Breakdown Between Mandatory And Voluntary Disclosure In Vanke Accounting Essay


China Vanke Co., Ltd., established in May 1984, is the largest professional residential development company, but also the representation of blue chip in real estate stock market. It is headquartered in Shenzhen (Vanke website). To 2009, Vanke has set up branch offices in 20 cities. In 2008, the company completed new construction area of 5.233 million square meters, completed an area of 5.294 million square meters, the sales amount reached 47.87 billion yuan, settlement income was 40.49 billion yuan, and net profit reached 4.03 billion yuan. In 2009, the company's operating income was 48.6 billion, operating profit reached 14.2 billion yuan, gross margin was 29.2%, and net profit reached 5.28 billion yuan (Vanke Annual Report 2009).

1.2 Case background

In the process for the Chinese listed companies in accordance with the voluntary disclosure index VDI score sheet to rate the sample of 248 companies, in the case of the sample mean of only 53.4 points, China Vanke-A (stock code 000002) obtained the highest score of 83 points, which to some extent shows that Vanke in the quantity and quality of voluntary disclosure, is walking in the forefront of the Chinese A share listed companies.

2. Breakdown between mandatory and voluntary disclosure in Vanke




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To Shareholders



Basic Corporate Information



Accounts and Financial Highlights



Change in Share Capital and Shareholders



Corporate Governance Structure



Summary of shareholders' meetings



Directors' Report



Management Discussion & Analysis



Significant Events



Chronology of 2009



Financial Report



Independent Auditor's Report



Consolidated income statement



Consolidated balance sheet



Consolidated statement of changes in equity



Consolidated cash flow statement



Accounting policies


Take Vanke Company's regular reports and interim reports in 2009 for example, I conducted a detailed analysis of Vanke Company's scores in background information, other information, key non-financial information, forecasting information, management discussion and analysis of these five voluntary disclosure items.

In the first disclosure of background information, there are a total of 8 items, the highest score was 16 points, and Vanke Company scored 15 points. This is mainly because Vanke belongs to the real estate industry, and since 2008, the community carried out the fierce debate on housing and real estate bubbles (Wang, 2009). In this controversy, the developers as a whole suffered a severe challenge unprecedentedly. The year of 2009 can be regarded as the "regulation year" for real estate industry, Vanke Company as the leading of real estate companies in 2009 annual report, particularly in its "Letters to shareholders" used a large space for the information disclosure of the company business, product and corporate strategy, and conducted the in-depth analysis of the obstacles faced by the current real estate industry, the impact of these obstacles on the industry and the company, and the company's response and the company's strategic plans. Vanke Company hopes to gain investors and market recognition with comprehensive and detailed industry background information for disclosure

In the disclosure of other information in the second category of the company, there are a total of 5 items, the highest score was 10 points, and Vanke Company scored 5 points. In addition to environmental and related information are not disclosed, the Vanke Company's social responsibility, internal control, unrecognized intangible assets and R & D activities are covered. In the disclosure of social responsibility and relevant information, Vanke carried out the detailed voluntary disclosure, and proposed to "create the city" as the goal. In its voluntary disclosure of information it indicated a positive attitude to its social responsibility, which is easy to impress investors.

In the disclosure of key non-financial information in the third category, there are a total of 18 items, the highest score was 39 points, and Vanke Company scored 29 points, which is one type of information with the lowest score by Vanke and also is an item with the lowest score in all 248 samples. The information which are not disclosed by Vanke Company include return rate, profit and loss critical point, the number of raw material consumption, raw material consumption prices, input-output ratio and the product sales price (Wang, 2009). So far no listed company has published the information of profit and loss critical point, the number of raw material consumption, raw material consumption prices and input-output ratio, as they relate to the core trade secrets of listed companies.

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For the information of return rates and product selling prices, as Vanke's special nature of the real estate industry, these two items may be related to the company's image and national macro-control policies on the price effects and thus were not disclosed. For the item of the average salary for each employee, most of the sample companies did not report, Vanke Company is no exception. In staff salary, Vanke only reported part of the data range of executive pay: "in the company as directors, supervisors and senior management the annual total remuneration is 21.888 million yuan, of which there is one in 3-3.5 million yuan; one in 2.5-3million yuan; two in 2-2.5 billion yuan; four in 1.5-2 million yuan; 3 in 1-1.5 million yuan, 1 in 0.5-1 million yuan. The maximum amount of payroll for the top three directors is 7.15 million yuan, the amount of the three highest total salary of senior management is 8.18 million yuan" (Vanke Annual Report 2009).

