Human Resource Accounting and Quality

of Financial
Reporting in Pakistan: Moderating role of
Independent Directors

Presented By:
Syeda Uzma
118-FMS/PHDMGT /S20
Introduction
 Accounting continues to develop as human civilization
improves overtime (Abubakar, 2015).
 The achievement of advancement in concepts and applications
cut across all human endeavors including accounting.
 “According to Gyorgy (2016), accounting is the bedrock for
information infrastructure used by managers and their
stakeholders to achieve various economic decisions”.
 This implies that accounting is an information system that aids
effective communication and decision making.
Cont…
 Corporate organization sees accounting as a variable tool of
communicating to users of financial statement about their
financial performance, financial position and cash flows of a
business entity during a specific period (Abeysekera, 2008).
 The process through which companies communicate to the public
about their operations or activities is called financial reporting.
 Corporate financial reporting is the medium through which
companies disseminate information to the public about their
operational performance in terms of profitability, efficiency and
responsibility (Siriyama, 2017).
 Financial reporting of a corporate entity constitutes a
combination of qualitative and quantitative financial reports,
which are referred to as a company’s bill of health.]).
Cont…
 In all sectors of the economy, the rising value of human
resources has led to a new path in the knowledge-based
economy.
 The existence of life tends towards the intangible economy,
where the new truth is economic awareness (Abubakar, 2015).
 Researchers have switched to national-level evaluations of the
stock of intellectual capital, which implies an intellectually
oriented economy that, among other things, is marked by a
disregard of the long-standing economic rule of declining
returns (Abubakar, 2015).
Cont…
 Akintoye (2012) in his study has concluded that the growth in
human resource accounting stemmed from the increasing need
for the value of human capital in organizational management.
 It acts as a department that tracks the people involved in
corporate resources, as well as tracks the company's growth,
advancement in assets, and revenues (Atkins, 2018).
 "According to Jarostia (2016), because of its contribution to
the achievement of the organizational target, the concept of
human assets is becoming crucial in financial reporting."
Cont….
 “According to Argandona (2011), various stakeholders
take their decisions relative to a company’ performance and
position based on the information supplied by it in its annual
financial reports and accounts”.
 These financial statements are required to exhibit certain
degree of quality in terms of their information contents.
 In 2017, Muhammed opined that information contained in
the financial reports should possess certain qualities as
relevance, verifiability, understandability, neutrality,
timeliness, comparability, and completeness through which the
stakeholders could make decision.
 “According to Brandt & Konstantinos (2016),
stakeholders rely on the quality of financial statements
disclosure”.
Cont…
 Corporate governance offers guidelines on the composition of
the boards and, more importantly, on the desired autonomous
governance (Crespí-Cladera & Pascual-Fuster 2009; Aguilera
and Cuervo-Cazurra 2014).
 The composition of the boards of directors of corporations
includes a proportion of the independent board members in the
United States.
 The literature has historically underlined three fundamental
management tasks that establish valuable links for the
corporation, advise on strategic decisions, and monitor top
management (Hillman and Dalziel, 2003, Pugliese et al.,
2009).
Cont…
 Monitoring is one of the main responsibilities of independent managers
and is central to evaluating the financial reporting system (Anderson,
Mansi, and Reeb, 2004).
 Independent managers in principle are less aligned with the management
system and can help defend shareholder interests and thus be seen as a
significant element in successful management behavior monitoring. (Fama,
1980, Fama& Jensen, 1983).
 The New York Stock Exchange Listing Company Manual (NYSE, 2010)
teaches that an independent director does not have a so-called 'content
relationship' with an exchange trading company or as a shareholder,
shareholder, or officer (Yoshikawa, Zhu, and Wang, 2014).
 Under this classification, most of the previous studies have used an agency
perspective for the department (Fama& Jensen, 1983), an important
management tool to track management actions and minimize costs (agency
cost) is supposed to be given to independent directors.
Theoretical background:

