Does the management communicate in a way that is true to the financial statement?

Abstract

Background and problem description: Previous studies have shown that many Swedish private unlimited companies lack a lot of information in the MD&A. Due to the fact that the annual report, especially the narrative section, stands for an important part of the information used by investors and other stakeholders, it is vital that this information reflects a true and fair view of the company. Purpose: The purpose of this thesis is to answer whether the management communicates in the MD&A in a way that is true to the financial statement, also if this communication reflects the company in a true and fair view. Theoretical frame of reference: The foundation of the theoretical frame of reference in this thesis is different theories discussing how information is reflected in the narrative parts of the annual report. Some studies claim that the information tends to be biased towards positive tones, while others claim that the management communicate in a more truthful way. The last theory discussed in this chapter is the one claiming that willingness to present stable, unchanged information exists. Methodology: The methodology used in this thesis was a content analysis. 152 MD&As of annual reports from the year 2009 of Swedish private unlimited companies were analysed to see how the management communicated. Conclusions: The management uses techniques in the communication process that embellish the truth slightly. However, the empirical investigation showed that the MD&As overall reflected both positive and negative information, suggesting that the management has a willingness to present the company in a true and fair view. Thereby, it can be said that the management communicates in a truthful way. Even though the management‟s communication in the MD&A in some cases may be insufficient, the information reflects the company in a way that is true to the financial statement. Recommendations for further research: To investigate the same companies during a time of prosperity, and see whether the same tendencies could be found and would strengthen the result of this investigation and contribute to previous studies. Another alternative would be to do a similar investigation on MD&As longer than five pages, to see whether the communication in these MD&As also reflects the truth and has the same tendency to be quiet. A final recommendation for further research would be to do a similar content analysis, but on another part in the narrative section of the annual report.