the family at least "sets the tone" for the reporting. On average, the direct costs of accounting and auditing in my sample firms amount to about 1% of revenues. According to the CFOs, public disclosure does not result in material indirect costs, and most CFOs would not change much if the requirements for reporting and disclosure were abolished. These findings add to our understanding of private firm financial reporting and suggest several directions for future research.K 226 Schmalenbach Bus Rev (2020) 72:225-270

Accountants in family firms—a systematic literature review

“…The review reveals that an accountant is often the first nonfamily manager recruited in a family firm (Klein & Bell, 2007;Hiebl, 2013aHiebl, , 2013bHiebl, , 2013d and is often given a prominent position (Chadwick & Dawson, 2018;Gao et al, 2019;Hiebl, 2013a;Stergiou et al, 2013). The accountant tends to help in forming a higher level of firm financial sophistication (Di Giuli et al, 2011;Filbeck & Lee, 2000) and contributes to a family firm by instigating, influencing, developing, and deciding on MAS and MCS practices and policies, financial accounting, and financial techniques used to manage cash flow, lending, risk, and investments (Gallo & Vilaseca, 1998;Filbeck & Lee, 2000;Klein & Bell, 2007;Caselli & Di Giuli, 2010;Di Giuli et al, 2011;Giovannoni et al, 2011;Hiebl, 2012;Lutz & Schraml, 2011;Hiebl, 2013d;Stergiou et al, 2013;Senftlechner & Hiebl, 2015;Gordini, 2016;Dello Sbarba & Marelli, 2018;Bauweraerts et al, 2020;Glaum, 2020;Pagliarussi & Leme, 2020;Gottlieb et al, 2021). Based on the descriptions of the accountant presented in the reviewed literature, we created labels matching the descriptions and subsequently aggregated the labels into four distinct roles: a traditional bean counter executing traditional accounting tasks, a decision-maker, an advisor, and a protector and mediator.…”

“…In Fig. 2, the accountant is argued to have a relationship with the key concepts and areas presented provided that certain personal traits, education, and experience as well as contingency factors are present accounting change), value and knowledge transfer, succession, accounting choices and performance in a family-owned firm (Gallo & Vilaseca, 1998;Filbeck & Lee, 2000;Klein & Bell, 2007;Caselli & Di Giuli, 2010;Di Giuli et al, 2011;Giovannoni et al, 2011;Hiebl, 2012;Lutz & Schraml, 2011;Hiebl, 2013d;Stergiou et al, 2013;Senftlechner & Hiebl, 2015;Gordini, 2016;Dello Sbarba & Marelli, 2018;Bauweraerts et al, 2020;Glaum, 2020;Pagliarussi & Leme, 2020;Gottlieb et al, 2021).…”

“…To achieve such a shift in focus, future studies could consider relying on cognitive theories, such as person-organization fit (P-O fit) theory or the theory of work adjustment (TWA), which could further the understanding of how the role of an individual accountant evolves vis-à-vis the family business context and provide an answer to questions such as whether an organization is a good fit for an individual accountant rather than the reverse, which is usually what the literature considers (e.g., Hiebl, 2013d). By utilizing these theories, future studies could explore recruitment, selection, and remuneration practices what solution have they adopted Gao et al, 2019 Investigate the role of CFOs in family firms in the oversight of financial reporting quality when the CFO owns equity in the firm Giovannoni et al, 2011 Exploring the evolution of management accounting practices in situ, in family businesses (role, features, and functions) Glaum, 2020 Investigate more deeply why private firms adopt such disparate reporting and disclosure practices Examine more broadly how managers in private firms perceive, evaluate, and decide on financial reporting policy choices Explore earnings management of private, family-owned firms to understand whom the CFOs are "fooling" Examine the assertion that structures in family firms are not as formalized and rigid as in listed firms as the accounting structures and processes in family firms seemingly depend quite strongly on the individual CFO, on his preferences, and on whether he previously worked in financial accounting or controlling, or in a listed company or an audit firm Gottlieb et al, 2021 Explore longitudinally the growth of small family firms over time and with regards to specific situations that introduce organizational restructuring of routines Explore a broader historical analysis to clarify conditions that underlie the co-evolution of several logics towards either assimilation or blending and whether these have different implications for management accounting and control Explore managers' background to further elicit situations and mechanisms that are key to the embeddedness in the business logic and the use of management accounting and control Gurd & Thomas, 2012 Investigate other (than CFO) nonfamily managers contribution to family businesses management Also, to what extent do younger managers consider family businesses to be appropriate development opportunities compared with private and public organizations Hiebl & Mayrleitner, 2019 Consider interactions between the ability and willingness to professionalize management accounting (e.g., family business leader deciding to go to night school or similar) Adding additional aspects of family firm professionalization beyond management accounting Hiebl et al, 2013 Investigate further what are the reasons, underlying drivers and inter-organizational promoters of MA change in family businesses Determine whether stewardship-like culture is indeed dependent on firm size and which conditions are needed for larger firms to maintain cultures of mutual trust What other organizational structures other than MA systems impacts the transition process from family business to non-family business Analyze whether more sophisticated measures of ERM adoptions can capture the specific aspects of ERM in family firms, especially in firms that show high levels of entrepreneurship Investigate ERM approaches differences in small and large firms Replicate study in more ...…”