Application of Disclosure Standards in Limited Liability Companies
Accounting is considered the main pillars of which play an important and crucial to the success of economic activity in that it provides to all users of financial statements information to help in the planning, control and performance evaluation and managerial decision-making and investment governance. Accounting is considered as the language of business because they are based on the delivery of information to the users of financial reports, the amount and quality of that information based on the needs of users and the types of decisions ( Weygant et. al. , 2002 ).
Accounting standards have worked to identify ways, procedures and rules necessary for the practical application for accuracy, uniformity and consistency so that a decision maker of the comparison and analysis and interpretation of the figures in the financial reports properly.
To complete benefit expected from accounting through financial statement analysis and interpretation must be that the financial statements are classified in a manner consistent with accounting standards, and must be disclosed fully and properly all information that is necessary to understand the financial statements and assist in the analysis and interpretation (Rashed, 1999).
The principle of information disclosure in the financial statements play an important and central role in the preparation of accounting data published, where a great attention to this principle, whether by the academies of professional accounting or regulatory bodies of the profession.
In order to prepare data that meets the disclosure of adequate and appropriate, there was an increasing interest by the organizers of the companies and regulators for the accounting profession in various countries of the world have information that should be disclosed and how to disclosed.
The Jordanian Law determined the registering companies as (Public Shareholding, Private Shareholding, Limited Liability, General Partnership and Limited Partnership). The importance of this of companies emanates from the importance of the national economic performance and gross domestic product where of creating the availability of effective control tools especially the volume of its activates and capitals and the bases of shareholders were increased in the market domain and other economic sectors and this impose some control procedures and apply wise governance that adopted internationally for companies (companies control department-forth annual report 2008).
Limited Liability Company in brief, made up of two or more, and is the financial disclosure of an independent company from the financial disclosure of each partner and to which the company's assets and money is responsible for the debts and obligations which would not be the partner responsible for those debts, liabilities, losses only to the extent that quotas are owned by the company (article 53 – Jordanian Companies law No. (22) for the year 1997 and its amendments).
Be registered as a limited liability company consists of one person or become owned by one person.
Determines the capital of a limited liability company in Jordanian Dinars, provided that not less than one thousand dinars, divided into shares of equal value dinars per share at least one indivisible (article 54- Jordanian Companies law No. (22) for the year 1997 and its amendments).
Derive a limited liability company name from the objectives and must be added the words (with limited liability), and these words can be abbreviated characters (LLC.) and to include the name and the amount of capital and registration number in all the papers and publications used in her work and contracts (article 55- Jordanian Companies law No. (22) for the year 1997 and its amendments) .
The Director of the company's management or executive board, with at least two members and no more than seven, whether they are partners or than others, according to the provisions in the Statute of the company for four years and may provide the system for less than the manager committee shall elect a Chairman and Vice-Chair and Commissioners to sign on behalf of the company (article 60-A-Jordanian Companies law No. (22) for the year 1997 and its amendments) .
The manager of the limited liability company or the manager committee shall have full power in the management of the company within the limits prescribed by its rules. The actions and behavior or exercised by the manager or board of directors, on behalf of the company are binding on them in the face of others dealing with the company in good faith, irrespective of any restriction contained in the company's Memorandum and Articles of Association (article 60-B-Jordanian Companies law No. (22) for the year 1997 and its amendments ).
The manager of a limited liability company or its managers committee shall prepare the company's annual balance sheet and financial accounts including the profit and loss account, necessary clarifications and cash flow statements, fully audited by a licensed auditors in accordance with recognized and accredited international auditing principles, in addition to the annual report on the company's activities. The manager shall then submit the same to the company's General assembly, during its annual ordinary meeting and shell present the Controller with a copy thereof accompanied by the appropriate recommendations prior to the end of the initial three month period of the new fiscal year of the company (article 62-Jordanian Companies law No. (22) for the year 1997 and its amendments).
This study was to demonstrate the commitment of limited liability companies with the instructions of accounting disclosure, and to identify the effect of some administrative and financial indicators related to the company and some characteristics of the environment in which they operate at the level of commitment of these companies to disclose accounting instructions.
