Evaluation of the relationship between social responsibility and the quality of financial reporting in companies admitted to the Tehran Stock Exchange

Dissertation for Master's Degree in Accounting

Abstract:

The purpose of this research is to evaluate the relationship between social responsibility and the quality of financial reporting in companies admitted to the Tehran Stock Exchange. In this research, in order to estimate the quality of financial reporting using the average of three different factors including: annual change in accounts receivable, total obligations and accrual items of working capital, and to measure social responsibility, we use a standard graded checklist. In this research, information on the number of 117 companies admitted to the Tehran Stock Exchange in the period of 2010-2011 has been used. In order to test the hypotheses, regression models and Spss and Eviews software were used. The findings of the research indicate that there is a positive and meaningful relationship between social responsibility and the quality of financial reporting.

Key words: social responsibility, quality of financial reporting

1- Chapter 1

1-1- Introduction

The topic and concept of corporate social responsibility in the last few years due to the growth of non-governmental organizations, protest movements against the power of companies, increase Social awareness, the development of capital markets and public companies, and the financial and moral scandals of large companies have become dominant examples in the corporate governance space. In this way, since about 20 years ago, we have seen a conceptual plan entitled "Corporate Social Responsibility [1]", in the framework of which, many prominent thinkers in the field of management and economics have tried to design frameworks with the aim of increasing the efficiency of social and philanthropic programs of companies and aligning these programs with the strategies of large companies. Through social responsibility, companies in business re-emphasize principles and values, in both processes and operations, and in interactions with other social actors. Corporate social responsibility generally has a voluntary and discretionary nature and refers to activities that go beyond compliance with the law. The social and environmental responsibility of the company may reflect the changing expectations of the society (Babalola [2], 2012).

The capital market is based on information as the driving engine of the economy. The correct flow of information in this market leads to making correct and logical decisions by the participants and ultimately brings economic development and improvement of social welfare. Financial reports are one of the most important sources of information, the purpose of which is to provide the necessary information for economic decisions, and it provides a large part of the information needs of the capital market. Therefore, in this research, the relationship between social responsibility and the quality of financial reporting of companies is examined. They respond to the expectations of the society, their commercial, legal, ethical and social expectations. Because organizations have great social, economic and environmental responsibilities towards their employees, shareholders, customers, government, suppliers and all their stakeholders. Undoubtedly, if individuals, groups, organizations and institutions of the society consider themselves responsible for various events, happenings and crises and each of them try to solve the above-mentioned crises within the limits of their responsibilities and scope of work, many problems will be reduced and a healthy and peaceful society will be created. In other words, no matter how the organization acts, its performance affects the society. Therefore, organizations should do things that are accepted by the society and in accordance with its values. Organizations that cannot adapt to these conditions will not be successful in practice. In other words, in order for organizations to be able to maintain or improve their position in society, in a way that makes them continue to survive and succeed in their work, it is necessary to pay due attention to social responsibility. Therefore, the social responsibility of organizations is the basic factor for the survival of any organization. Wordcom, Adelphi, Cisco, Liucent, and Xerox brought the financial reporting system into crisis. The bankruptcy of such companies caused the finger of accusation to be pointed towards accounting and financial reporting, so that in many cases, these events were called scandals.The bankruptcy of such companies caused the finger of accusation to be pointed towards accounting and financial reporting, so that in many cases these events were referred to as accounting scandals. But this was not the end of the work, but the financial reporting system always faced crises in gaining public trust due to its credibility being damaged (Bolo, 2016). The increase in the number of frauds, which was mixed with the bankruptcy of large companies, brought concerns about the quality of financial reports. The profession of accounting and auditing should try to find solutions in this regard. Changing the approach of developing accounting standards from rules-based standards to principles-based standards, emphasizing the independence of auditors and corporate governance to protect the interests of shareholders, and regulating the disciplinary regulations of the accounting and auditing profession were among the measures taken to gain public trust. On the other hand, academic experts and thinkers, for their part, moved the direction of empirical research to the quality of financial reporting and its effects on the capital market so that they can play a useful role in this regard. Currently, research is being done in connection with the quality of financial reports and its measurement, as well as the effect of accounting guidelines and standards on the quality of financial reporting. Many of these researches attributed the quality of financial reporting of companies from the perspective of the event approach, solely to the accounting and financial reporting standards and guidelines, and tried to explain the quality of financial reporting from the perspective of the external guidelines overseeing it. But despite the same regulatory mechanisms for the financial reporting of companies, it seems that the quality of their financial reporting is not the same, and this indicates that there are probably other factors that cause differences in the quality of financial reporting of companies.

On the other hand, nowadays due to the complexity of the relationship between companies in the society and also with the government and people in the society, a situation has arisen where the companies should be accountable not only to the beneficiaries but also to the people.

Since the 60s, companies have realized the importance of social resources in such a way that this importance showed itself in a decade later in social reporting. The 70s are the beginning and peak of the era of accounting and social reporting. In this decade, many articles were written that show the interest of managers in providing social information, so that in the first decade of the expansion of social accounting, many companies moved towards social reporting.

Therefore, according to the above, these questions arise in the mind, what is the relationship between the quality of financial reporting and social responsibility?

1-3- The importance and necessity of research

1- Doing social responsibility makes The organization achieves its benefits in the long term. 2- Social activities cause less government involvement in issues, which is also beneficial for organizations in the long term. Therefore, company managers have the duty to think about the more general interests of the society in addition to the limited interests of their company. Therefore, social responsibility was considered as a way of limiting and organizing the motivation of managers to make profits. (Khalili and Sassani)

Many organizations have become increasingly aware of the direct economic value of social responsibility and by integrating it as a strategic investment with their main business strategy and management activities, they were able to have a positive impact on society and their environment, and at the same time, strengthen their reputation and credibility. By following this method, they not only generate profit for themselves today, but also stabilize their future position. (Khalili et al. 1384)

4- Financial reports of companies do not have the same information content and it seems that factors and variables lead to differences in the quality of financial information. Acquiring knowledge and awareness of these factors will enable universities, research centers, and standard-setting authorities to provide models and guidelines for increasing the quality of financial reports of commercial entities, and with the flow of reliable and relevant information in the capital market, it will lead to economic prosperity and improve social well-being.

According to the issues raised and the needs of most public and private companies, especially companies admitted to the Tehran Stock Exchange, the impact of social responsibility on the quality of financial reporting is strongly felt. becomes