Auditors’ Contribution in Enhancing Non-Quantitative Information Quality

Abstract

The purpose of this research is to determine, first, whether an auditor, by conducting a statutory audit of the company’s financial statements, can improve the company’s non-quantitative information quality, and, second, whether the six leading audit firms in Greece improve the non-quantitative information quality more than other, smaller audit firms. The data are primary, arising from the published financial statements for the period from 2019 to 2022 of 84 companies operating in the agricultural supplies sector. These financial statements were retrieved in January 2024 from the General Commercial Registry of Greece. We have reviewed the management reports of these companies to examine their compliance with Greek legislation requirements on non-quantitative information reporting, i.e., on the entity’s performance, business risk management, and environmental and labor issues. We note that non-quantitative information reporting is improving during the period 2019–2022, regardless of the auditor’s involvement. The average reporting scores of audited companies are higher than the corresponding scores of non-audited companies, so the auditors have significantly improved the non-quantitative information reporting. In addition, the reporting scores of companies audited by six leading audit firms are higher than the corresponding scores of companies audited by the other, smaller audit firms.

1. Introduction

Serious global problems, such as wars, climate change, water shortages, pandemics, energy crises, etc., have intensified concerns about the future of companies (Alexopoulou et al., 2024) and have also increased interest in non-quantitative information on company performance, business risk management, and how companies address environmental and labor issues. Many researchers are trying to apply dynamic logit-based survival models to predict the economic distress resulting from the above global problems (Christopoulos et al., 2019).

Despite the growing interest in non-quantitative information due to the above serious global problems, the relevant studies have shown that non-quantitative information reporting, which is the main mechanism of accountability of the company’s management to all stakeholders, is still poor, not only in developing countries (Tauringana, 2021) but also in developed countries (Soras, 2023). Although many studies have shown that positive non-quantitative information announcements have a positive impact on firms’ stock prices and that when the above information is accompanied by transparency and accountability, it enhances the company’s value and investment returns (Katsampoxakis et al., 2024), non-quantitative information reporting practices are inconsistent (Bradford et al., 2017), because they are usually voluntary and not governed by strict guidelines and standards (Pinnuck et al., 2021).

Non-quantitative information is of considerable importance, because it is almost identical to the information on ESG issues, which is always of great interest, and is even increasing in importance over time. The importance of information on ESG issues stems from the fact that it concerns events with global implications. Companies must, therefore, be very serious about non-quantitative information reporting to stakeholders, and auditors, who check this information, must be equally serious.

The European legislative framework obliges European companies to publish non-quantitative information, with the publication start date determined according to their size.

The Greek legal framework, which governs quantitative and non-quantitative information reporting practices, has incorporated EU directives and Greek laws and regulations (Soras & Christopoulos, 2023). The Circular of Ministry of Economy (Circular 62784, (Circular of Ministry of Economy, 2017)) clarifies the manner of the financial statement’s preparation in accordance with Greek accounting standards and exactly specifies the content of the management reports to Shareholders’ General Assembly. Greek accounting standards do not differ from international financial reporting standards, because Greek Law 4308/2014 (Government Gazette Sheet, 2014) has already incorporated European Directive 1606/2002 (Regulation EU, 2002), according to which the application of international financial reporting standards is mandatory. The management report is a part of the company’s financial statements; therefore, it is mandatory prepared one in accordance with article 150 of Law 4308/2014. Greek legislation, which consists mainly of laws 4308/2014 (Government Gazette Sheet, 2014), 4336/2015 (Government Gazette Sheet, 2015), and 4548/2018 (Government Gazette Sheet, 2018), as well as Circular of Ministry of Economy (Circular 62784, (Circular of Ministry of Economy, 2017)), has been imposed since 1 January 2019, and states that the management report must contain non-quantitative information regarding the company’s performance, business risk management, and treatment of environmental and labor issues (Soras & Christopoulos, 2023).

Since 1 January 2019, the Greek legal framework has imposed the above non-quantitative information reporting practices on the companies. However, in contrast, European directives, for example the Non-Financial Reporting (NFRD) Directive (Directive 2014/95/EU, (The European Parliament and the Council of the European Union, 2014)), has gradually entered into force as follows:

• The large public interest entities, bank institutions, and insurance companies with more than 500 employees are obliged to report for the year ending 31 December 2024.
• Groups of companies or large companies which meet at least two of the following three criteria, i.e., total assets higher than EUR 20,000,000, revenues higher than EUR 40,000,000, and more than 250 employees during the financial year, are obliged to report for the year ending 31 December 2025.
• Listed small and medium-sized enterprises have been exempted from reporting until 31 December 2028. This means that the start of non-quantitative information reporting from small and medium-sized companies from 1 January 2029 onwards will be considered

The purpose of this research is to determine, in the first stage, whether the auditor, who has performed the statutory audit at the financial year ending has contributed to the non-quantitative information quality and, in the second stage, whether the six leading audit firms, namely PwC, SOL, Deloitte, E.Y, Grant Thornton, and KPMG, have improved the quality of the non-quantitative information more than the other, smaller audit firms.

We have examined the financial statements of 84 companies operating in the Greek agricultural supplies sector for the period from 2019 to 2022, which were published in the General Commercial Registry of Greece (General Commercial Registry, 2024) and have reviewed the relevant audit opinions on non-quantitative information.