 Stakeholder Theory
 This research is focused on the stakeholder theory (Akinlade
& Adegbie (2019)) and is based on other contributions to the
relationship between human resources and financial reporting
efficiency.
 One of the system-based theories is the stakeholder theory.
This theory, first submitted by Freeman (1984), offers the
organic formulation of firm leadership that integrates the
interests of different social partners.
 The stakeholder theory is focused on the effectiveness of
stakeholder relationships in the sustainability of companies.
Cont…
 Three separate approaches frame the theory of stakeholders:
descriptive, instrumental, and normative (Donaldson and
Preston, 1995).
 The descriptive approach tends to see whether certain organizations
take into account the interests of stakeholders (Brenner & Cochran,
1991).
 The instrumental approach demands that, for strategic purposes,
managers take into account stakeholder requests.
 The acknowledgment that the consensus on the social climate is
crucial, that the management of the business is important and that
stakeholder commitments for the sustainability of businesses and the
achievement of financial equilibrium are of importance (Freeman,
1984).
Cont…
 Companies are now establishing strategies for handling
stakeholders' relationships (Bendheim, Waddock, and Graves, 1998)
as defined by their importance and impact (Mitchell, Agle et Wood,
1997).
 The normative method instead lays the framework for stakeholder
theory on ethical values, irrespective of their instrumentality for
economic purposes.
 Evan and Freeman (1988) described the normative basis on which
stakeholder theory has to be viewed in itself rather than as a mere
instrument for achieving higher-order goals.
 With this in mind, stakeholders are known as autonomous moral
objects.
Cont…
 current research has considered in the sense of stakeholder theory in
which the ethical-moral (normative) and strategic-management
(instrumental) approaches are referred to.
 In the initial perspective, businesses must take into account the
stakeholders' expectations irrespective of their power level and their
ability to influence the activity of the business.
 Therefore, the explanations for financial statements contribute to
legal and moral values (Deegan &Unerman, 2006).
 The implementation of financial reporting systems is crucial to
enhancing organizational efficiency from a strategic-management
(instrumental) perspective (Berman, Wicks, Kotha, & Jones, 1999).
Cont….
 This contribution to stakeholder theory takes into account the
varying degrees of control of various groups of social partners.
Companies should aim to address stakeholders' (human resources as
well) knowledge needs, which are strategically important, that is,
those that can affect financial performance (Gray, Owen, & Adams,
1996).
 The HRA considers human capital to be equal to other assets in the
enterprise and, over time, needs investment to make them efficient.
 The expenditure concerns recruiting, training, and growth costs,
which are invested and expensed over a possible production life,
taking account of turnover and subsequent loss of human resources
(Flamholtz et.al, 2015).
Cont…
 According to stakeholder theory, human resource
accounts have a direct effect on the Quality of
financial statements.
 As well as the involvement of independent directors

on board, the partnership will be improved.

Research gap:

 A study by Chizoba and jones, 2019 have investigated the

relationship between firm characteristics, corporate governance, and
financial reporting quality in Nigeria. They have found a significant
effect of board size concerning the quality of financial reporting.
They have further suggested that future research should investigate
the other determinants of the quality of financial reporting.
 Another study by waris et.al, 2020 have investigated the Impact of
Auditor characteristics, independent director’s characteristics, and
Economic attributes influence financial reporting quality in the
context of Pakistan. They have suggested that other determinants
and other measures of financial reporting quality will be future
directions for new researchers.
Cont…
 A study by Akinlade & Adegbie (2019) has investigated the
relationship between human resource accounting and the quality of
financial reporting in the context of Nigeria. They have suggested
that future research should investigate this relationship in different
contexts.
 Other studies considered only qualitative characteristics of human
resource accounting (Deegan et.al, 2002). This study, on the other
hand, has adopted quantitative measures in evaluating the effect of
human resource accounting and the quality of financial reporting in
quoted textile companies in Pakistan.
 Furthermore, most of the previous studies that were conducted in
the area of financial reporting and human resource accounting were
from the other sectors in the developed economies, and other
developing nations.
Cont…
 Hence the purpose of this study is to investigate the above
relationship in the context of Pakistan.
 According to the authors' best knowledge, no study has yet
investigated the moderating role of independent directors
between human resource accounting and financial reporting
quality.
 So, the current study will investigate the above relationship.
Problem statement:

