For this journal, you will reflect on what you have learned so far in the course. Select and research the financial documents of a firm to include balance sheet, income statement, etc. Examine the fir

Marketing and Management of Innovations ISSN 2227-6718 (on-line)

Issue 2, 2021 ISSN 2218-4511 (print)

Cite as: Zadorozhnyi, Z.-M., Ometsinska, I., & Muravskiy, V. (2021). Determinants of Firm’s Innovation: Increasing

the Transparency of Financial Statements. Marketing and Management of Innovations, 2, 74-86.

http://doi.org/10.21272/mmi.2021.2-06

Received: 27 November 2020 Accepted: 04 March 2021 Published: 26 June 2021

distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://

creativecommons.org/licenses/by/ 4.0/).

https://doi.org/10.21272/mmi.2021.2-06 JEL Classification: M10, M40, M41

Zenovii-Mykhaylo Zadorozhnyi,

Dr.Sc., Professor, West Ukrainian National University, Ukraine

ORCID ID, 0000-0002-2857-8504

email: [email protected]

Iryna Ometsinska,

Ph.D., Associate Professor, West Ukrainian National University, Ukraine

ORCID ID, 0000-0001-6000-6904

email: [email protected]

Volodymyr Muravskyi,

Dr.Sc., Associate Professor, West Ukrainian National University, Ukraine

ORCID ID, 0000-0002-6423-9059

email: [email protected]

Correspondence author: [email protected]

DETERMINANTS OF FIRM'S INNOVATION: INCREASING THE TRANSPARENCY OF FINANCIAL

STATEMENTS

Abstract. In terms of economic globalization and digitalization, the enterprise's financial reporting is a

communication channel for transferring accounting information to stakeholders. The full and effective perception of

user credentials is threatened by communication barriers that could lead to erroneous management decisions. Thus,

it is necessary to improve financial reporting through feedback mechanisms to minimize the negative impact of

communication threats to the accounting system. The purpose of this article is to identify basic communication of

financial reporting, their minimization through ensuring the transparency of accounting information and calculation of

analytical indicators. The article highlights the basic communication barriers to the perception of accounting

information, which include unclear financial reporting indicators due to different interpretations of accounting concepts;

the inadequate level of knowledge of the subjects of the communication process (communicator and recipient); the

inaccuracy of information due to intentional or unintentional actions; lack of clarity in accounting regulations on the

interpretation and structure of individual objects of accounting; information oversaturation; availability of non-target

communications; availability of informal communications; inefficiency of the communication channel. The influence of

communication threats to the accounting system on the example of forming the Ukrainian form of financial reporting

Balance (Financial Statement) is substantiated. It is proposed to transform the form of financial statements Balance

Sheet (Financial Statement) in Ukraine by separating two sections in assets «Non-current assets» and «Current

assets») and three in liabilities («Equity», «Long-term liabilities» and «Current liabilities») to optimize the analysis of

the financial condition, which will contribute to the effective perception of accounting and analytical data by

stakeholders. The criterion of minimizing the impact of communication risks should be used to transform other forms

of financial and integrated reporting. The proposals could be useful in reformatting financial reporting forms in other

countries to ensure transparency and maximize the perception of accounting information.

Keywords: financial statements, communication barriers, communication links, information users, transparency

of financial statements, balance sheet (statement of financial position), liquidity ratios.

Introduction. Accounting is the main information base for enterprise management, its activity

planning, and strategy development. Accounting also plays an essential role in economic management:

the generated data of enterprises allow establishing patterns and trends in the development of industries,

regions, and the economy as a whole. Accounting information has also played an important role in

globalization processes, forming the foundations of sustainable economic development, the attraction of

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foreign capital, and the determination of innovation and investment priorities for the development of

enterprises, regions, and countries. However, implementing the basic function of accounting in terms of

the production of information field for the management system is accompanied by a significant number of

problems related to the quality of accounting information, its ability to meet all the information needs of

external and internal users. Accounting methodology and techniques often depend on many objective and

subjective factors that create significant barriers to information users' communication. As an integral part

of it, the accounting system and financial statements are improved to consider all economic relations

elements. However, these processes often increase the communication barriers of accounting information,

manifested in the misperception of its indicators due to the complicated terminological field,

misunderstanding of the structure of individual accounting objects, and information overload. That leads

to errors in assessing the activities of enterprises and, as a consequence, understanding the problems of

economic development of the country. This situation requires research to minimize communication barriers

to financial reporting as a primary source of information for management decisions.