In Greece, the majority of companies are small and medium-sized. The sample of 84 companies we examine includes 11 large companies, i.e., 13.09% of the sample, 34 medium-sized companies, which constitute 40.47% of the sample, and finally 39 small companies, which constitute 46.44% of the sample. It should be noted that only one company in the sample is listed on the Greek Stock Exchange. It should be recalled that in order to be classified a company as large, it must exceed two of the following three criteria, which are a turnover of more than EUR 40 million, total assets of more than EUR 20 million, and more than 250 employees, for two consecutive years, while in order to be classified as a medium company, it must have a turnover of more than EUR 8 million (up to EUR 40 million), total assets of more than EUR 4 million (up to EUR 20 million), and more than 50 employees (up to 250 employees), for two consecutive years. Under European legislation, small and medium-sized companies are required to provide non-quantitative information from 1 January 2029 onwards.

Clearly, there is an information gap on issues that may be of global concern and a lack of information for stakeholders on the implications of serious events and how to deal with them. Also, the large number of small and medium-sized companies in Greek territory exacerbates the problem, because European directives are drafted to cover the average financial sizes of European companies and not of Greek companies.

What is remarkable is that Greek legislation manages to cover this regulatory legal gap ten years earlier than the European Directives and that there are even significant penalties in cases missing this non-quantitative information.

This is where the originality of this research lies, because it highlights the vigilance of Greek legislation, which covers not only the legislative gap but also the information gap 10 years earlier than the corresponding European legislation.

The remainder of this article is structured as follows: Section 2 presents the conceptual approaches of the literature review, namely the agency theory, stakeholder theory, institutional theory, and legitimacy theory. Section 3 presents the data and research methodology. The results and discussion of this study are described in Section 4, and Section 5 presents the conclusions of this research.

2. Literature Review

We have employed the agency theory, stakeholder theory, institutional theory, and legitimacy theory to justify the need for non-quantitative information reporting.

The agency theory (Jensen & Meckling, 1976) is based on the maximization of shareholder wealth; therefore, managers must annually disclose information to shareholders on the company’s annual performance, as well as on other issues, such as business risk management, environmental protection, and employees’ welfare. This is achieved by submitting the management report to the shareholders’ general meeting.

The agency theory assumes that all people have vested interests, which lead to conflicts; for example, there are conflicts among the owners of resources, i.e., the shareholders, and the managers of resources, i.e., the company’s management, which are exacerbated by the significant problem of information asymmetry, arising from the fact that the company’s management has more information than the company’s owners. Shareholders appoint a board of directors to control and monitor the actions of the company’s management. The board of directors tries to minimize the problem of information asymmetry by adopting an effective system of quantitative and non-quantitative information reporting. One of these monitoring procedures is to check whether the company’s management report complies with the requirements of Law 4548/2018 (Government Gazette Sheet, 2018), and Circular of Ministry of Economy (Circular 62784, (Circular of Ministry of Economy, 2017)) regarding the quantitative and non-quantitative information that should be published. Another monitoring procedure is the involvement of an auditor in the company’s quantitative and non-quantitative information reporting. Agency theory essentially supports the notion that the audit reduces agency conflicts, validates non-quantitative information disclosures, and enhances the credibility of the company’s sustainability programs (Mohamed Adnan et al., 2024).

Stakeholder theory is a combination of organizational management and business ethics and represents all groups affected by business entities, such as employees, suppliers, local communities, and creditors (Lin Tom, 2018). Stakeholder theory supports the maximization of stakeholders’ wealth, because the interests of shareholders and stakeholders go hand in hand. It is impossible to increase the value of the company without taking care to cover the interests of the majority of stakeholders (Baumfield, 2016). The management of the company must serve both internal stakeholders (employees, managers, owners, and shareholders) and external stakeholders (society, suppliers, government, creditors, and customers). There are many definitions and theories of stakeholders that have been developed, but the management of the company must always serve both shareholders and stakeholders (Murdock, 2010), and the needs of stakeholders should be prioritized at the beginning of every activity (Parmar et al., 2010).

The decisions and actions of the company’s management concern not only the shareholders, who always want to increase their wealth, but also the society in which the company operates and is significantly affected by the company’s activities. Social and environmental disruptions increase a society’s interest in non-financial information regarding the environment and personnel. Quantitative and non-quantitative information reduces information asymmetry and constitutes an important mechanism for the company’s management to be accountable to its stakeholders and the societies in which they operate. It is very important for companies to inform stakeholders about their practices for managing various non-financial issues, because by creating these structures, which include systems, rules, and routines, they set guidelines for their social behavior. This is the basis of institutional theory and shows how the systematic application of an institutional framework can provide a deeper understanding of socio-technical changes and developments (Speed, 2016).

The basic assumption of legitimacy theory (Suchman, 1995) is that a company’s activities should be socially acceptable and should consistently comply with criteria set by the society in which the company operates. The only way to ensure that these activities are acceptable is to report quantitative and non-quantitative information, which should be sufficient, relevant, and meaningful. Stakeholders, having received the above quantitative or non-quantitative information, will be able to evaluate the company’s activities. If these activities are not compatible with the expectations and criteria set by society, there is a legitimacy gap (Guthrie et al., 2007) which must be filled.

This legitimacy gap can be filled in two ways. The first way is to be covered by legislators, who should carefully draft laws and regulations to leave no room for misinterpretation of the law. The second way is to be covered by supervisory or regulatory authorities, such as statutory auditors, who should check and report on whether companies comply with the legal framework of Greek company law and the mandatory regulations of the European Union, as formulated by legislators. The integration of legal design into corporate compliance strategies supports long-term sustainability and digital transformation, contributing to the creation of value for all stakeholders (Metin, 2024).

Let us see in practice how the above theories relate to our research. Shareholders are the owners of the resources which have been contributed to the company so that the company can achieve its objectives, and a part of the company’s profits can reach the shareholders through the distribution of the company’s profits. These resources are managed by the managers of the company, who have a great deal of information about the company’s activities and prospects due to their daily involvement with the company’s cases. At this point, the question arises as to whether the company’s management adequately informs the shareholders about the company’s activities and prospects. This information includes not only quantitative but also non-quantitative information, which is also more difficult to verify. This is the problem of asymmetric information, which is addressed by the appointment of the board of directors. The board of directors undertakes to control the actions of the company’s management in various ways, such as installing internal control systems, ensuring that the managers provide shareholders with proper information through financial statements or other reports, and appointing an auditor to audit the financial statements. This is where agency theory comes in.

