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 ECONOMIC CRISES AND THE INVESTOR PROTECTION

 

Report on the conference „Economic crises and the investor protection”


 May 15, 2010 in the newly constructed building School of Economics a conference "Economic crises and the investor protection" was held. The conference was organized by the Department of Management Accounting under the guidance of prof. Gertruda Krystyna Świderska. The patron of the event was the Warsaw Stock Exchange.

The conference was opened by the Rector of the Warsaw School of Economics Prof. Janusz Stacewicz and the Dean of the College of Business Administration Prof. Andrzej Herman. They welcomed the participants, and also expressed their satisfaction with the organization of the Conference for the presentation of the results of such an important and current research.

The program of the Conference comprised of two sessions. The first was devoted to the results of the statutory research held, entitled "The impact of the quality of financial statements on the improvement the protection of investors and the competitive position of the issuers of securities". Research was conducted in 2007-2009 by the personnel of the Department of Management Accounting and the Institute of Econometrics, Warsaw School of Economics, as part of a project funded by the Ministry of Science and Higher Education.

The first session was chaired by Prof. Irena Hejduk, who, after a short introduction, introuced the speakers, who presented the findings of the different research areas also presenting the latest chances. The following persons were speaking: Prof. Gertrude Świderska, the head of the research project, Szczepan Borowski, M.A., Mariusz Karwowski, Ph.D., Małgorzata Świderska, Ph.D., Marcin Pielaszek, Ph.D.,  and Prof. Marek Gruszczyński.

Professor Gertruda Świderska presented the research team, as well as the objectives, scope of research and developed results. In the course of the research a numerical representation of the disclosures was created in the form of an PCDI index (Polish Corporate Disclosure Index). PCDI is an indicator of the disclosures, the construction of which was originally formulated in this study. It seems that this is the first Polish rate of the disclosures. The indicator is based on a detailed analysis of disclosures in individual companies. For each company 172 disclosure elements were taken into account that were given the relevant expert weights.

The most interesting finding of the research is the information that companies with higher disclosure are characterized by a higher level of investor protection but also better competitive position. It turned out that the current level of disclosures in financial statements prepared in accordance with IAS / IFRS, not only does not adversely affect the competitive position of companies, but on the contrary increases it. 

Another speaker, Szczepan Borowski, presented the methodology and scope of the audit disclosures in the financial statements on the basis of two specific areas of analysis - risk management and fair value. Since 2007, it is mandatory to apply the IFRS 7 on the following aspects: the harmonization of disclosures for all business units, detail guidelines for the presentation of qualitative information about risk management and the introduction of the obligation to present quantitative information about financial risk. Borowski has shown that the scope of fair value in financial reporting increases. He also presented the impact of the economic crisis on the scope of using fair value in the financial statements. The amendments of IAS 39 allow for the reclassification of financial assets in the various categories for the purpose of pricing at the balance sheet date and requires classification methods for the determination of fair value in IFRS 7.

Mariusz Karwowski presented the meaning of reserves from the point of view of the disclosures in the financial statements. He presented a method for testing the degree of disclosure of reserves in the field of accounting policy, mandatory and voluntary disclosures. In the last part of the presentation the results were presented using the example of the chemical industry.

Małgorzata Świderska presented the conclusions of the analysis of the report of the directors. She also presented a method of testing the degree of disclosure of the information contained in the statement of activities in the field of accounting policy, mandatory and voluntary disclosures.

Marcin Pielaszek introduced the measurement of the competitive position of the issuers of securities. After the presentation, why companies do not disclose financial information, Pielaszek presented a definition of the competitive position and key factors of success. According to the accepted definition, competitive position is the sum of the strengths and weaknesses of the company and depends on the key success factors analyzed primarily in the context of the industry in which the firm operates. The most frequently analyzed the key success factors are:

  • Market position of the company (market share) 
  • Technical competence
  • Brand
  • Profitability and financial strength
  • Cost based position of the company

Next, Pielaszek introduced measures adopted for the purpose of research - market share, position, cost, profitability, and the Pentor index. In the last part of his presentation he combines this with the scope of the disclosures.

The last speaker, Professor Marek Gruszczyński, presented the international trends in the field of measuring the competitive position of companies. He presented the research held at SGH in the context of research conducted in other research centers around the world and showed that the extent of Polish research was extensive and comprehensive. He also pointed out possible areas for further development of research in this area.

After the break, another session was started - a panel discussion entitled "The Crisis and the importance of reliable financial statements - what do economists expect, what are the changes in accounting." The panel was led by Prof. Gertruda Krystyna Świderska, and attended by Joanna Dadacz, Director of Accounting Department of the Ministry of Finance, Professor Elżbieta Mączyńska-Ziemacka, Head of the Department of Financial Management of the Warsaw School of Economics, Professor Stanisława Surdykowska - Head of the Department of International Accounting of the Jagiellonian University and Wojciech Więcław, Ph.D., employee the the Department of Management Accounting of the Warsaw School of Economics.

Professor Elżbieta Mączyńska-Ziemacka drew attention to the relationship between the quality of information coming from the accounting system and financial auditing. In her speech she pointed out the risks associated with the connections between the auditor and the audited budiness unit. She pointed to a possible solution to the problem by introducing legislation regulating the process of selection of the auditor and requiring selection by an independent unit.

Next speaker, Joanna Dadacz, confirmed that discussions are made on how to protect investors against potential negative effects caused by the connections between the auditor and the audited budiness unit. She indicated, however, that due to differences in the cost of the audit and the freedom of choice of the auditor it will be difficult to create an appropriate regulatory tool.

Professor Stanisława Surdykowska, in response to a statement by prof. Mączyńska-Ziemackiej, presented arguments indicating the limited ability of auditors and the relationships with audited companies. Referring to the numerous examples mainly from the US market, she noted that economic crimes occurred always with the approval or even at the initiative of the company’s management.

Wojciech Więcław in his speech presented the impact of the valuation of financial assets and liabilities at fair value on the financial position and financial performance of companies listed on the Warsaw Stock Exchange (based on financial statements prepared in accordance with IFRS). The research conducted shows that the valuation of assets and financial liabilities at fair value is the most desirable option. It raises, however, the problem of the impact of credit risk on the valuation of financial liabilities at fair value, and on the the result on financial liabilities.

At the end of the panel discussion other participants of the conference participated in the discussion. A number of important questions was asked relating to investor protection, risk management in the companies and the role of auditors. The conference program caused a lot of interesting discussions and a lively exchange of views. As expected, the organizers ensured that the idea of organizing conferences dedicated to the issues of investor protection will be continued.

CONFERENCE PROGRAM BOARD

  • The Dean of the College of Business Administration Prof. Andrzej Herman
  • The Head of the Department of Management Accounting Prof. Gertruda Świderska
  • Prof. Maria Gmytrasiewicz
  • Prof. Stanisława Surdykowska
  • Prof. Jan Turyna
  • Prof. Jerzy Gierusz
  • Prof. Marek Gruszczyński
  • Prof. Anna Karmańska
  • Prof. Elżbieta Mączyńska-Ziemacka
  • Joanna Dadacz, Director of Accounting Department of the Ministry of Finance