 As human society enhances overtime, accounting continues to

expand (Abubakar, 2015). Including accounting, the
accomplishment of development in principles and applications cuts
through all human efforts. According to Gyorgy (2016), accounting
is the basis for the information systems used to create different
economic decisions by managers and their stakeholders.
 According to best-knowledge scholars, there is no human resource
accounting and financial reporting research in Pakistan. Research is
required in Pakistan to determine the significant impact of human
resource accounting on the standard of financial reporting. The
study has presented empirical findings on the importance of human
assets to the company reflected through the financial reporting
quality of manufacturing companies in Pakistan.
Cont…
 Independent directors on board are often of critical importance
to management and stakeholders, so the current study has also
tested the moderating position of independent directors on the
relationship between human resource accounting and the
quality of financial reporting.
Research Questions & objectives

 Research Questions:
 Does human resource accounting have any relationship with the
quality of financial reporting?
 Do independent directors moderate the relationship between human
resource accounting and the quality of financial reporting?
 Research objectives:
 Human resource accounting has a relationship with the quality of
financial reporting.
 Independent directors moderate the relationship between human
resource accounting and the quality of financial reporting.
Significance of study
 Contextual significance:
 Contextual importance for the research is that there is no human
resource accounting and financial reporting study in textile
companies in Pakistan (waris et.al, 2020; Akinlade &
Adegbie(2019); Chizoba and jones(2019)).
 Research is required in this sector to assess the significant impact of
human resource accounting on the standard of financial reporting in
Pakistan.
 The study presented the empirical findings on the importance of
human assets to the organization reflected through the financial
reporting quality of listed textile companies in Pakistan.
Cont…
 Theoretical Significance:
 From a theoretical perspective, human resource accounting is
important for determining the consistency of financial statements.
 Investors create/make better decisions based on financial details
generated by managers (Human assets).
 Everything that could hurt the interests of workers, should be
prevented and acknowledged on time before their business could be
in a position to give them what they are eligible to.
 This is in line with the results of the Bhatti & Zaheer (2014)
research, which found that pay, wages, and related benefits should
be offered on time to improve the performance of employees.
Cont…
 The researchers reported that workers' wages and other associated
benefits should be given on time and that job security depends on
adherence to employees' health and rights rather than solely on
shareholder interest.
 Outside directors have a major effect that reduces lags and enhances
the consistency of financial reporting. When companies employ a
business. When companies employ more board directors from
outside with more expertise, their financial reporting output will be
progressively better.
Cont…
 Practical Significance:
 Being an addition to literature, the study is also helpful in the practical
field.
 The study will be helpful for the Board of directors (BOD) of human
assets in textile companies of Pakistan.
 This would help in spurring the human assets to give more in terms of the
quality of the financial report.
 Management of companies will pay more attention to relevance, faithful
representation, and understandability of their financial reports and provide
more information that would help employees to measure and evaluate their
performance by the professional and statutory standard.
 Management of companies will work with government agencies to report
fairly
Literature Review
 The goal of quality financial reporting is to encourage
accountability and provide a moderate annual report through the
performance of human assets to the company.
 It establishes the state of art in terms of the principles of human
resource accounting (HRA) and quality financial reporting.
 literatures appropriate and relevant to the HRA sector and quality