Non-quantitative information is of considerable importance, because it is almost identical to the information on ESG issues, which is always of great interest, and is even increasing over time. This interest is not only arising from the shareholders, but also from many other stakeholders, namely suppliers, employees, banks, neighbors, clients, etc. This is where stakeholder theory comes in.

The company’s management must be very serious about non-quantitative information reporting to stakeholders. The auditors who check this information must be equally serious.

The legal and supervisory framework must support all this effort, so that stakeholders have the proper information to make the right decisions. This is where institutional theory comes in.

The European legislative framework obliges European companies to publish non-quantitative information with a publication start date determined according to their size. Under European legislation, small and medium-sized companies are required to provide non-quantitative information from 1 January 2029 onwards. In Greece, the majority of companies are small and medium-sized; for example, large-sized companies constitute 13.09% of the sample, while medium-sized companies constitute 40.48% of the sample and small-sized companies constitute 46.43% of the sample. This means that the stakeholders of the small and medium-sized companies in Greece will obtain non-quantitative information for financial year ending on 31 December 2029 and afterwards. Clearly, there is a legitimacy gap. Greek legislation manages to cover this legitimacy gap ten years earlier than the European Directives, because has been imposed since 1 January 2019, and states that the management report, part of the published financial statements, must contain non-quantitative information regarding the company’s performance, business risk management, and treatment of the environmental and labor issues (Soras & Christopoulos, 2023). However, it is not enough, because the legislator will not know whether the legislation is being implemented or not. This gap, namely the correct application of the law, is examined by the auditors (certified public accountants). Finally, the involvement of the auditor through the statutory audit of end-of-year financial statements will improve the quality of the non-quantitative information. This is confirmed not only by this research, but also by another similar research in other sectors, e.g., Soras and Christopoulos (2023), who conducted a similar survey for the paper processing, printing, and packaging sectors.

3. Data and Methodology

Based on the Circular of Ministry of Economy (Circular 62784, (Circular of Ministry of Economy, 2017)) which clarifies the manner and timing of Greek companies’ financial statements publication, in accordance with Law 4308/2014 (Government Gazette Sheet, 2014), which imposes the application of International Accounting Standards in Greece, companies must publish their financial statements, namely their balance sheet, the profit–loss statement, notes, and management report, in the General Commercial Registry of Greece (General Commercial Registry, 2024) within 20 days after their approval by the annual shareholders’ general meeting. The balance sheet, profit–loss statement, and notes include quantitative information, while the management report, which is the basis of this research, mainly includes non-quantitative information. All financial statements were retrieved on 31 January 2024, because the companies were obliged to publish the financial statements for the year ending 31 December 2022, up to 20 November 2023.

According to article 150 of Law 4548/2018 (Government Gazette Sheet, 2018), the management report is prepared by the board of directors annually to inform the shareholders’ general meeting about the company’s performance, business risk management, and environmental and labor issues, by presenting and analyzing key quantitative and non-quantitative indicators. It should be noted that Law 4548/2018 has been imposed on companies to report the aforementioned non-quantitative information from 1 January 2019, and in cases of omission, there are significant sanctions on the members of the board of directors in accordance with article 179 of the same law.

Law 4336/2015 (Government Gazette Sheet, 2015) specifies the statutory audit, which should be applied by the auditors on the companies’ financial statements, in order to issue an opinion as it whether quantitative and non-quantitative information is provided, as required by Greek legislation.

The sample concerns the published financial statements of 84 companies from the year 2019, when non-quantitative information began to become mandatory as stipulated by Law 4548/2018 (Government Gazette Sheet, 2018), until the year 2022, when we have the latest published financial statements, because we retrieved the financial statements from the General Commercial Registry of Greece (General Commercial Registry, 2024) in January 2024. Therefore, we have a population of 336 financial statements for this research. The General Commercial Registry of Greece (General Commercial Registry, 2024), https://www.businessportal.gr (accessed on 31 January 2024), aims to radically reform the operation of fragmented business registers of all legal forms, in a single environment of automated processing and high-performance registry and becomes the main means of publicity, statistical analysis at the national level and a means of third-party protection. Moreover, many countries internationally have implemented similar registries such as House of Companies (England), Public Register (America, Singapore) and others. For these countries, the electronic commercial register of companies is a factor of transparency, ensuring security and reliability of transactions and accelerating procedures and decision-making at both the business and state levels.

We have examined to what extent the management reports of this sample, which represents 80% of the agricultural supplies sector, complies with the minimum requirements of Circular of Ministry of Economy (Circular 62784, (Circular of Ministry of Economy, 2017)) for non-quantitative information regarding the four reporting pillars, i.e., performance, risk, and environmental and labor issues.

The company’s management, by using the management report, should present information regarding the first reporting pillar (company performance) and, more specifically, information about the description of the business model (score 6.250%), its objectives, values, and key strategies (score 6.250%), management principles and internal control system (score 6.250%), an analysis of indicators, including a comparison with the previous year (score 2.083%), contribution to the added value chain (score 2.083%), and, finally, the description of its tangible and intangible assets (score 2.083%). The maximum score that can be achieved for the first reporting pillar (performance) is 25.000%.

The company’s management should present information for the second reporting pillar (risk management) and, more specifically, information about business risk management (score 8.333%), supply-chain and other related risks (score 8.333%), and the company’s prospects (score 8.333%). The maximum reporting score that can be achieved for the second reporting pillar (risk management) is 25.000%.