2. Research Importance
Financial reports are of great interest from various professional and legislative bodies, because of its important means of communication of information useful to a number of categories related companies exporting to these reports, and thus the success of the lending or investment decision depends on the availability of the necessary information for decision makers and to enable them to take an appropriate decision can be obtained much of this information through the financial reports published by companies, and thus is disclosed in these reports is a fundamental right of users of these financial reports and necessary benefit to the source of these reports (Jayyousi, 2003). the study of these reports and identify how contain the information required in accordance with the disclosure requirements of accounting is vitally important to make informed decisions and appropriate.
All previous studies and research focused on Public Shareholding companies listed in the financial markets and ignored other types of companies, So this study is The first of its kind, which provides a spot light on the limited liability company which are less controlled in applying the standards of accounting disclosure .
3. Research Problem
Since the annual financial reports of the most important primary sources of data and information used by investors in building their investment decisions and financial institutions in granting loans and credit decision making and increases confidence in the reporting obligation under international accounting standards and disclosure requirements of local Jordanian law, so The problem of this study is to answer the following questions :
What is the degree of commitment for limited liability companies with disclosure requirements and accounting standards ?
Is there a relationship between internal factors (such as company style and financial indicators) and the actual level of disclosure in financial reports issued by the Limited Liability Companies ?
Is there a relationship between external factors (such as the economic sector and the size of the audit company) and the level of disclosure of the actual financial reports issued by the Limited Liability Companies ?
4. Research Objectives
This study aims in general to identify the actual level of disclosure in financial reports issued by limited liability companies, as well as identify the factors that can affect the quantity and quality of information disclosed and the purpose of this study to achieve the following objectives:
Know the degree of commitment for limited liability companies with disclosure requirements and accounting standards.
Determine the relationship between internal factors (such as company style and financial indicators) and the actual level of disclosure in financial reports issued by the Limited Liability Companies.
Determine the relationship between external factors (such as the economic sector and the size of the audit company) and the level of disclosure of the actual financial reports issued by the Limited Liability Companies.
5. Literature Survey
There are no previous studies spoke openly of accounting disclosure standards in limited liability companies, for that I based on some studies of the same subject but on public shareholding companies which are :
The study of Cerf (1961), from the pioneering studies on the relationship between disclosure and characteristics of the company in America, where a promising indicator of disclosure identified the types of information that must be displayed by the company's annual report, on the basis of studying the process of investment decision, and then applied the index on a sample of annual financial reports for companies to extract the degree of disclosure for each company according to its index, and then link the findings of three characteristics: the size of the company as measured by total assets and number of shareholders, the insertion in the financial market, and the researcher found a positive correlation between the degree of disclosure of all three properties of the company.
Study Gharaybeh and Naber (1987), addressing the availability of disclosures in annual financial reports of the industrial public shareholding companies in Jordan, where the study aimed mainly to identify the availability of disclosures in the report as well as the extent of the relationship between these explanations and some characteristics of companies, such as total assets and return on equity and the number of shareholders. The aim of the study as well as to choose the extent of consensus among financial analysts and investors in evaluating the relative importance of the information that is disclosed. The researchers used the questionnaire included (36) items of information provided by the published financial statements. The results showed that the rate of disclosure of information which are contained in resolution is low, and found similarities between the needs of individual investors and financial analysts with respect to the financial statements. As well as the study found a positive correlation between the proportion of disclosure and total assets of the company and the number of shareholders.
Study of Wallace et al. (1994), This study focused on analyzing the relationship between the degree of accounting disclosure in the financial reports and a number of characteristics of these companies in a sample of Spanish companies, a (50) companies from non-financial companies registered in each of the Madrid Stock Exchange and the Stock Exchange in addition to Valencia (100) Company of non-financial companies not registered in the stock market.
The characteristics of companies has been divided into three groups according to the following classification:
1 - characteristics associated with the structure of the company, including: the size of firms (asset size, sales volume), and the structure of the funding (the percentage of loans, property rights).
2 - characteristics associated with the performance of the company and include: (liquidity ratio, rate of return, profitability ratio).
3 - characteristics associated with the market and include: (nature of activity, registration of the securities market, the external auditor).
And the study showed that there is a positive relationship between the size of each level of disclosure of the size of the company and the company's stock market, while there was no link between the level of disclosure of accounting and liquidity ratio.