financial reports are evaluated to putting the study into the proper
perspective (Argandona, 2011).
 Financial Reporting Quality& Human Resource Accounting
(HRA)
 Financial reporting included documenting financial reports in
compliance with applicable accounting principles.
Cont…
 "According to Higson, (2016) financial reporting consistency
requires the presentation of relevant financial information to the
various stakeholders of the company within a pre-defined period.
 These stakeholders include – customers, lenders, vendors, and
government organizations.'
 "According to Flamholtz et.al, financial reporting for 2015 is
considered to be the final result of accounting."
 It consists of a variety of important statements, an including-
financial detailed overview from the Statement of Financial
Performance, Report of Detailed Income, Cash flow Statements,
Disclosure of Changes in Equity, Notes to Financial Related
Explanations, Quarterly and Annual Reports. (Namazi&Raezei,
2012).
Cont…
 "According to Higson (2016), the financial reporting quality
involves thoroughness as other features of valuable accounting
information and the overall picture of the reporting corporation
should be provided as far as feasible."
 Mehdi et al. (2009) argued that the level of comprehensiveness
guarantees that consumers have around the picture of the company's
economic activities.
 Human Resources (HR) is a term that describes people who have
made up the labor force of a company, even though it is often
extended in the labor economy to industries and even to entire states
(Lyndon & Sunday, 2018).
Cont…
 Human resources is a comparatively new word for management,
known as scientific management (Shehu, 2013).
 From this point of view, a predominantly operational management
practice arose as early as the 1960s-when civilization changed as
human rights shifted to a faster time during the Vietnam era (Murthy
&Abeysekera, 2014).
 HRA recognizes human capital to be equal to other resources in the
enterprise and, over time, needs resources to make them efficient.
This expenditure corresponds to the expenses of recruiting, training,
and growth, which are invested and computed over the estimated
operational life of the human resource, taking into consideration
turnover and subsequent degradation (Flamholtz et.al, 2015).
Cont…
 The HRA was seen as a significant part of the information management
system. In this view, Gyorgy (2016) described the term as essentially
an information system that enables management what changes are
taking place over time in the human resource of the company.
 It included paying for investments in employees and their capital
expenditures, as well as the economic value of organizational
members.
 This description considered HRA to be an information system willing
to help management to make successful decisions about the recruitment
and training of employees. HRA, therefore, offered a detailed look at
one way about using human resource expense and benefits knowledge
in the decision-making process (Alkali &Asma, 2015).
Cont…
 Eke (2018) noted that corporate organizations need to develop the
ability to conduct the system and to review their operating and
control activities mechanisms.
 Furthermore, the legislation needs to be updated and the
implementation procedures need to be carefully managed, correctly,
and effectively to maintain the trust of consumers of accounting
services in the trust of users of accounting services in the expertise
of skilled accountants (Aram, 2015).
 Martinez (2014) claimed that the effective implementation of IFRS
includes evaluating professional accounting, tax consequences,
internal systems, and regulatory reporting, information technology,
and operational processes.
Cont…
 Consequently, one of the key concerns that emerge regarding the
financial reporting quality is its impact on the corporation's subsequent
results, i.e. how well the investor views the greater overall financial
reporting quality (ThankGod, 2015).
 Human resources are a vital resource for any company in the world. It
is as essential as machinery, supplies, and capital without which other
resources cannot be integrated and organised to attain competitiveness
(Nyor, 2016).
 Attributes such as expertise, abilities, competence, and age have an
effect on human resource productivity.