The company’s management should present information for the third reporting pillar (environmental issues) and, more specifically, information about its actual and potential impacts on the environment (score 8.333%), disclosure of procedures for preventing and controlling environmental impacts (score 8.333%), and the development of green products (score 8.333%). The maximum score that can be achieved for the third reporting pillar (environmental issues) is 25.000%.

Finally, the company’s management should present information for the fourth reporting pillar (labor issues) and, more specifically, the policy of diversity and equal opportunities (score 8.333%), respect for the rights of employees and trade unions (score 8.333%), health and safety at work (score 2.778%), employees’ training (score 2.778%), and employees’ promotions (score 2.778%). The maximum score that can be achieved for the fourth reporting pillar (labor issues) is 25.000%.

We can identify a direct correlation between the four reporting pillars of non-quantitative information, i.e., on the entity’s performance, business risk management, environmental and labor issues, and the three reporting pillars of ESG (environment, society, and governance). The first and second reporting pillar of non-quantitative information, i.e., the entity’s performance and business risk management, are directly related to the third reporting pillar of ESG, i.e., governance. The third reporting pillar of non-quantitative information, i.e., environmental, is identical to the first reporting pillar of ESG. Finally, the fourth reporting pillar of non-quantitative information, i.e., labor, is directly related to the second reporting pillar of ESG, i.e., social.

Having completed the scoring of all companies in the sample for the period of 2019–2022, depending on the non-quantitative information provided regarding the four reporting pillars and by using the management reports as required by Greek legislation, we have found the average reporting score per reporting pillar, per year. Each company has been scored according to its compliance with the regulations regarding the non-quantitative information reporting, e.g., if the management report presents all the non-quantitative information, the company will receive a reporting score of 100%. The scores given do not have the same weighting for all issues and depend on their classification into categories by the Circular of Ministry of Economy (Circular 62784, (Circular of Ministry of Economy, 2017)).

The purpose of this research is to determine, in the first stage, the auditor’s contribution to the non-quantitative information quality and, in the second stage, whether an auditor–member of the six leading audit firms has improved more the non-quantitative information quality than the other, smaller audit firms.

In accordance with the annual report of the Accounting Standards and Audit Committee of Greece for year 2022, issued in July 2024 (ELTE, 2024), there are six audit firms, namely PwC, SOL, Deloitte, E.Y, Grant Thornton, and KPMG, which have monopolized audits in Greece. The Accounting Standards and Audit Committee of Greece, which is called ELTE, is a national supervisory authority of the audit and accounting profession. It is a legal body governed by public law, enjoying administrative and financial autonomy, with authority deriving from Greek legislation and guided exclusively by the public interest. The purpose of ELTE is to strengthen the trust and confidence of the investing public in the operation of the Audit and Accounting Institution in Greece. The six leading audit firms have a total market share of 74.01% of the auditing. PwC has 15.93% of the market share, SOL has 14.97% of the market share, Deloitte has 14.57% of the market share, E.Y has 12.47% of the market share, Grant Thornton has 9.38% of the market share, and KPMG has 6.69% of the market share.

We have chosen to review this sector, because of the following factors:

• It is a heavy industrial and energy-intensive sector. This is a serious environmental issue.
• It uses a lot of chemical materials to produce fertilizers and plant protection products, with a strong environmental footprint and a significant impact on the aquifer (water). This is also a serious environmental issue.
• It employs a large number of workers and employees, who are classified as heavy and unhealthy professionals, due to their exposure to the chemicals involved in this industry. This is a serious social issue. It is the cornerstone of the food chain and, thus, is directly related to Development Goal (SDG) 2, Zero Hunger, which will be achieved by the agriculture sector, providing key solutions for development for eradicating hunger and poverty.
• It is directly related to water management and is affected by climate change. This is also a serious environmental issue.

The 2030 Agenda for Sustainable Development, adopted by all member states of the United Nations in 2015, provides a common plan for the peace and prosperity of people and the planet for today and for the future. The 2030 Agenda has focused on the 17 Sustainable Development Goals (SDGs) and calls on all countries, developed or developing, to act, urgently, towards a global cooperation partnership (The United Nation, 2022). Goal 2: Zero Hunger, which is directly related to the agricultural supplies sector, has the following targets (www.un.org/en/content/common-agenda-report (accessed on 31 January 2024)):

• Ending hunger and improving access to food.
• Ending all forms of malnutrition.
• Agricultural productivity.
• Sustainable food production systems and resilient agricultural practices.
• Genetic diversity of seeds, cultivated plants, and domesticated animals.
• Investments.
• Research and technology.
• Addressing trade restrictions and distortions in world agricultural markets and food commodity markets and their derivatives.

It is obvious that the sector which has been selected for examination has many common points with the aforementioned targets.

The study “Multiple Framework Contract for the Support to Structural Reforms in EU Member States. Design and Development of Strategies for the Development and Transformation of the Greek Industry”, which has been prepared by “PricewaterhouseCoopers Business Solutions A.E. “(PwC) for the exclusive use of the Ministry of Development and Investments/General Industry Secretariat in February 2023 (Ministry of Development and Investments-General Industry Secretariat, 2023), has highlighted the characteristics and the dynamics sectors, which will become key subjects of the National Strategy for Industry in Greece. Therefore, the following five industrial ecosystems are highlighted:

• Agri-food.
• Structural materials.
• Health.
• Digital technologies and applications.
• Green technologies/circular economy.

In addition, within the framework of the strategy, seven niche markets are identified in Greek industry:

• Food value for money, based on the marketing principal “From the Farm to the Folk”.
• New-generation materials.
• Health technologies and applications.
• Applications of robotics.
• Electrification.
• Defense industry.
• Repair and shipbuilding.