Literature Review. The scientific literature has repeatedly raised the issue of forming accounting

information that would meet the needs of its users. Scientists explore problems that create barriers in

communication as accounting systems with other economic systems and the sender of accounting

information (communicator) with the recipient. Thus, the scientific positioning of the accounting system as

a communication basis for the information integration of stakeholders into a single information system, the

operation of which is threatened by communication barriers, was initiated by us in scientific work

(Zadorozhny et al., 2018). Stattler and Grabel (2020) identified communication barriers that create an

obstacle to the transparency of financial statements: accounting anomalies; the rapid growth of income

and/or profit; weakly visible weaknesses of internal control; noticeably «aggressive» financial actions of

senior management, and the shortcomings of the personality of leaders.

In turn, Haleem and Kevin (2018) determined the competence of its users as one of the main factors

influencing the accounting information system. B. Pierce and T. O'Dea pointed out the differences in the

perception of accounting information by its developer and user. Besides, the researcher outlined the

problems of these differences (Pierce and O'Dea, 2003). O. A. Lahovska emphasized that establishing

the obstacles in accounting communications is directly proportional to the effectiveness of the enterprise

management system (Lahovska, 2011). M. O. Kozlova also singled out groups of communication barriers,

with an important role played by professionalism in accounting, which in turn could provoke such barriers.

Besides, the researcher emphasized the need for quality language training of accountants (Kozlova,

2013). N.Viswa examined the probability of communication barriers in providing administrative services

based on the questionnaires of accounting specialists from local self-government bodies and static data.

The researcher explained the impact of information barriers in forming financial statements by local

governments on the possibility of fraud in the use of local funds. The lack of transparency of financial

statements is the non-compliance with International Financial Report Standards in statement preparation

(Viswa, 2016). It stands to note that in 2009, L. V.Gheorghe explained the direct link between financial

reporting transparency and compliance with IAS/IFRS (Gheorghe, 2009). The increase in the quality and

transparency of financial reporting in 2020 (Figure 1) is explained by the IAS/IFRS requirements

introduction by EU countries.

Report on Eurostat statistics 2020 edition on user satisfaction with the quality of the financial

statements in the EU showed a growing level of informativeness and transparency of accounting

information (Figure 1). Compared to 2015, in 2020, the level of satisfaction of the quality of financial

statements raised from 63.40% to 80.60%. And only 2.50% of stakeholders in 2020 noted a low or very

low statement quality (Eurostat, 2020). Researchers from different countries are exploring the

transparency of financial reporting by minimizing communication barriers with different types of accounting

information users. For example, D. Wallace justified information threats in communications with

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counterparties and the possibility of their elimination through the implementation of transparency of

financial statements. Furthermore, the scientist proved the existence of different options for

communication barriers when interacting separately with debtors and separately with creditors, which

requires the improvement of various indicators of financial reporting (Wallace, 2020).

Figure 1. Stakeholders' satisfaction of transparency and informativeness of accounting and

statements in EU countries

Sources: developed by the authors based on (Eurostat, 2020).

Similarly, Cendy and Khoirul (2019) explain the role of financial statements prepared under IFRS in

the process of communication between enterprises and government institutions. The authors developed

a method of overcoming communication noise in interaction with government agencies by increasing the

transparency of reporting indicators. Lander and Auger (2008) identified the economic effect of

communication barriers. Researchers have explained the relationship between economic development

and financial reporting transparency.

There are also scientific studies of national features of the financial reporting transparency

implementation for minimizing communication barriers: disclosure of financial statements in the Slovak

Republic by explaining the impact of transparency of reporting indicators on communications with the fiscal

service (Kosiciarova and Vincurova, 2015); the order of interaction of construction companies in the

Russian Federation with potential buyers of real estate through financial reporting mechanisms (Rozhnova

and Atazhanova, 2016); reducing corruption barriers to business development through transparent

financial reporting in Iran (Mohammadi and Nezhad, 2015); Serbia's integration into the EU through

transparency of accounting and financial reporting (Spasić and Denčić-Mihajlov, 2014); the impact of

financial reporting transparency on oil pricing in the Persian region (Parsian et al., 2017); distinctive

features in Ireland's reporting compared to the United Kingdom and the United States to ensure

transparency (Moretti et al., 2017) and other. In addition, scientists explained that in different countries,

there are individual characteristics of communication barriers.