 Reporting information on the importance of a company's human capital
by the use of a common and practical model may add value to the
financial reporting material of the organisation and thus allow users to
make more informed decisions (Nyor, 2013).
Cont…
 In particular, (Uwalomwa & Olamide, 2013) noted that knowledge
provided by HRA systems could be used to generate several
management decisions.
 The development of communities and the adaptive immune response of
knowledge-based communities include the unfreezing of some of these
systems and practices, including those regarding management, finance,
and economics (Siriyama & Norah, 2017).
 In another study carried out by Paoloni, Paolucci and Menicucci titled
“The role of behavioral accounting for effective service delivery in
corporate accounts of public companies” sought to ascertain the effect
of corruption on corporate accounts and behavioral accounting as a
measure to achieving public objective.
Cont…
 The moderating role of independent directors:
 The number of directors has been a matter of debate and is increasingly
attracting interest in economic research (Buchwald, 2017). On the one
hand, managers with multiple assignments contribute to improving the
quality of the board (Fama& Jensen, 1983).
 These managers may have richer experiences and connections and may
have access to a variety of resources that can help improve the monitoring
role (Jiraporn, Kim and Davidson, 2008; Perry & Peyer, 2005; Sarkar &
Sarkar, 2009).
 They acquire a wide range of information that can be crucial in improving
the decision-making process in the organization they are developing. They
can learn about different management styles and business practices (Perry
and Peyer, 2005) and gain valuable skills to improve the monitoring
process (FernándezMéndez, ArrondoGarcía, &Pathan, 2017).
Cont…
 In addition, the increase in the number of directors increases the reputation
of directors. This 'reputation impact' will encourage managers to better
develop their duties (Keys and Li, 2005).
 In the literature, it is argued that many directors have shown their
responsibility and that they act as an important incentive for managers to
develop their reputation as monitoring specialists (Fama& Jensen, 1983;
Masulis&Mobbs, 2011).
 However, when the number of directors is too high, the monitoring role
played by directors with multiple appointments can be compromised.
 Serving on many boards can reduce the commitment of the directors (Lei
& Deng, 2014) as they can limit the management's time, attention and
preparation for board meetings, thus narrowing the monitoring capabilities
of these directors (Carpenter &Westphal, 2001; Harris & Shimizu)., 2004).
Cont…
 Previous evidence suggests that board members with too many directors
may be less effective in monitoring the administration and reducing agency
costs (Ferris, Jagannathan and Pritchard, 2003).
 The monitoring of the financial reporting period may be more due to
limitations.
 There is an ongoing debate in the United States about the need to set a
mandatory limit on the number of directors a board member may have, as
well as the majority of developed countries.
 Twenty years ago, NACD (1996) criticized companies with multiple
directors.
 The Corporate Governance Principles (Business Roundtable, 2012) does not
impose any limitation on the number of members of the board of directors,
but that many services may interfere with the individual's ability to fulfil
his / her responsibilities.
Cont…
 In addition, associations such as CII state that it is necessary to
determine and publish guidelines on how much the directors of the
companies can serve.
 Consistent with earlier theoretical arguments, we assume that more
than one executive ship develops the ability to monitor the financial
reporting process at lower levels of independent board members, but
many directors can reduce this monitoring capability. For this
reason, we estimate that the number of external directors will affect
the relationship between board independence and information
quality.
Hypothesis development:
 On the basis of literature review, hypothesis for current study
are as follow:
 H1: Human resource accounting (HRA) has significant
relationship with quality of financial reporting.
 H2: Independent directors will moderate the relationship
between HRA and quality of financial reporting.
Conceptual framework