In the disclosure of the fourth type of information projections, there are a total of 8 items, the highest was 16 points, and Vanke scored 14 points. Vanke in the three items of the impact of uncertainty on sales, prior year sales forecasts compared with the actual number, and capital expenditures and R & D expenditure projections did not relate to the relevant data, identified only as a qualitative analysis. Vanke is not disclosed in the capital expenditure and R & D expenditure projections, which may be related to the nature of the real estate industry, and the listed companies in real estate industry generally did not disclose the investment in R & D (Wang, 2009). In Vanke's 2009 annual report, it just pointed out that its R & D departments will be in environmental protection and use resource conservation technologies to continue its work, which aims at maintaining its real estate products to always walk on the forefront in the energy saving, land saving, and environmental standards. The disclosure of the sales forecast, the impact of future market opportunities on sales, the impact of the future market risk on sales were referred in Vanke's annual report, but because the real estate industry in 2009 was influenced by national macro-control, the profit forecast and the market risk analysis are unable to obtain quantitative data, and therefore cannot disclose quantitative information. Focusing on the macro risk for the state's hard-line attitude of the inhibition price, Vanke Company disclosed that its managers have made the expectation for the coming regulation of the industry in late 2008, and in early 2009, Vanke adjusted the business in the operations with the potential risk in the Yangtze River Delta, and thus it will not have a significant impact on the operations of the company and its future performance.

In the fifth type of the disclosure of the management discussion and analysis, a total of 11 projects, the highest 22 points, Vanke Company scored 21 points. Vanke in the report of the Board of Directors in 2009 annual report disclosed the management discussion and analysis, mainly from the three aspects of views in market environmental changes and management, company response and business review, management and innovation for discourse. The management discussion and analysis did not conduct the details in changes in operating income, cost of sales, sales volume, and only mentioned the market share. On the information in this regard, the Vanke Company in Board's other reports and notes of financial statements conducted a more detailed disclosure, such as changes in inventories, accounts receivable, changes in cost of sales and management changes, changes in interest expense and interest income and other changes in net income.

3. Scope of impression management

Impression management is the process used to control other people to form their own impressions, originally belonging to the scope of social psychology (Schlenker, 2000). The impression management in the behavior in the company refers to the corporate behavior by the intentional or unintentional attempt to control the main audience's impression. The key audiences of corporate information include investors, creditors, government agencies, suppliers, customers, employees and all other enterprises stakeholders. Information disclosure is the most important means for the company's stakeholders to understand the company. Through voluntary disclosure, the company is likely to influence others through impression management to the formation of the company's image, and the information asymmetry between the owners and operators makes impression management possible.

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The impression management in voluntary disclosure includes two ways: the first means is self-attribution, which is the most common way for the listed company in the voluntary disclosure (Leary & Kowalski, 1990). Vanke managers in the voluntary disclosure tend to attribute the enhancement of the performance to the listed company's own efforts, but attribute the problem of declining performance to the economic environment. Especially in the voluntary disclosure there is considerable arbitrariness, if the future trend is positive, the voluntary disclosure will give fully optimistic estimates, and when the future trend is bad, it will not try to disclose, or only for part of the disclosure or vague disclosure.

The second way of impression management is artificially to adjust the language readability of the information disclosure (Leary & Kowalski, 1990). In accordance with the expression of information, the disclosure contents of Vanke Company can be divided into two parts, data information and language information. Data information is the major economic indicators presented by digital form in listed companies. All the items in balance sheet, income statement, cash flow belong to the data information. Financial statement is the main medium for listed companies to provide data information. Language information is information with all other text descriptions as the main expression, in addition to the data information in corporate reporting.

4. External influences on Vanke's financial reporting

4.1 The adaptability of accounting theory

(1) The basis of accounting recognition is subjective.

Accrual after solving the proportion issue between income and expenses will confirm the value of some assets. This recognition needs for accounting staff estimates and judgments based on experience, the results may deviate from the actual situation, and affect the authenticity of accounting information (Xiao & Yuan, 2007); for the same economic matters different accounting staff will use different accounting treatment, the results are also different, which will have a huge impact on financial reporting.