The results of the analysis of the works of several Ukrainian economists, in particular Poliova and

Kravtsova (2018), Tomchuk et al. ( 2016), Tyutyunnyk and Tyutyunnyk (2016), Oleksandrenko (2014),

Chaika et al.(2018), Kindratska (2019), Tenytska and Hryshko (2015), Khalatur et al. (2017), Kharchenko

(2015), Serebriakova and Grishchenko (2017) showed that communication barriers to financial reporting

cause the formation of different values of the same indicators to assess the financial performance of the

enterprise. However, researchers do not pay enough attention to ensuring the transparency of financial

reporting as the main way of minimizing communication barriers, which actualizes research in this area

63,40 67,00 67,30 59,50 80,60

18,30 17,00 14,80

14,80

13,60 12,00 14,50 14,50 19,30

4,70 4,00 3,40 6,40 2,50 2,50

2015 2016 2017 2019 2020

Very good/ Good Adequate Poor/ Very poor No opinion

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and defines the article's main aim. The purpose of the article is to identify the basic communication barriers

of financial reporting based on Ukrainian and foreign experience, their minimization through ensuring the

transparency of accounting information, and calculation of analytical indicators.

Methodology and research methods. Theoretical and methodological ground of the research is the

scientific works of Ukrainian and foreign scientists in terms of disclosing the quality of the accounting

system as an information field for decision-making at various levels of management, as well as studying

communication barriers that affect the quality of accounting and search ways to eliminate them.

Determining the problematic issues of the quality of the accounting information system and financial

information barriers was carried out through a survey of chief accountants and users of accounting

information (enterprise managers and shareholders) and using the methods of theoretical generalization.

To clarify the necessity of communication barrier identification, the empirically functional methodology

of cognition of economic processes was used. Scientific research is based on the principles of

systemology (the science of the interdependence of systems). System scientific method is used in

determining the properties of accounting as a system, improving financial statements and analysis in terms

of ensuring the transparency of accounting information. Systemology allows substantiating the essence of

financial reporting as a type of enterprise reporting and positioning as a channel for transmitting

information to stakeholders.

The modeling method was used in the formation of the model of communication links of financial

statements and the separation of channels of the interaction of its users; methods of comparison, grouping,

deduction, analysis helped to establish the consequences of certain communication barriers to financial

reporting and find ways to eliminate them; tabular and graphical methods – for visual presentation of

research results. At the same time, the emphasis would be placed on the active use of methods of

economic and mathematical analysis, extrapolation, bibliographic and bibliometric to justify the feasibility

of transforming forms of financial reporting; methods of generalizations, inductions, and deductions – in

forming conclusions on ensuring the transparency of accounting information reflected in the financial

statements. The novelty of this research is the use of a set of scientific methods, which makes it possible

to improve the taxonomy of financial reporting to minimize communication barriers.

Results. Accounting, along with controlling and evaluation functions, also performs two important

information and analytical functions. The information function involves providing external and internal

users with the necessary information to make management decisions. It is the basis of others because

having accounting information could assess the entity's activities for management purposes, analyze the

effectiveness of management decisions, monitor the safety of property, etc. Accounting information should

provide the opportunity to make informed decisions by enterprise management and investors, creditors,

government agencies, etc. Communication of accounting with other economic systems of the enterprise,

particularly the supply department, marketing service, production units, allows to study the enterprise's

information needs and form the relevant information in the system of financial and management

accounting. The main role in the communication between internal and external users of accounting

information is played by financial statements. It is possible to assess the investment attractiveness of the

entity, innovation opportunities, creditworthiness, social responsibility and make appropriate decisions by

its users. Furthermore, the use of financial reporting information leads to the formation of feedback, which

contributes to the improvement of its forms and indicators. Thus, modification of information needs of the

State Fiscal Service of Ukraine, the State Statistics Service of Ukraine, and other public authorities

facilitates decisions on amendments to the Law of Ukraine «On Accounting and Financial Reporting in

Ukraine», national provisions (standards) of accounting, which, in particular, determine the requirements

for the structure of financial reporting. Similarly, appropriate adjustments could be made in connection with

the globalization of the economy, the development of accounting at both national and international levels,

and the actualization of doing business based on social responsibility.

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Changes in enquiries of management, investors, creditors in terms of financial statements may be

manifested in the disclosure of additional items provided by the Ukrainian Accounting Standard (UAS) 1

«General requirements for financial reporting». In addition, the information requirements of the practice

(internal and external users) are studied by Ukrainian and foreign scientists, who communicate them to

the legislature through scientific publications. Thus, communication links that arise through the formation

and use of financial statements contribute to adapting its structure to user requirements (Table 1).

Table 1. Communication channels for accounting data transmission to outside stakeholders

№ Type of communication

channel Semantic characteristics

1. → Shareholders Efficiency of operation, profit of the enterprise, and the number

of due dividends (financial statements)

2. → Investors Economic performance and interest paid on investments

(financial statements)

3. → Creditors The company's ability to repay debts and service them

(financial statements)

4. → Other contractors Ability of the enterprise to fulfill its contractual obligations

(financial and internal reporting)

5. → Fiscal service Reliability of accrual and timeliness of payment of taxes and

fees (tax reporting)

6. → Statistical service Statistical information (statistical reporting)

7. → Local community Fulfillment of commitments made to the community regarding

the social development of the territory (social reporting)

8. → Public institutions Social protection of citizens and employees of the enterprise

(social reporting)

9. → Other entities

Other information about the social and financial activities of the

company, which is used by rating agencies, charitable

foundations, audit and insurance companies, trade unions, etc.

