Evolution of management discussion content in the financial statement: a comparison between Italy and UK

Recently, the socio-economic environment in which companies operate has changed considerably. Three events in particular have affected the management of listed companies: (i) the increasing importance of the intangible assets as basic elements of the competitive advantage in business; (ii) introduction of the IFRS; (iii) the world financial crisis. In this worldwide context, regulators view narrative disclosures as the key to achieving the desired step-change in the quality of corporate reporting. To satisfy the new stakeholder information needs, business reporting has to expand beyond the traditional financial reporting model towards more forward-looking information of a non-financial nature. The paper wants to study the quantity of financial communication in the management discussion for each information category selected and its quality in terms of: time orientation (historical information, forward-looking information, intertemporal information), nature (financial, non-financial) and mode of expression (narrative, quantitative, mixed). The analysis is performed considering the pre-IFRS (2003) and post-IFRS (2008) financial reports in Italy and the UK. Content analysis is the method applied. One of the main results that emerges, for both the Italian and UK companies, is that the quantity of information increases and that this information is always mainly related to the business and it is non-financial, narrative and historical. Very little space is dedicated to forward-looking information.