Global Journal of Management and Business Research, A: Administration and Management, Volume 22 Issue 8

Financial Reporting Destined to External Third Parties as a Tool for Analyzing Credit Worthiness: Usefulness and Limitations. The Italian Case Maria Silvia Avi Abstract- Financial reporting to external third parties is the primary document based on which, at least in theory, a company's creditworthiness should be assessed. Income, capital, financial and sustainability performance should be understood through a thorough analysis of the financial reporting and sustainability report data. Here, we will focus exclusively on Financial reporting. As we will see, Financial reporting intended for the outside world is characterised by an information gap that tends to preserve the company's right to information and privacy. The main objective of Financial Reporting for External Purposes is to ensure that all Financial Reporting prepared by a nation's companies is consistent in structure and thus comparable. The spread of IAS/IFRS makes it no longer a national but a supranational objective. The significant unsolvable problem is that such financial statements, precisely in order to guarantee the privacy of certain information of a strategic nature or the disclosure of which could be detrimental to company management, are characterised by a lack of information that prevents an in- depth analysis of the situation with a global company. Static analysis employing classic ratios and dynamic analysis using the determination of cash flows can only be carried out partially. The results are often unsatisfactory because there is so much missing data to render the analysis almost useless. To this must also be added the circumstance that, if this is true for ordinary financial statements, it is even more true for the abridged financial statements associated with small and medium-sized enterprises, for micro- or tiny enterprises comma one cannot even speak of financial statements as an information instrument intended for the outside world because the eh content of such a document is so limited that third parties cannot understand anything about the company's condition. Whoever applies for a loan from a bank OA a lender, and therefore, it is desirable to add to the balance sheet data intended for the outside and regulated by law, other data internal to the company point. If this does not happen, the lender will be forced to draw deductions from partial, incomplete and often impossible-to-interpret data. In this case, the answer to the financing will probably be the negative point we do not intend here, to enter into the problem of the widespread practice worldwide, which is connected to the constant request for personal skulls by the bank or the lender even in the presence of balance sheets eh that Author: Full Professor in Business Administration Management Department- Ca’Foscari Venezia S. Giobbe – Cannaregio 873- 30121 Venezia (Italy). e-mail: avi@unive.it ORCID ID: orcid.org/0000-0003- 11164-4410 presents optimal income, financial and patrimonial company positions point collateral or personal guarantees are generally always requested by the lender, for greater protection of its credit. It can be said that only in very few cases is financing granted solely and exclusively based on balance sheet data. Despite this, the balance sheet remains one of the main elements on which decisions are made as to whether or not to accept an application for a credit line. However, the decision is also strongly influenced by the ability of the borrower of the potential loan to provide additional collateral of a real or personal nature. Keywords: financial reporting, communication, creditworthiness analysis, static and dynamic analysis, disclosure limits of the financial statements for external parties. I. E xternal F inancial R eporting: P otential D isclosure L imit s 1 The subject of our interest will be the 'information potential' of financial reporting regulated by the Italian Civil Code. However, similar considerations to those illustrated in the following pages also apply to financial statements prepared by IAS/IFRS adopter companies. The information limitations of financial reporting deposited at the company registrar's office can be grouped into three different categories: 1. Inherent limitations of financial reporting which, as such, cannot be overcome; 2. Disclosure limitations arising from the adoption of accounting behaviour that does not adhere to proper financial reporting postulates; 3. Disclosure limitations arising from the specific content of the statutory financial reporting requirements. 1 To facilitate reading, I have decided not to include in the text, except in exceptional cases, the names of the scholars who have dealt with the subject under analysis since the bibliography is endless, I have opted not to indicate all the terms of the scholars in the text because this would have meant a continuous interruption of the reading of the complete sentence in which I express my thought. 69 Global Journal of Management and Business Research Volume XXII Issue VIII Version I Year 2022 ( ) A © 2022 Global Journals inancial reporting identifies the primary economic- financial communication tool intended for users outside companies. F