Sources: developed by the authors.

Regardless of the type of communication channel and stakeholders, the quality of communications

would be appropriate. The action of communication barriers is minimized, i.e., negative factors influencing

communication processes. Pierce and O'Dea (2003) identified the main factors contributing to differences

in the perception of accounting information by the developer and its user, namely as an imbalance between

technical and organizational validity, functional differentiation, and inherent tension between the

simultaneous requirements of independence and involvement. According to Lahovska (2011) the main

obstacles to the effectiveness of accounting communications are non-compliance (violation) of the quality

properties of information, including its curvature and asymmetry; selection of the inefficient type of

organization of communication networks between the accounting system with other control subsystems;

lack of system information links of the accounting system with other management subsystems of different

hierarchical level and other structural elements of the management system; information overload in terms

of employees and responsibility centers; lack of clarity of the information message generated by the

accounting system in terms of content, volume and based on the need to maintain the level of

confidentiality in its transmission between the elements of the management system. Kozlova (2013)

identifies the following groups of communication barriers: personal (due to the individual characteristics of

the sender and recipient of information); organizational (situations that reflect the shortcomings and errors

in the company's management, as well as the negative impact of environmental factors); cultural (formed

by traditions and norms of behavior in countries and regions, etc.); physical (obstacles created by people,

objects or phenomena); language (lexical and grammatical obstacles); semantic (communication

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disorders caused by misunderstanding or insufficient understanding of the meaning of information due to

the use of professional terms, phraseology, professionalism, etc.); temporal (occur due to lack of time or

false confidence of the sender in the simplicity of the question). A.K. Fedenia (2006) distinguishes

information asymmetry of messages, their semantic overload due to excessive availability of redundant

information, the unsatisfactory structure of the enterprise among communication barriers. Haleem and

Kevin (2018) note that the success of an accounting information system depends on the technical, human

and conceptual skills of the user, as well as their knowledge and experience. What is the most important

is that technical skills and experience have the greatest impact.

Given the above, as well as the results of a survey of chief accountants and users of accounting

information (enterprises managers and shareholders), we believe that the effectiveness of communication

links in the financial statements may deteriorate due to the following communication barriers:

1) unclearness ambiguity of financial reporting indicators due to different interpretations of accounting

concepts, which is an important information barrier for participants in accounting communication and could

lead to erroneous decisions;

2) the level of knowledge of the subjects of the communication process (communicator and recipient).

This barrier could lead to the formation of poor quality accounting information (insufficient level of

knowledge of the communicator) and making wrong decisions (lack of necessary knowledge of the

recipient, which causes misunderstanding of accounting information and inability to operate with

accounting data);

3) inaccuracy of information due to intentional (deliberate distortion of information to aim at

appropriate decisions) or unintentional actions (technical errors, lack of sufficient knowledge of accounting

staff). Disclosure of unreliable information in the financial statements could also be caused by noncompliance with accounting standards, particularly non-disclosure of current receivables. Notably, it is a

financial asset at net realizable value. For its calculation, it is necessary to calculate the provision for

doubtful debts; lack of timely revaluation of assets; depreciation of assets and liabilities, etc.;

4) lack of clarity in accounting regulations on the interpretation and structure of individual objects of

accounting;

5) information oversaturation which causes a risk of ignoring important information in decisionmaking processes;

6) the presence of non-target communications, which could cause a leak of information to

competitors; this barrier is eliminated for business entities that are required by law to publish financial

statements;

7) the presence of informal communications. Accountants could be connected to the user of

accounting information by informal connections, which could both positively (when it comes to investors,

creditors, suppliers) and negatively (in the case of connections with competitors) affect the activities of the

enterprise;

8) the inefficiency of the communication channel affecting the speed of obtaining accounting

information and making appropriate decisions.

Several internal and external users apply financial reporting to make appropriate decisions.

Communication channels with certain users of financial statements are formalized (Accounting Service –

State Fiscal Service of Ukraine; Accounting Service – State Statistics Service of Ukraine). Communication

with other reporting users should be determined based on their information needs. Such information

connections depend on the interest of the communication subjects, the enterprise's organizational

structure, management style, communication networks between the accounting system with other

management systems, and accounting automation. In this case, a significant role should be given to

minimizing information barriers that could lead to the unreasonable interpretation of reporting indicators

and making wrong decisions.