We note that the sector, which has been selected for examination, has directly related to the first industrial ecosystem, namely agri-food, and the first niche market, namely food value for money.

We preferred to carry out the survey at the sectoral level rather than at the national level, because this way the sample could include medium and large companies, which are subject to a statutory audit, and small companies, which are not audited. Thus, we can check the impact of the auditor on non-quantitative information reporting. It should be noted that, in Greece, companies are obliged to be audited based on their size and not on their legal form.

The data of this research are primary and have been extracted from the published financial statements of 84 companies for the period from 2019 to 2022. These companies operate in the agricultural supplies and agrochemical sector and represent approximately 80% of the market share. They have published their financial statements in the General Commercial Registry of Greece (General Commercial Registry, 2024), from where their financial statements were retrieved in January 2024. Finally, our sample includes a population of 336 financial statements for this research.

We have used stratified analysis (Saunders et al., 2016), i.e., we have selected some criteria to define various categories and then we have classified the whole sample into these categories (groups). The stratification method is used to evaluate and control some common factors, i.e., the performance, risk, environmental, and labor average reporting scores, as well as the average reporting score, and divides the sample into subgroups or strata, i.e., the group of non-audited companies, the group of companies audited by the top six audit firms, and the group of companies audited by other audit firms. Each stratum becomes homogeneous with respect to the selected criterion (audit), so we can assess the correlation of the data with the selected criterion.

We have examined whether the management reports provide the non-quantitative information as required by Greek legal framework. If a management report gives all the non-quantitative information, the company will achieve a 100% reporting score; thus, the average reporting score of each company is a continuous numerical variable with a value from 0% to 100%.

The purpose of this research is to examine if the companies, subject to statutory audit, present higher reporting scores, i.e., they give more non-quantitative information than the other companies which are not subject to a statutory audit. The auditor involvement takes the value of 1 if an auditor performs the statutory audit of the company and 0 if no auditor is involved.

The first step of this research is to examine the relationship of the auditor’s involvement with the average reporting score of each company. For this purpose, we first conducted a correlation analysis by calculating the Pearson correlation coefficient between the variable of auditor involvement and the variable of average reporting Score. If the Pearson correlation coefficient is equal to or higher than 0.500, a correlation is detected between the average reporting score and auditor involvement. The p-value must have a low value to be statistically significant.

The second step of this research is to conduct a linear regression analysis between the variable of auditor involvement and the average reporting score, as a dependent variable, to examine their relationship. We will evaluate the parameters R-squared, adjusted R-squared, significance F, and p-value. We must have high values for R-squared and adjusted R-squared and low values for significance F and p-value, to clarify whether the independent variable auditor involvement is statistically significant at a 5% level and crucial for reporting score.

After combining the above results, we will reach a conclusion.

4. Results and Discussion

4.1. Sample and Non-Quantitative Information Reporting Scores

We reviewed 336 management reports of the sample, i.e., the management reports of 84 companies for 4 years, and then we rated the non-quantitative information they provide, compared to the requirements of Greek legislation. Of the total of 336 management reports that were evaluated and rated, 173 management reports, i.e., 51.49% of the sample, had been audited, in the context of the statutory audit at the end of the year. Of the 173 auditor opinions, 119 auditor opinions were issued by the 6 leading audit firms (35.42% of the sample), while the remaining 54 auditor opinions, i.e., 16.07% of the sample, were issued by smaller audit firms.

Table 1. Classification of the sample in relation to their audits.

Year	Companies Not Subject to Audit	Companies Audited by the Top 6 Audit Firms	Companies Audited by Other Audit Firms	Total
2019	46	28	10	84
2020	41	31	12	84
2021	39	30	15	84
2022	37	30	17	84
Total	163	119	54	336
%	48.51%	35.42%	16.07%	100.00%

presents the classification of the sample companies based on the auditor criterion, i.e., no auditor, top six audit firms, and other audit firms.

We note that the number of companies which were subject to statutory audit increased over time, e.g., from 45.24% of the sampled companies in 2019 to 55.95% of the sampled companies in 2022.

It should be clarified that according to Law 4308/2014 (Government Gazette Sheet, 2014), only medium and large companies are subject to statutory audits. In Greece, medium-sized companies are those that achieve two of the following three criteria, namely a turnover of more than EUR 8 million, total assets of more than EUR 4 million, and more than 50 employees for two consecutive years. Under Law 4308/2014, the legal form of the company is not a criterion to be audited by a statutory auditor. Small companies can also be audited on a voluntary basis, regardless of their size, following a decision by a shareholders’ general meeting, because it is provided for in their articles of association, or because they belong to a group that is audited. Companies which are listed on the stock exchange are audited compulsorily, but from our sample only one company is listed on the Athens Stock Exchange. To recap, not all companies in Greece are subject to statutory audits.

After examining the extent to which the management reports of the sampled companies comply with the requirements of Greek legislation for non-quantitative information regarding the four reporting pillars, i.e., performance, risk management and environmental and labor issues, we prepared

Table 2. Average reporting score of the sample per year.

Year	Average Performance Reporting Score	Average Risk Reporting Score	Average Environment Reporting Score	Average Labor Reporting Score	Average Reporting Score
2019	13.184%	16.822%	13.194%	13.073%	56.273%
2020	17.022%	17.262%	13.591%	13.305%	61.180%
2021	17.411%	18.055%	14.484%	14.551%	64.501%
2022	17.758%	18.353%	15.079%	15.112%	66.302%
Total	16.344%	17.623%	14.087%	14.010%	62.064%

, which presents the average reporting scores of all companies, subject or not subject to auditing, by reporting pillar, for the period from 2019 to 2022, as well as the average reporting score per year.