(2) The basis of accounting measurement has limitations.

Monetary measurement itself has some limitations. In the event of inflation or deflation, the financial position and operating results reflected in the financial statements will be distorted, which cannot truly reflect the actual situation of enterprise and mislead investors. In addition, the company has some information that is difficult to measure in monetary terms, such as intellectual property and human resources were excluded in the financial statements and reports, users cannot obtain this information, resulting in the information asymmetry between operators and investors.

4.2 The choice of accounting policy

Choice of accounting policies left a certain amount of flexibility in business. The choice of accounting treatment will also increase the likelihood of false accounting information generated. The choice of accounting policies will be affected by many external factors.

(1) Liability factors.

"Corporate creditors often use the audited financial statements data to monitor debt contracts in order to save the agency cost, and limit management personnel to protect their own interests". And debt contracts generally require company to maintain a certain current ratio, interest coverage, etc. that the terms of liquidity or solvency (Eng & Mak, 2003). The authorities will choose favorable accounting policies to complete the above accounting data indicators. Even if company does not have debt contracts, in order to win business credit partner's credit funds, corporate management may adopt the accounting policies conducive to increasing earnings.

(2) The government factors.

When the enterprise managers choose accounting policy, the government mainly considers two aspects: First, taxes. The corporate income tax is generally profit-based, due to different accounting methods affect the enterprise income tax, corporate managers in the choice of accounting policy, will surely take into account the impact on tax (Collett & Hrasky, 2005). Second, the government's concern, the huge corporate profits will be the Government's special attention, the government may take some restrictive policies are not conducive to business, business management authorities to prevent the government to restrict the use of enterprise data, often take profits or reduce deferred benefit accounting policies.

Therefore, the choice of accounting policy may result in distortion of accounting information, and may also affect the comparability of accounting information, as well as will increase the difficulty of audit judgment.

(3) Other agencies. Today's market is closely related, any individual or organization is not alone, and is subject to influence from all sides. Enterprise as part of the basic market, it will be the implications.

(i) The impact of external oversight bodies.

In the market, if the external monitor cannot play its role well, then the stability of the market order will be disrupted. Currently on the market there are some illegal cases, such as fraud in the prospectus wrongdoing, regulators did not detect. The Stock Exchange's regulatory control of the listed financial reporting disclosure is in the period of continuous disclosure, for the carrier of the continuing disclosure of financial information adopts the audit approach.

(ii) The dislocation of intermediary function. Now enterprise, especially listed company, needs to contact with many intermediaries. If the agency in the disclosure of financial reports deals with the listed company on the issue and regulatory authorities together, it will make the regulator at a disadvantage in the professional level, and will increase the difficulty of monitoring to ensure the quality of financial reporting more difficult.

5. Classification of accounting system

(1) According to the unit established under the accounting system can be divided into (Hopwood, 1971):

Uniform accounting system: It is the accounting system designated by the financial sector and financial sector authorities or the local competent authorities.æœ-读显示对应的拉丁å­-符的拼音


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Internal accounting system: Internal accounting system, is a series of interrelated system and methods adopted by a company in order to protect the safety and integrity of its assets, to ensure that its operations comply with national laws, regulations and internal regulatory requirements and improve management efficiency and prevent fraud, risk control and other purposes.

(2) According to the information provided by the accounting system can be divided into (Hopwood, 1971):

Financial accounting system (Introvert accounting system): It is the common name of company's financial systems and accounting systems. Specifically it refers to a series of corporate financial accounting procedures established in the laws, regulations and articles of association.

Management accounting system (Extrovert accounting system): A management accounting system collects financial data from business operations such as sales data, shifts in inventory and changes in raw materials costs, then converts the information to analysis reports (Morris, 2011).

From the above analysis, the Vanke Company belongs to the Internal accounting system and management accounting system.

6. Conclusion

In summary, the disclosure of accounting information is the results of each game by business stakeholders, mandatory disclosure and voluntary disclosure seem to be a contradiction of the concepts, but these two disclosure systems are in essence intrinsically linked, mandatory disclosure and voluntary disclosure choices are to improve the quality of accounting information for the target.

With the economic globalization and the further standardization of the market, to adapt the complex and highly uncertain economic environment, the voluntary disclosure in companies will show a growth trend.