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May 28, 2021 08:02 PM

Exploring the going concern statement in private default firms by comparing IFRS and Italian GAAP

Italy is one of the precursor countries in the European Union that considered adoption of IFRS for the financial statements of non-listed companies. Whereas IFRS adoption favours shareholders, Italian firms adhering to the Civil Code prepare their financial statements with the protection of creditor interests in mind. This leads to the question: “Does the adoption of different accounting standards affect the quality of the going concern statement?”

In our article “Exploring the Going Concern Statement, Readability and Length Cues as Indicators of Distress at Italian Companies” in the “Accounting in Europe” Journal (https://doi.org/10.1080/17449480.2021.1933112), Nourhene BenYoussef, Giuseppe Savioli and I explored the going concern statement, readability and length cues as indicators of Italian private companies in default. In the article, we showed the disclosures of defaulting companies contain 1) low readability; 2) greater uncertainty and confusing information; and 3) a lengthy going concern statement compared to non-defaulting firms. It seems that defaulting Italian companies attempt to hide their default risk.

This is the first study to analyse the going concern statement and its correlation with Italian business default by comparing International Financial Reporting Standards (IFRS) and Italian Generally Accepted Accounting Principles (GAAP). To the best of our knowledge, this is also the first study that analyses narrative text by private Italian firms, that is in civil-law country, distinguished by a less active capital market and creditor protection. Our study responds to the call by Pietra (2017) to explain the 2015 reform of Italian Civile Code regulation about annual financial statements and its impact on comparability with IFRS-compliant financial statements. It also meets the suggestion by Matonti and Iuliano (2012) for investigating private financial reporting in civil-law countries such as Italy.

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About cristina.gianfelici

University of Bologna
Adjunct Professor

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