Comparison of Published Financial Statements with Data in Commercial Databases

As noted in previous section, prior research reported that financial datasets are not perfect substitutes, not only as coverage of firms and accounting items varies across the databases, but because there are differences in the way each database defines and constructs key variables (Alves et al, 2007). Alves et al compare the properties of items from the Worldscope accounting data with corresponding items from the Extel Financial and the Datastream Company Accounts Archive and report some differences. For instance, the mean and median Worldscope values for operating cash flow are 25 percent lower than the Extel Financial values.

This section investigates the effect of using accounting data from different databases on empirical accounting research and particularly focuses on the content and the nature of accounting data. For this reason, it considers the data structure of the most common UK provider, Thomson One Banker, the Extel financial and the Worldscope platforms. As discussed earlier, the Extel financial database provides „as reported‟ data and the Worldscope database asserts that it offers „standardised data; differences relate to disclosure and presentation, in order to enhance the international comparability of the accounting data for listed firms around the world from different countries and industries (Alves et al, 2007). On the other hand, there are many variations in annual reports such as the format of financial statements and the definition of accounting items.

The present study makes a bridge between financial statements and commercial databases and compares and illustrates differences across reported accounting data with considered databases. In this respect, first, using financial statements (Balance Sheet, Income Statement and Statement of Cash Flows) for Tesco, Vodafone and British

the financial statements published by selected companies with the accounting data presented by the Extel and the Worldscope databases (see Appendix 1).

To perform the comparison, all items related to Balance Sheet, Income Statement and Statement of Cash Flows regarding Tesco, Vodafone and BT for fiscal

year 2008 from both databases are downloaded and checked with deduction and other procedures. Then, the published financial statements items are tracked to their respective items in both databases.

The following findings show some differences between items in the published financial statements and their relevant data items in the examined databases (see Table 4.8). For example:

 Considering deferred taxes-debit as an asset, Extel reports total current assets and total assets consistent with published financial statements, whilst Worldscope reports net deferred taxes as a liability (deferred taxes- credit less

deferred taxes- debit).

 Worldscope reports cost of sales in two items, cost of goods sold and depreciation and amortisation expenses, while Extel reports cost of sales as a whole. Likewise, Extel reports this item in a separate field for some firms and Worldscope classifies in a different way, such as cost of sales of BT (see Table

4.8).

 Tesco‟s reported operating cash flow is £3,343 million for the financial year

ending in February 2008, whilst the Worldscope database gives a figure of £3,559 million and the Extel financial database gives a figure of £4,099 million which is related to cash generated from operations.

 Vodafone‟s reported operating cash flow is £10,474 million for the financial

£10,312 million and the Extel financial Database gives a figure of £13,289 million which is related to cash generated from operations.

 British Telecommunication‟s reported operating cash flow is £5,486 million for

the financial year ending March 2008, whilst the Worldscope Database gives a figure of £4,757 million and the Extel financial database gives a figure of £5,187 million which is related to cash generated from operations.

It is clear that using different datasets can lead to different results. Therefore, researchers should consider the content and nature of accounting data, when collecting data.

In addition to comparing these databases, to find an appropriate and clear structure of data to apply in the balance sheet changes approach, using the Extel Financial database, Appendix 2 contains a framework for reclassifying Balance Sheet items.

Table 4.8

Example Comparisons of Published Financial Statements with Information in Commercial Databases

Financial statements (£m) 2008 Extel 2008 Worlscope 2008

Tesco, year ended 23 February 2008

Total current assets 6,300 EX. Current Assets 6,300 WS. Current Assets 5,955

Total assets 30,164 EX. Total Assets 30,164 WS. Total Assets 30,060

Cost of sales 43,668 EX. Trading Ex Cost Of Goods Sold 43,668 WS. Cost Of Goods Sold 42,692

WS.DepreciationDeplAmortExpense 976

Profit before tax 2,803 EX. Profit Before Tax 2,803 WS. Income Bef Income Taxes 2,728

Cash generated from operations _4,099

Interest paid (410)

Corporation tax paid (346)

Net cash from operating activities 3,343 EX. CF Operating Inflows 4,099 WS. Net Cash Flow Operating 3,559

Vodafone, year ended 31 March 2008

Total assets 127,270 EX. Total Assets 127,270 WS. Total Assets 126,834

Cost of sales 21,890 EX. Trading Ex Cost Of Goods Sold 21,890 WS. Cost Of Goods Sold 15,981

WS.DepreciationDeplAmortExpense 5,909

Profit before tax 9,001 EX. Profit Before Tax 9,001 WS. Income Bef Income Taxes 6,167

Cash generated from operations _13,289

Corporation tax paid (2,815)

Net cash from operating activities 10,474 EX. CF Operating Inflows 13,289 WS. Net Cash Flow Operating 10,312

BT, year ended 31 March 2008

Operating costs 18,697 EX. Trading Ex Cost Of Goods Sold 0 WS. Cost Of Goods Sold 8,871

EX. Trading Exp Selling 0 WS.Depreciation Depl Amort Expense 3,214

EX. Trading Exp MiscByFormat1 18,168 WS. Selling General Admin Expense 6,083

Cash generated from operations 5,187

Income taxes paid (222)

Income tax repayment for prior years ₅₂₁