Independent
directors

Human Resource
Accountingg Quality of Financial
• Wages and Salaries Reporting
• Pension & Retirement DACC
Benefits
• Number of Employees
Methodology
 Research Design:
 The research design indicates the data collection techniques and data
analysis techniques to find out the solutions of hypothesized problems.
 The current study is quantitative in nature. The current study has
conducted an empirical study for hypothesis testing.
 The study is conducted in a non-contrived setting.
 The present study has used secondary data collected from multiple sources
for analyzing the variables.
 Annual data has been collected from 2015-2019. textile companies of
Pakistan has been selected for data collection..
Cont…
 Population & Sample:
 Given the objective of the study, 36 Textile companies of Pakistan has
been taken as a sample to check the hypothesized relationship.
 Data Collection:
 For the purpose of the current study, data has been collected from publicly
listed textile firms working in Pakistan.
 Publicly listed companies are the most regulated form of business
organizations in Pakistan.
 These organizations are regulated by the SECP under the Companies
Ordinance 1984. Moreover, these organizations also adhere to listing
regulation of the stock exchange.
 The SECP monitors the working of these business organizations and issues
instructions and guidelines from time to time.
Cont…
 The design was used by akinledo et. al, 2019 on empirical analysis of
human capital development and relationship with the financial statement..
 The design will be used because the research cuts across various
companies and years. Hence, the panel data research design has been
adopted.
 The study has employed both descriptive and inferential statistics.
 The preliminary analysis has been conducted to determine the normality of
data and others test has been also conducted which includes, Huasman test,
heteroscedastic test, multicollinearity test.
 The panel data with regression analysis has been used to test the
hypotheses from the model, because the nature of the data is both cross
sectional and time series.
 Analysis has been done with the help of Stata.
Cont….
 Thus, publicly listed companies are the most appropriate for the purpose of
present study.
 This study relied on historical data generated from annual report of
manufacturing companies, because information obtained from annual
reports are adjudged to be reliable and comparable.
 Data analysis and presentation:
 The expost facto research design has been adopted in the
study of the relationship between dependent and the
independent variables which are Quality of Financial
Reporting and Human Resource Accounting respectively.
 Also, the study has adopted panel regression in analysing
textile companies in Pakistan for the period of 05 years from
2015-2019.
 The adoption of the design is because the study involved the
measurement of different variables in the assessment of the
extent of the relationships.
Cont…
 To examine the moderating effect of a variable Z on the relationship
between a dependent variable and an independent variable X P, the product
of two variables XP*Z, which represents the non-linear interaction effect, is
calculated first .
 Two regressions has been then tested.
 The first is a test of the main effects of XP and Z on Y.
 The second regression is conducted after introducing the multiplier term
XP*Z.
 Model specification:
 Human Resouurce accounting: For the purpose of study
current study has used three indicators of Human resource
accounting, namely Wages and Salaries (WAS), Pension and
Retirement Benefits (PRB) and Number of Employees (NE).
Cont…
 Financial reporting Quality:
 Similar to prior research, discretionary accruals has been used as proxy for
financial reporting quality.
 The study has adopted the modified Jones1991 Model used by Dechow, et
al. (1995) based on the unexplained accruals or residuals of the model, to
estimate financial reporting quality of listed textile companies in Pakistan.
 The estimation of discretionary accruals (DA) requires the calculation of
total accruals (TA) and the estimation of nondiscretionary accruals (NDA).
Total accrual has been therefore estimated using the following cross-
sectional regression for each industry and year for the sampled companies:
 TACi,t/Ai,t-1 = α0(1/TAi,t-1)+α1[(ΔREVi,t- ΔRECi,t)/Ai,t-1]+α2(PPEi,t/Ai,t-1)
+εi,t …… (1)
Cont…
 Nondiscretionary accruals are calculated by firm using the estimated
parameters from equation (1).
 NDAt= α0(1/TAi,t-1)+α1[(ΔREVi,t- ΔRECi,t)/Ai,t-1]+α2(PPEi,t/Ai,t-1) ……(2)
 The difference between estimation (standardized residuals) in equation (2)
and actual accruals represents the total discretionary accruals in the
following equation:
 DAt = TACt - NDAt .....................................................(3)
 Where:
 TAC= Total accruals
 NDA = non-discretionary accruals
 DA = discretionary accruals from the residual estimated from model 1
Cont…
 The estimation model has been then run to examine the impact of Human
resource accounting on financial reporting quality.
 |DACCi,t|=β0+β1WASi,t+β2PRB i,t+β3NE i,t + εi,t……………… (4)
 Where;
 |DACCi,t | = absolute discretionary accruals of firm “i” at year “t”
 WASi,t = wages and salaries of employess in firm “i” at year “t”
 PRB i,t = Pension and retirement benefits for employess of firm “i” at year
“t”
 NE i,t = Total number of employess of firm “i” at year “t”
 ε= Error term, i,t indicator for panel data
 To run the moderation following equation will be tested:
 |DACC i,t | = β0 + β 1WASi,t *BIDNi,t + β2PRB i,t *BIDNi,t + β3NE i,t *BIDNi,t
+ εi,t ……(5)
 where ,
BIDN= Independent director in board

Empirical Results & Discussion:

 The objective of the current study is to empirically test the

relationship between HRA and financial reporting quality. Current
study has also investigated the moderating role of Independent
directors of above mentioned relationship.
Table 1: descriptive statistics