Regardless of the auditor’s involvement, there was a continuous improvement in the average reporting scores of the sample for the period from 2019 to 2022, i.e., the average reporting score was 56.273% in 2019 versus 66.302% in 2022.

4.2. Comparison of Audited Companies’ Reporting Scores Versus Non-Audited Companies’ Reporting Scores

This research aims to answer the question, in the first stage whether the auditor who performed the statutory audit at the financial year ending contributes to the quality of the non-quantitative information and, in the second stage, whether the top six audit firms have improved the quality of the non-quantitative information more than the other, smaller audit firms.

After assessing the compliance of non-quantitative performance information, as reported by the management reports of the sample, with Greek legislation requirements for non-quantitative information regarding the same reporting pillar, we have prepared

Table 3. Average reporting rating in relation to the audits.

Year	Score of Companies Subject to Audit	Score of Companies Not Subject to Audit	Comparison of Score (Audit versus Not Audit)
2019	74.586%	41.147%	1.81
2020	76.974%	44.614%	1.73
2021	77.809%	49.145%	1.58
2022	80.614%	48.123%	1.68
Average Increase in Score for Period 2019–2022			1.70

, which presents the overall average reporting score, including the average performance, risk, environmental, and labor reporting score of the audited companies, in comparison with the corresponding average reporting score of the non-audited companies.

We note that the average reporting score of the audited companies was 70% higher than the average reporting score of the companies which were not audited.

The data of this paper are primary and were extracted from the published financial statements for the period from 2019 to 2022 of 84 companies operating in the agricultural supplies and agrochemical sector. These companies, which represent the 80% of market share, must publish their financial statements, namely their balance sheet, profit–loss account, notes, and management report, in the General Commercial Registry of Greece (General Commercial Registry, 2024), where they were retrieved in January 2024.

We have examined whether the management reports provide the non-quantitative information, as required by the Greek legal framework. A total of 336 management reports (84 companies for four years) were examined and rated in relation to the extent of the non-quantitative information they provide; for example, if a management report provided all the non-quantitative information, as required by Greek legislation, the company achieved a 100% reporting score. The purpose of this research is to examine if the companies which are subject to statutory audits present higher reporting scores, i.e., whether they give more non-quantitative information than other companies which are not subject to statutory audits.

The auditor involvement takes the value of 1 if an auditor is involved with the company and 0 if no auditor is involved. The average reporting score of each company is a continuous numerical variable and takes a value from 0% to 100%.

The first step of this research was to examine the relationship of the auditor involvement with average reporting score of each company. Firstly, we conducted a correlation analysis by estimating the Pearson correlation coefficient between the variable of auditor involvement and the variable of the average reporting score. The Pearson correlation coefficient was equal to 0.500; thus, a correlation was detected between the average reporting score and auditor involvement, which means that auditor involvement contributes to the increase in the average reporting score of the company. The p-value is statistically significant, with a very low value of 1.20 × 10⁻²²_.

The second step of this research was to conduct a linear regression analysis between the independent variable of auditor involvement and the dependent variable of the average reporting score. We found the following results: an R-squared 0.636, an adjusted R-squared of 0.6327, a significance F of 2.32 × 10⁻⁷⁵, a coefficient of 0.818603399, and a p-value of 1.92 × 10⁻⁷⁵. We found high values for R-squared and adjusted R-squared, while we found very low values for significance F and p-value. Therefore, the independent variable auditor involvement was statistically significant at a 5% level and was crucial for the dependent variable of the average reporting score.

The above trend of the average reporting score was also observed in all four reporting pillars. It is clear that the auditor contributes to improving the quality of non-quantitative information (Soras & Christopoulos, 2025).

4.3. Comparison of Reporting Scores Among Companies Audited by Six Leading Audit Firms and Companies Audited by Other, Smaller Audit Firms

As we have shown previously, the auditor contributes to improving the quality of non-quantitative information. This research now aims to answer the second question of whether the auditor belonging to one of the top six audit firms contributes more to improving the quality of non-quantitative information compared to an auditor belonging to another smaller audit firm.

Table 4. Average reporting score in relation to the audit firm.

Year	Score of Companies Audited by Top 6 Audit Firms	Score of Companies Audited by Other Audit Firms	Comparison Top Audit Firms Versus Other Audit Firms
2019	76.705%	68.651%	1.12
2020	78.769%	72.339%	1.09
2021	79.607%	74.213%	1.07
2022	84.050%	74.550%	1.13
Average Increase in Score for Period 2019–2022			1.10

presents the average reporting score, including the average performance, risk, environmental, and labor reporting score, of the companies audited by top six audit firms versus the corresponding overall average reporting score of the audited companies by other, smaller audit firms.

We note that the average reporting score of the companies audited by the top six audit firms was 10% higher than the average reporting score of the companies audited by other, smaller audit firms.

Considering the above comparisons among average reporting scores, it is obvious that whether the auditor belongs to one of the top six audit firms contributes more to improving the quality of non-quantitative information, in comparison to when the auditor belongs to another smaller audit firm.

The first step is to examine the relationship of the top 6 auditor involvement with the average reporting score of each company. If an auditor of the top 6 audit firms is involved, the variable takes a value of 1, and if an auditor from one of the other audit firms is involved, the variable takes a value of 0. The average reporting score of each company is a continuous numerical variable and takes a value from 0% to 100%.

Firstly, we conducted a correlation analysis by estimating the Pearson correlation coefficient between the independent variable of top 6 auditor involvement and the dependent variable of the average reporting score. The Pearson correlation coefficient was equal to 0.377; thus, the top 6 auditor involvement is also positively correlate with the average reporting score, but to a lesser extent. The p-value is statistically significant, with a very low value of 0.0012.