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The Balance Sheet «Financial Statement» (form № 1) is the most used by external and internal users

form of financial reporting. It allows calculating a significant number of enterprise indicators, solvency,

independence, and business activity. A significant influence on the quality of information perception of this

form of reporting for management purposes has a right understanding of its indicators. Notably, it could

become a primary information barrier. Financial statements should be clear to users interested in

perceiving its information and having the relevant knowledge. Indeed, if a certain legal entity or person is

a user of accounting information, he/she strives to understand it.

Another situation is the availability of relevant knowledge. Not all users of financial statements have

sound knowledge in the field of accounting. As a rule, most users understand the basic economic

categories and their essence. Still, they cannot always give a correct interpretation of specific accounting

concepts, such as «non-current assets held for sale and disposal groups», «collateral», «total income»,

etc. Foolowing Kozlova's (2013) opinion, «accounting terminology as words used by small groups of

people who are united by the accounting profession, could act as specific communication barriers, i.e.,

obstacles that disrupt the transfer of accounting information and reduce its effectiveness». It emphasizes

the need for a clear unification of accounting terminology with economics. It turns, it would ensure the

quality of financial reporting in terms of its intelligibility and clarity.

In Ukraine, in the Balance Sheet (Financial Statement), information on assets and sources of their

formation is summarized within three sections of the asset (I. Non-current assets; ІІ. Current assets;

III. Non-current assets held for sale and disposal groups) and four sections of the liabilities (I. Equity;

II. Long-term liabilities and collateral; III. Current liabilities and collateral; IV. Liabilities relating to noncurrent assets held for sale and disposal groups (Ukrainian Accounting Standard 1)). In addition, the

liabilities of the balance sheet provide an additional line 1800 «Net asset value of private pension fund».

It is placed after the fourth section «Liabilities related to non-current assets held for sale and disposal

groups», which actually means the presence of the entered fifth section.

International Accounting Standard (IAS) 1 «Presentation of Financial Statements» states that the

Financial Statement should include at least items that present the following amounts: property, plant and

equipment; real estate investment; non-current assets; financial assets; investments accounted for using

the equity method; biological assets; stocks; trade and other receivables; cash and cash equivalents; the

total amount of assets classified as held for sale and assets included in liquidation groups classified as

held for sale; trade and other accounts payable; provision; financial liabilities (except for trade and other

accounts payable and collateral); current tax liabilities and assets as defined in IAS 12 Income Taxes;

deferred tax liabilities and deferred tax assets as defined in IAS 12; liabilities included in liquidation groups

classified as held for sale in accordance with IFRS 5; uncontrolled shares represented in equity; m) issued

capital and reserves relating to the owners of the parent company(IAS 1).

The items in the Ukrainian Balance Sheet (Financial Statement) are as close as possible to IAS 1

items in the Financial Statement. However, their grouping provokes discussions. Thus, the assets of the

Financial Statement should be grouped according to the liquidity of assets. In Ukraine, this form of

reporting items is placed in ascending order of liquidity, which led to the presentation in the first section of

non-current assets, in the second - current with the appropriate grouping of items. The most liquid asset

is cash and cash equivalents. Thus, the item containing information about such assets is reflected almost

at the end of the asset Balance Sheet (Financial Statement) (line 1165 according to UAS 1 and paragraph

«cash and cash equivalents» according to Art. 54 IAS 1). Such grouping would be understandable to a

wide range of external and internal users of accounting information who are not accounting professionals.

Besides, it would allow the flawless calculation of some indicators (including liquidity ratios). However, the

appearance in the Ukrainian balance sheet of section III «Non-current assets held for sale and disposal

groups» (line 1200), which is placed after the most liquid asset – money and their equivalents, is relatively

new. This indicator is provided for in IAS 1 with a similar wording after paragraph «cash and cash

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equivalents», namely: paragraph «the total amount of assets classified as held for sale and assets

included in liquidation groups classified as held for sale». It could be assumed that such grouping violates

the basic principle of building a balance sheet asset and strengthens communication barriers in the

financial statements, which are associated with the ambiguity of its indicators. Users interpret this section

differently. Therefore, sometimes they could misunderstand the economic nature of this indicator.

Thus, Poliova and Kravtsova (2018), Tomchuk et al. (2016), Tyutyunnyk and Tyutyunnyk (2016)

indicated that non-current assets held for sale and disposal groups are classified as illiquid non-current

assets, most likely, focusing on the name and not on the economic essence of this indicator.