Khcharmeh study (1999), the aim of this study was to determine the level of disclosure in annual financial reports published by the industrial and service companies of Jordan and to identify whether there is improvement in the level of disclosure by these companies during the study period from 1988 to 1995, the study has also identified after some of the factors in the level of disclosure factors such as asset size and sales volume and the proportion of debt, and the liquidity ratio, and the nature of the activity.
The study found that the level of disclosure in corporate financial reports, the sample which consisted of (50) public shareholding companies, industrial and service in the decline in the period between 1988 to 1993. With some exceptions, which reduced the level of disclosure in the annual financial reports during this period, the sample companies increased by 50%. The study also demonstrated a relationship between the liquidity ratio and the proportion of debt and the nature of the activity and the level of disclosure in annual financial reports for these companies, while the study did not demonstrate a relationship between each of the sales volume and level of disclosure in financial reports of companies during the period
Study of Abu-Nassar and Rutherford (2000), conducted on a sample of individual investors and institutional investors and lenders, academics, and authors of the financial statements in Jordan to identify the most important information to be published in the annual financial reports required by the users of financial statements, the study aimed to measure the degree of actual disclosure of such information in annual reports of public shareholding companies in Jordan. Survey results showed the presence of homogeneity among users of financial statements in assessing the importance of information to be published in annual reports, while showing a difference between the preparers and users of financial statements in assessing the significance of this information, and the other results of the study of the low level of disclosure in annual financial reports and not meet the basic requirements of information needed by users.
Hmeidat study (2004), The study aimed to identify the extent to which industrial companies listed on the ASE with disclosure requirements and instructions of the International Securities Commission when preparing their annual financial reports, in addition to examining the relationship between the degree of commitment to disclosure requirements and certain characteristics of companies represented in the size of the company, and the number of shareholders, return on equity, and the old in the industry, and size of the debt. The study attempted to identify the relative importance of the disclosure requirements of domestic and international investor perspective of the individual and institutional investor, and the degree of discrepancy between these two categories to determine the importance of disclosure requirements.
The study found that the rate of commitment to disclosure requirements according to the requirements of international accounting 79%, while the rate of commitment to the requirements of the Securities 79.4%. And that there are discrepancies between the companies adhere to disclosure requirements in accordance with the requirements of international accounting and disclosure requirements of the Securities Commission. The study showed that there a positive relationship between firm size and degree of compliance with disclosure requirements contained in the international accounting standards, and a fresh relationship between returns on equity, and the degree of compliance with disclosure requirements of the Securities Commission, the study did not demonstrate a relationship between the degree of compliance with those requirements and other characteristics of companies. showed study that there is a difference in assessing the relative importance of the disclosure requirements contained in the international accounting standards, the individual investor and institutional investor, while there is no disparity between the two groups in assessing the relative importance of the disclosure requirements in the instructions of securities.
Study of Tsamenyi et. al. (2007), Which aimed to use the level of disclosure to examine the corporate governance practices of listed companies in Ghana. The study examined the impact of factors (ownership structure, the distribution of shares, firm size and leverage) at the level of disclosure. The study sample included (22) companies listed in the financial market, Ghana, where the study showed that the rate of disclosure is low in Ghana compared with other developing countries . In addition, the study showed that the structure of ownership, distribution of shares, the size of the company with significant impact on the level of disclosure, while the leverage of no significant impact in influencing the level of disclosure.
6. Theoretical Framework
This section reviews the variables and models, society and sample of the study and data collection methods of the study.
6.1. Operational Definitions:
A. Dependent variable
The Level of Disclosure : Which measures the extent to which Limited Liability Companies applying International Financial Reporting Standards (IAS) and (IFRS) in its financial statement (in general form).
B. Independent variable
First: The Internal Factors
Company Control Environment: Represent How senior executive management deal with financial , accounting and other administrative matters and the management acceptance of the application of a new standards , for example with an strong regulatory environment, the function depend on the basis on risk assessment, which lead company to discloses more and overcome the fear of the new test for disclosure, also its include the Knowledge and experience of financial managers about disclosure criteria (IAS & IFRS) and its application in the financial reports.
Company Accounting Principles and Standards: Fundamentals of accounting adopted by the company to register its daily transactions and directed its annual financial reports and the accounting information system used.
Company Financial Position : The financial indicators of the company such as company size , its profitability, liquidity, solvency and owners equity and its effect on the Borrowing decision and capital expansion and the disclosure for Tax purposes .