The second step of this research was to conduct a linear regression analysis between the independent variable of top 6 auditor involvement and the dependent variable of the average reporting score. We found an R-squared value of 0.665, an adjusted R-squared value of 0.661, a significance F value of 2.04 × 10⁻⁵², a coefficient of 0.8410, and a p-value of 1.64 × 10⁻⁵². We found high values for R-squared and adjusted R-squared, while we found very low values for significance F and p-value. Therefore, the independent variable of the top 6 auditor involvement was statistically significant at a 5% level and was crucial for the dependent variable of the average reporting score.

4.4. Zero Reporting Score-Nil Information About Any Pillar

A zero average reporting score regarding any of the four reporting pillars indicates poor non-quantitative information quality. If no non-quantitative information has been reported by the company regarding any of the four reporting pillars, Greek legislation has been violated.

Table 5. Zero average reporting score in relation to audits for 2019.

Zero Reporting Score per Pillar	Reported by Companies Not Subject to Audit	Reported by Companies Audited by Top 6 Audit Firms	Reported by Companies Audited by Other Audit Firms	Sample
Performance	8	1	0	9
Risk	14	1	0	15
Environmental	22	2	2	26
Labor	23	1	3	27
Total number of topics with zero reporting	67	5	5	77
Total number of topics to be reported	184	112	40	336
Total number of topics with zero reporting (%)	36.41%	4.46%	12.50%	22.92%

shows the percentage of topics of each reporting pillar, namely the performance, risk management, environmental, and labor reporting pillars with nil information, in relation to the criterion of auditing, i.e., companies not subject to audits, those audited by the top six audit firms, and those audited by other, smaller, audit firms, for the year 2019.

We note that companies audited by the top six audit firms presented the fewest cases with zero information per reporting pillar (4.46%) versus companies not subject to audits (36.41%) and companies audited by other, smaller audit firms (12.50%) for the year 2019. Furthermore, companies audited by other, smaller audit firms presented fewer cases with zero information per reporting pillar than companies not subject to audits.

Table 6. Zero average reporting score in relation to audits for 2020.

Zero Reporting Score per Pillar	Reported by Companies Not Subject to Audit	Reported by Companies Audited by Top 6 Audit Firms	Reported by Companies Audited by Other Audit Firms	Sample
Performance	5	1	0	6
Risk	10	1	1	12
Environmental	20	1	3	24
Labor	21	2	3	26
Total number of topics with zero reporting	56	5	7	68
Total number of topics to be reported	164	124	48	336
Total number of topics with zero reporting (%)	34.15%	4.03%	14.58%	20.24%

shows the percentage of topics for each reporting pillar with zero information in relation to the audit criterion, i.e., companies not subject to audits, those audited by six leading audit firms, and those audited by other, smaller, audit firms, for the year 2020.

We note that companies audited by the top six audit firms presented the fewest cases with zero information per reporting pillar (4.03%) versus companies not subject to audits (34.15%) and companies audited by other, smaller audit firms (14.58%) for the year 2020. In addition, the companies audited by other smaller audit firms presented fewer cases with zero information per reporting pillar than the companies which are not subject to audits.

Table 7. Zero average reporting score in relation to audits for 2021.

Zero Reporting Score per Pillar	Reported by Companies Not Subject to Audit	Reported by Companies Audited by Top 6 Audit Firms	Reported by Companies Audited by Other Audit Firms	Sample
Performance	6	1	0	7
Risk	10	1	0	11
Environmental	17	1	3	21
Labor	17	2	3	22
Total number of topics with zero reporting	50	5	6	61
Total number of topics to be reported	156	120	60	336
Total number of topics with zero reporting (%)	32.05%	4.17%	10.00%	18.15%

shows the percentage of topics of each reporting pillar with zero information, in relation to the criterion of the audit, for the year 2021.

We note that companies audited by the top six audit firms presented the fewest cases with zero information per reporting pillar (4.17%) versus companies not subject to audits (32.05%) and companies audited by other, smaller audit firms (10.00%) for the year 2021. The companies audited by other, smaller audit firms also presented fewer cases with zero information per reporting pillar than the companies which are not subject to audits.

In addition,

Table 8. Zero average reporting score in relation to audits for 2022.

Zero Reporting Score per Pillar	Reported by Companies Not Subject to Audit	Reported by Companies Audited by Top 6 Audit Firms	Reported by Companies Audited by Other Audit Firms	Sample
Performance	5	0	0	5
Risk	9	0	0	9
Environmental	16	0	3	19
Labor	16	1	3	20
Total number of topics with zero reporting	46	1	6	53
Total number of topics to be reported	148	120	68	336
Total number of topics with zero reporting (%)	31.08%	0.83%	8.82%	15.77%

shows the percentage of topics of each reporting pillar with zero information, in relation to the criterion of the audit, for the year 2022.

We note the same trend. The companies audited by the top six audit firms presented the fewest cases with zero information per reporting pillar (0.83%) versus companies not subject to audits (31.08%) and companies audited by other, smaller audit firms (8.82%) for the year 2022. In addition, the companies audited by other, smaller audit firms presented fewer cases with zero information per reporting pillar than the non-audited companies.

Table 9. Topics with zero reporting (%) relating to audits.

Year	Reported by Companies Not Subject to Audit	Reported by Companies Audited by Top 6 Audit Firms	Reported by Companies Audited by Other Audit Firms	Sample
2019	36.41%	4.46%	12.50%	22.92%
2020	34.15%	4.03%	14.58%	20.24%
2021	32.05%	4.17%	10.00%	18.15%
2022	31.08%	0.83%	8.82%	15.77%
Average	33.42%	3.37%	11.48%	19.27%

shows the percentage of topics with zero information, in relation to the criterion of the audit, per year.