Oleksandrenko (2014) referred to such assets as slow-liquid, along with stocks, prepaid expenses, other

non-current assets, and, in contrast to the above scientists, consider them when calculating the current

liquidity ratio. Chaika et al. (2018) didn't consider non-current assets held for sale and disposal groups in

the liquidity indicators analysis. Moreover, Tenytska and Hryshko (2015), Khalatur et al. (2017),

Serebriakova and Grishchenko (2017), Kontuš, and Mihanović (2019) didn't mention this type of assets in

the analysis of the balance sheet and calculation of liquidity ratios. The inclusion of various components

for calculating liquidity ratios leads to the inaccuracy of the results of analysis and incorrect decisions by

reporting users.

A similar situation arises with the concept of «liability». Notably, this concept is used to calculate the

enterprise's financial condition, including liquidity ratios, where the denominator of the formula reflects

their current part. In this case, there is no clarity about the structure of liabilities in the scientific literature

and Ukrainian accounting standards. Thus, in UAS 11 «Liabilities», current liabilities include current

collateral. The deferred income is allocated to a separate type of liability at the level of current, long-term

and contingent liabilities (Ukrainian accounting standard 11 «Liabilities»). In UAS 1, collateral is separated

from current and long-term liabilities. The deferred income is included in the structure of current liabilities.

UAS 11 «Liabilities» does not refer to such liabilities as liabilities related to non-current assets held for

sale and disposal groups that are identified in the Ukrainian balance sheet (financial statement) in a

separate section outside current and long-term liabilities. In the Ukrainian Chart of Accounts, the

calculations related to non-current assets and disposal groups held for sale are reflected in sub-account

680, which is in class 6 «Current liabilities». This situation makes it difficult for accounting professionals to

understand the structure of liabilities, not to mention users of financial statements who do not know

accounting standards. Based on this, the question arises, which lines of liabilities of the balance sheet

(financial statement) to consider, for example, in the denominator of formulas when calculating liquidity

ratios? The lack of a clear interpretation of the nature of current liabilities has led to both violations of the

principle of construction of liabilities of the balance sheet and significant differences in the proposed

calculations of the indicators of the enterprise's financial condition, including liquidity.

Poliova and Kravtsova (2018); Tyutyunnyk and Tyutyunnyk (2016) included liabilities related to noncurrent assets held for sale and disposal groups into fixed liabilities at the level of equity while

Oleksandrenko (2014) - to long-term liabilities along with long-term liabilities and collateral. When

disclosing the list of items in the Financial Statement in IAS 1 «Presentation of Financial Statements», the

item «liabilities included in liquidation groups classified as held for sale» is placed directly in front of equity.

As a result of that, it is possible to conclude their long-term nature. When calculating liquidity ratios,

scientists usually do not mention the above type of liabilities, although there is no unity on the denominator

of the formulas despite this. Kharchenko (2015), Chaika et al. (2018), Tenytska and Hryshko (2015),

Serebriakova and Grishchenko (2017), Kontuš and Mihanović (2019) indicated current liabilities in the

denominator of the formulas for calculating liquidity ratios, Khalatur et al., 2017 – current liabilities plus

deferred income; Tyutyunnyk and Tyutyunnyk (2016) – current liabilities and collateral. Kindratska (2019)

studied typical methods of calculating the solvency of the enterprise in regulations. In the study, the

researcher once again confirmed the use of the generally accepted economic terms «current liabilities»,

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«receivables», «current assets». Different interpretations of accounting concepts, their lack of clarity in

accounting regulations, and unclear financial reporting indicators are essential information barriers for

participants in accounting communication, leading to errors in assessing the enterprise's financial

condition and making erroneous decisions in practice. According to the industrial enterprise (Table 2), the

calculation of liquidity indicators is presented based on the components of current assets and current

liabilities proposed in regulatory documents (Table 3).

Table 2. Extract from the Balance Sheet (Financial Statement) in Ukraine

Asset Line

code

At the beginning

of the reporting

period, thousand

UAH

At the end of the

reporting period,

thousand UAH

I. Non-current assets

in terms of non-current assets …

Total for section I 1095 95597 104473

II. Current assets

Stocks 1100 8512 5361

Current biological assets 1110 - -

Accounts receivable for products, goods, works, services 1125 3596 8351

Accounts receivable by calculations:

on issued advances

1130 893 4558

with a budget 1135 1066 273

including income tax 1136 62 62

Other current receivables 1155 2625 1678

Current financial investments 1160 - -

Money and its equivalents 1165 1546 4027

Deferred expenses 1170 25 23

Other current assets 1190 6770 5620

Total for section II 1195 25033 29891

III. Non-current assets withheld for sale and disposal groups 1200 6203 1115

Balance 1300 126833 135479

Liabilities

I. Equity

in terms of types of equity …

Total for section I 1495 90936 100730

II. Long-term liabilities and collateral

in terms of types of long-term liabilities and collateral …

Total for section II 1595 4832 3126

III. Current liabilities and collateral

Short-term bank credits 1600 - -

Current accounts payable for:

long-term liabilities 1610 - -

goods, works, services 1615 5167 4235

calculations with the budget 1620 1335 1450

including income tax 1621 - -

insurance calculations 1625 405 372

payroll calculations 1630 712 602

Current accounts payable on received advances 1635 1749 84

Current supplies 1660 2327 3603

Deferred income 1665 15619 12987

Other current commitments 1690 1793 4392

Total for section III 1695 29107 27725

IV. Liabilities related to non-current assets withheld for sale

and disposal groups 1700 1958 3898

Balance 1900 126833 135479

Sources: developed by the authors.

Z.-M., Zadorozhnyi, I., Ometsinska, V., Muravskiy. Determinants of Firm’s Innovation: Increasing the Transparency of

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Marketing and Management of Innovations, 2021, Issue 2 83

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Table 3. Analysis of liquidity indicators

Indicator Method of

calculation

Norm

ative

value

Estimated value based

on UAS rules 11 on the

structure of current

liabilities

Estimated value based on

the names of the sections

of the Balance Sheet

(Financial Statement)

Estimated value based

on the economic

substance of the

balance sheet items

(Financial Statement)1

At the

beginning

of the

period

At the end

of the

period

At the

beginning of

the period

At the

end of

the

period

At the

beginning

of the

period

At the

end of

the

period

Current

liquidity ratio

(coverage

ratio)

CA / CL1 ˃1 1.86 2.03 0.93 1.23 0.98 0.98

Rapid

liquidity ratio

(CE+CFI+R)

/ CL1

0.6 –

0.8 0.72 1.28 0.33 0.78 0.31 0.60

Absolute

liquidity ratio

(CE+CFI) /

CL1

0.2-

0.3 0.11 0.27 0.05 0.17 0.05 0.13

1Note: CA - current assets; CL - current liabilities; GZ - cash and cash equivalents; CFI - current financial investments; R -

receivables.

Sources: developed by the authors.

Table 2 shows that the communication barriers in the financial statements might lead to erroneous

values of analytical indicators. In this case, it is liquidity indicators. Thus, as noted above, the structure of

current liabilities does not include deferred income in UAS 11; judging by the name of section III of the

liabilities of the balance sheet, current provisions are outside the current liabilities in UAS 1. If different

scientists' points of view on the composition of the accounting objects used to calculate liquidity ratios are

considered, the values would be even more differentiated.Given the above, accounting standards should

have clear regulations for all accounting objects, not to violate the principles of reporting, contain

terminology clear as possible to all users of financial statements who are interested in the perception of

relevant information. To minimize communication barriers in the Balance Sheet (Financial Statement), the

assets of the financial reporting form should be divided into two sections: «Non-current assets» and

«Current assets». Regarding the current section III of the balance sheet, «Non-current assets held for sale

and disposal groups», it should be included in the item «inventories» of section II «Current assets». The

inexpediency of separating a section for non-current assets held for sale and disposal groups, which

creates significant information barriers and liabilities related to their disposal,

а) b)

Figure 2. Indicators of the Balance Sheet (Statement of Financial Position) of large and mediumsized enterprises of Ukraine as of 1 January 2019 and 4 January 1 2020

Sources: developed by the authors based on (SSSU, 2021).

51,28 51,86

48,66 46,43

01.01.2023 01.01.2024 Non-current assets

Current assets

Non-current assets withheld for sale and disposal groups

0,01 0,24

53,43 54,18

15,67 13,86

30,89 31,72

01.01.2023 01.01.2024

Equity

Long-term liabilities and collateral

Current liabilities and collateral

Liabilities related to non-current assets held for sale and disposal groups

Z.-M., Zadorozhnyi, I., Ometsinska, V., Muravskiy. Determinants of Firm’s Innovation: Increasing the Transparency of

Financial Statements

84 Marketing and Management of Innovations, 2021, Issue 2

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One of the characteristics of current assets is that they are intended for sale or use during either the

operating cycle or twelve months from the balance sheet date (Ukrainian Accounting Standard 1 «General

requirements for financial reporting»). Among the criteria for recognizing non-current assets and disposal

groups held for sale is that their sale is expected to be completed within one year from the date they are

classified as such assets. In addition, in Ukraine, for the accounting of the above assets, sub-account 286

of the same name of class 2 of the Chart of Accounts «Inventories» is assigned. As for the liabilities of the

Balance Sheet (Financial Statement), it should include three sections: «Equity», «Long-term liabilities»

and «Current liabilities». The current section of liabilities, «Liabilities related to non-current assets held for

sale and disposal groups» should be transferred to current liabilities in a separate item. Confirmation of

this position is their generalization on account 680 class 6 «Current liabilities». We believe that such

construction of the Balance Sheet (Financial Statement) in Ukraine will eliminate a number of information

barriers and ensure the adoption of sound management decisions based on it.