Variable Obs Mean Std. Dev. Min Max

bidn 180 0.13 0.0984337 0 0.50

was 180 446000000.00 1260000000 0 8860000000.00

prb 180 389.00 52700000 0 344000000.00

ne 180 3079.67 4657.033 1 22447.00

frq 180 0.18 0.3664777 0.001 2.08

Correlation Analysis:

Table 2: The correlation coefficients among the dependent and independent

variables

  bidn was prb ne  

bidn 1

was 0.3605*** 1

prb 0.4045*** 0.45*** 1

ne 0.3024*** 0.54*** 0.29*** 1

Notes: (*), (**) & (***) shows significance at 10%, 5% and 1% level respectively.
Dynamic panel data analysis:

Table 3: panel data analysis

frq Coef. Std. Err. z P>z [95% Conf. Interval]

L1. -0.7393531 0.09 -8.28 0 -0.91 -0.56427

was 2.66E-11 0.00 0.36 0.722 0.00 1.73E-10

prb 1.33E-10 0.00 0.15 0.884 0.00 1.91E-09

ne 0.0000205 0.00 0.56 0.578 0.00 9.25E-05

bidn 4.673074 3.80 1.23 0.218 -2.77 12.11559

bidnwas -0.0876099 0.18 -0.49 0.627 -0.44 0.265704

bidnprb -0.2645727 0.23 -1.14 0.256 -0.72 0.192061

bidnne 0.0239912 0.22 0.11 0.915 -0.42 0.464542

_cons 0.3929836 0.14 2.82 0.005 0.12 0.666022

Conclusion:

 The objective of the current study is to empirically test the

relationship between HRA and financial reporting quality.
Current study has also investigated the moderating role of
Independent directors of above mentioned relationship.
Current study has adopted different univariate (Descriptive
Statistics), bivariate (Correlation analysis) and multivariate
(Panel regression) analysis to analyze the proposed model.
 In the current study, data analysis has been done through
Stata-14 to determine the relationship between HRA and
Financial reporting quality, as well as moderating effect of
independent directors on the board.
Cont…
 The findings of the analysis indicated that dependent variable financial
reporting quality is 73% explained by its own lagged values which
means that financial reporting quality of previous period will affect the
financial reporting quality of current and subsequent period.
 Other variables of the model insignificantly related to financial
reporting quality, which represents that there is no impact of board
WAS, PRB & NE on FRQ and there are some other variables which
affects the financial reporting quality.
 Moreover, presence of independent directors does not moderate the
relationship between HRA and financial reporting quality.
Policy Implications:

 The findings of this study has implications to management of textile

companies, regulators, accounting practice, employees, government
agency, investors and shareholders and researchers.
 The study has revealed that quality of financial reporting of
companies is affected by their lag period.
 So companies should maintain the quality of their financial reports.
 The findings informed the policy makers that measures can be taken
by regulators in pushing textile companies to providing quality
based information as part of the financial report.
 The inclusion may serve as a way of reporting fairly the enormous
contribution of stake holders in textile companies in Pakistan.
Future Directions or recommendations:
 Based on the aforementioned findings of the study, the following
recommendations were made to different bodies in charge of
financial reporting and management of human resources accounting
in general.
 Board of directors (BOD) should pay more attention to the relevant
of resources accounting as regard the contributions to the quality of
financial report in textile companies in Pakistan. This would help in
spurring the quality of financial report. Management of textile
companies should pay more attention on relevance, faithful
representation and understandability of their financial reports and
provide more information that would help employees to measure
and evaluate their performance in accordance to the professional
and statutory standard.
Cont…
 Management of textile companies should work hand in hand
with government agencies in order to report fairly and that the
financial statements should be made relevant instead of the
traditional system of reporting.
 Textile company’s management should provide relevant,
comparable, understandable, well disclose and timely
information and predictable information regarding the social
needs of human assets and reveal information about their
activities towards the quality of financial report.
Future Directions
 Future studies should investigate other determinants of
Financial reporting quality.
 Future research should investigate this relationship in different
countries and sectors.