Nature of the Company Partners: the Relationship partner in the firm, whether a family business or non-family company and the number of partners and their willingness to disclosure on the accounting standards that affect them personally like its personal privileges.
Cost of Disclosure: Some international standards require some high-cost disclosure requirement, such as high-efficiency systems to issue certain reports and appointment of people with high efficiency and the ability of company to Provide that .
Second: The External Factors
Economic Sector : There are some economic sectors require full and much disclosure of certain standards not required by other sectors , like financial investments and banks sectors need more disclosure than Industrial, commercial and service sectors .
Legal Environment : include all actions and policies that govern limited liability companies and the effect of the Lack of legal control Institutions ( the Companies Control Department is the only legal control institution for the limited liability companies Unlike public shareholding companies which controlled by more than one legal institution) , and the Lack of models of the financial statements of limited liability companies in the Companies Control Department and the ineffectiveness of the regulatory authorities in this regard, and the most important legal issues is the disclosure for Tax purposes.
Size of Audit Firm : The most important characteristic of the quality of the audit company is the quality of audited financial statements, the most large and trusted audit companies is the (Big 4) which are :
PricewaterhouseCoopers , Its agent in Jordan (Bawab & partners company).
Deloitte & Touché, Its agent in Jordan ( Saba & partners company).
KPMG , Its agent in Jordan (Auditors Distributor Company).
Ernst & Young, Its agent in Jordan (United Accountants Company).
Other factors that affect disclosure in limited liability companies, It will not be measured in this study ( for knowledge and mention only ) :
The nature of the accounting standards themselves: there are some standards that relate to public shareholding companies do not apply to the financial statements of limited liability companies, such as ( IFRS 8 ) and ( IAS 33) .
Company financial instrument : which is any contract created an asset or a financial obligation or a right of ownership to another company, such as preferred and option stock with (AIS 32 & IFRS 7 & IAS 39).
Some disclosure requirements and the ability of limited liability companies to respond to those disclosures : Most limited liability companies in Jordan do not manage their accounts accordance correct foundations and methodology such as risk management, capital management, asset management and other accounts while the international accounting standards prepared according to a basis assume that companies are running their accounts accordance those correct foundations, Thus this gap between disclosure requirements and the reality of companies constitutes a barrier to the quality of disclosure.
7.1. Main hypothesis:
HO: There is no commitment for limited liability companies with disclosure requirements and accounting standards.
HO1: There is no statistical significant effect of Company Control Environment on the level of disclosure in financial statement of limited liability companies in Jordan.
HO2: There is no statistical significant effect of Company Accounting Principles and Standards on the level of disclosure in financial statement of limited liability companies in Jordan.
HO3: There is no statistical significant effect of Company Financial Position on the level of disclosure in financial statement of limited liability companies in Jordan.
HO4: There is no statistical significant effect of Nature of the Company Partners on the level of disclosure in financial statement of limited liability companies in Jordan.
HO5: There is no statistical significant effect of Cost of Disclosure on the level of disclosure in financial statement of limited liability companies in Jordan.
HO6: There is no statistical significant effect of Economic Sector on the level of disclosure in financial statement of limited liability companies in Jordan.
HO7: There is no statistical significant effect of Size of Audit Firm on the level of disclosure in financial statement of limited liability companies in Jordan.
HO8: There is no statistical significant effect of Legal Environment on the level of disclosure in financial statement of limited liability companies in Jordan.
8.1. Population and Sample
As we see above we have a large population, so the sample must be representative and suitable for this size so I will try to take 20 companies from each economic sector for a total of 100 companies.
8.2. Data Collection Methods
The study utilized a primary method of data collection which is a five Point Likert-type Questionnaire Scaled from ( 1 Strongly Agree ) to ( 5 Strongly Disagree ) .
The questionnaire will be distributed to the financial manager of 100 limited liability companies in Jordan , for additional help I will distributed the same questionnaire to the Auditors in some auditing firms in Jordan because of their experience in auditing many limited liability companies in Jordan.
8.3. Applied Statistical Methods
Descriptive statistics (means, standard deviation, standard error of mean) will be used to describe the characteristic of sample and the response to the questionnaire. Statistical Package for Social Science (SPSS) will be use to Analyze and investigate the problem of the study using t-test, f-test and ANOVA.
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