Conclusions. Accounting information summarized in the financial statements is an important tool of

the management system. However, developers and users of financial statements often face

communication barriers that impair the perception of accounting information and could lead to erroneous

management decisions based on it. Information barriers to financial reporting, which reduce the

effectiveness of communication links in the financial statements, include unclear financial reporting

indicators due to different interpretations of accounting concepts; the level of knowledge of the subjects of

the communication process (communicator and recipient); the inaccuracy of information due to intentional

or unintentional actions; lack of clarity in accounting regulations on the interpretation and structure of

individual objects of accounting; information oversaturation; availability of non-target communications;

availability of informal communications; inefficiency of the communication channel. The quality of

communication would be high in minimizing the impact of negative factors influencing communication

processes. Based on the study, it was found that the minimization of communication barriers in the

Ukrainian Financial Statement would contribute to the reflection in the asset indicators within two sections,

including «Non-current assets» and «Current assets», and in liabilities – three, namely: «Equity», «Longterm liabilities» and «Current liabilities».

Further studies would examine the impact of selected information barriers to financial statements on

other financial reporting forms to improve communication and the quality of accounting information.

Author Contributions. All authors contributed equally to the development of the research, the

literature, data collection, research methodology and concluding sections.

Funding: This research received no external funding.

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Зеновій-Михайло Задорожний, д.е.н, професор, Західноукраїнський національний університет, Україна

Ірина Омецінська, к.е.н., доцент, Західноукраїнський національний університет, Україна

Володимир Муравський, д.е.н., професор, Західноукраїнський національний університет, Україна

Детермінанти інноваційного розвитку фірми: підвищення траспарентності фінансової звітності

Фінансова звітність підприємств в умовах глобалізації та цифровізації економіки є комунікаційним каналом передачі

облікової інформації до стейкхолдерів. Автори наголошено, що комунікаційні бар’єри загрожують повному та ефективному

сприйняттю облікових даних користувачами, що може призводити до прийняття хибних управлінських рішень. Для мінімізації

негативного впливу комунікаційних загроз необхідним є удосконалення фінансової звітності систем обліку за допомогою

механізмів зворотних комунікацій. Метою статті є висвітлення основних комунікаційних бар’єрів фінансової звітності на

основі аналізу досвіду України та інших країн. У рамках даного дослідження, автори довели наслідки дії низки комунікаційних

бар’єрів на прикладі розрахунку показників ліквідності з подальшим пошуком шляхів мінімізації негативного впливу. У статті

виокремлено основні комунікаційні бар’єри сприйняття облікової інформації, такі як: незрозумілість показників фінансової

звітності у зв’язку з різним тлумаченням облікових понять; неналежний рівень знань суб’єктів комунікаційного процесу

(комунікатора і реципієнта); неправдивість інформації, зумовлена зумисними або незумисними діями; відсутність чіткості в

облікових нормативних документах щодо трактування і структури окремих об’єктів обліку; інформаційне перевантаження;

наявність нецільових та неформальних комунікацій; неефективність комунікаційного каналу. Авторами обґрунтовано вплив

комунікаційних загроз у системі обліку на прикладі формування української форми фінансової звітності Баланс (Звіт про

фінансові результати). За результатами дослідження запропоновано трансформувати форму фінансової звітності Баланс

(Звіт про фінансові результати) в Україні через виокремлення двох розділів в активі («Необоротні активи» та «Оборотні

активи») і трьох в пасиві («Власний капітал», «Довгострокові зобов’язання» та «Поточні зобов’язання») з метою оптимізації

аналізу показників фінансового стану. Автори наголосили, що це сприятиме ефективному сприйняттю обліково-аналітичних

даних стейкхолдерами. При цьому критерій мінімізації впливу комунікаційних ризиків доцільно використовувати при

трансформації інших форм фінансової та інтегрованої звітності. Розроблені пропозиції будуть корисними при реформуванні

фінансової звітності в інших країнах для забезпечення транспарентності та максимізації сприйняття облікової інформації.

Ключові слова: фінансова звітність, комунікаційні бар’єри, комунікаційні зв’язки, користувачі інформації, прозорість

фінансової звітності, баланс (звіт про фінансовий стан), показники ліквідності.

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