Quality of accounting information in notes: a perspective on relevance and materiality in oil companies
Keywords:
Notes to the Financial Statements; Materiality; Oil Companies.Abstract
Objective: We evaluate whether the number of immaterial items disclosed in the Notes to the Financial Statements of oil companies decreased after the review of the concept of materiality disclosed in the Conceptual Framework and what characteristics of these companies can explain the disclosure of non-material items.
Method: In the first stage, we analyzed the Notes to the Financial Statements of 98 oil companies from 2015 to 2021 to identify the disclosure of non-material items and used proxies based on Total Assets, Equity, and Revenue. In the second stage, we applied an econometric model to identify the relationship between the disclosure of non-material items and the specific characteristics of the sample companies.
Originality/Relevance: We investigate whether the information reported in the Notes meets its objective of providing useful information, especially after reviewing the concept of materiality in the Conceptual Framework in 2018. This is because the disclosure of irrelevant information in the Notes may hinder the understanding of end users, especially in the case of companies with shares traded in the capital markets of several countries.
Results: We found many immaterial items disclosed in the Notes of oil companies, with over 40% of immaterial items in some cases. Additionally, only the hypothesis related to the risk of litigation cannot be rejected, concluding that evidence supports that the legal system of countries with a higher risk of litigation is associated with greater disclosure of immaterial items.
Theoretical/methodological/practical contributions: The number of immaterial items disclosed by oil companies suggests that there is still a long way to go to make the Explanatory Notes more assertive regarding the quality of the information disclosed, looking at the information that is relevant and meeting the goal of producing useful information for its users.
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