We note the same trend as above. During the period from 2019 to 2022, the companies audited by the top six audit firms presented the fewest cases with zero information per any reporting pillar (3.37%) versus companies not subject to audits (33.42%) and companies audited by other, smaller audit firms (11.48%). The companies audited by other smaller audit firms also presented fewer cases with zero information per any reporting pillar than the non-audited companies.

Table 10. Zero reporting rating per pillar in relation to the audit firm.

Year	% Zero Reporting Rating per Pillar from Companies Audited by Top 6 Audit Firms	% Zero Reporting Rating per Pillar from Companies Audited by Other Audit Firms	Comparison Top Audit Firms Versus Other Audit Firms
2019	4.46%	12.50%	0.36
2020	4.03%	14.58%	0.28
2021	4.17%	10.00%	0.42
2022	0.83%	8.82%	0.09
Total	3.37%	11.48%	0.29

shows that during the period from 2019 to 2022, the companies audited by the top six audit firms presented 71% fewer cases with zero information per any reporting pillar than the companies audited by other, smaller audit firms.

We note that the zero-compliance rating cases for companies audited by six leading audit firms are, obviously, fewer in comparison with the zero-compliance rating cases relating to the companies audited by other audit firms. When the auditor is a member of one of the six leading audit firms, he further reduces the number of cases with a zero-reporting rating, i.e., nil information about performance, risk management, environmental issues, and labor matters, and, therefore, contributes more to improving the non-quantitative information quality than an auditor from one of the other audit firms.

5. Conclusions

The purpose of this research was to determine, in the first stage, whether auditors, by performing the statutory audit of the financial statements at the end of the financial year, contribute to the improvement of non-quantitative information quality, which must be reported by companies according to Greek legislation. In the second stage, we aimed to determine whether the six leading audit firms in Greece, namely PwC, SOL, Deloitte, EY, Grant Thornton, and KPMG can further improve the quality of non-quantitative information compared to the other, smaller audit firms when performing the statutory audit of financial statements at the end of the year.

Considering that the board of directors is obliged to report non-quantitative information, by using the management report, to the annual shareholders’ general meeting, as stipulated by Greek commercial law, we have evaluated the reporting scores of the sample’s companies per year and various reporting pillars, i.e., the average performance, risk management, environmental, and labor reporting score, as well the overall average reporting score.

Regardless of the auditor’s involvement, we found that the average reporting scores per pillar of all companies, whether audited or not, showed continuous improvement during the period from 2019 to 2022; for example, the overall average reporting score increased from 56.273% (2019) to 66.302% (2022). Despite the continuous improvement in non-quantitative information quality, the average reporting score, which is 62.064% for the period from 2019 to 2022, is considered low, because Greek legislation does not require complex reports, benchmarks, and key-performance indicators (Soras & Christopoulos, 2023). Therefore, we conclude that the sector needs to improve its non-quantitative information reporting. The results of this study confirm the findings of previous studies on other sectors, for example the paper processing sector, which also has poor results in terms of non-quantitative reporting (Soras, 2023).

We have found that, during the period from 2019 to 2022, the average reporting score of the audited companies was higher 70% than the average reporting score of the companies which were not audited. We found that the average reporting score is significantly related to the involvement of the auditor at the 5% level (adjusted R² = 0.6327, significance F = 2.32 × 10⁻⁷⁵, and p-value < 0.005). The above trend of the overall average reporting score was also observed in all four reporting pillars. It is clear that the auditor contributes to improving the quality of non-quantitative information.

Furthermore, we note that the average reporting score of the companies audited by the six leading audit firms is 10% higher than the average reporting score of the companies audited by other, smaller audit firms. The average reporting score was significantly related to the involvement of an auditor belonging to one of the top six auditing firms at the 5% level (adjusted R² = 0.6605, significance F = 2.04 × 10⁻⁵² and p-value < 0.005).

During the period from 2019 to 2022, the companies audited by the six leading audit firms presented the fewest cases with zero information per any reporting pillar (3.37%) versus companies not subject to audits (33.42%) and companies audited by other, smaller audit firms (11.48%). The companies which were audited by the top six audit firms presented 71% fewer cases with zero information per any reporting pillar than the companies which were audited by other, smaller audit firms. The companies audited by other smaller audit firms also presented fewer cases with zero information per any reporting pillar than the non-audited companies.

It is clear that the auditor always contributes positively to the quality of non-quantitative information, and that when he is a member of one of the six leading audit firms, he further improves the quality of non-quantitative information more than an auditor from one of the other, small audit firms.

The above findings, arising from the positive correlation of the average reporting scores with the audit, verify the representation theory (Jensen & Meckling, 1976), because the audit of the company’s financial statements is an element of an effective internal audit system, and this indicates effective governance (Soras & Christopoulos, 2023). A monitoring procedure checks whether the company’s management report complies with the requirements of Law 4548/2018 (Government Gazette Sheet, 2018) and Circular of Ministry of Economy (Circular 62784, (Circular of Ministry of Economy, 2017)) regarding the quantitative and non-quantitative information that should be published. Another monitoring procedure is the involvement of an auditor in the company’s quantitative and non-quantitative information reporting. Agency theory is based on the audit, because it reduces the agency conflicts, validates the non-quantitative information, and enhances the company’s accountability (Mohamed Adnan et al., 2024).

The auditor improves the non-quantitative information reporting; thus, he reduces information asymmetry and constitutes an important mechanism for the company’s management to be accountable to its stakeholders and the societies in which they operate. This is the cornerstone of stakeholders’ theory.

Concerning the theory of legitimacy, (Suchman, 1995), shows that legislators, by using commercial laws, require companies to report non-quantitative information about their performance, risk management, and environmental and labor issues; thus, they believe that they have filled the legitimacy gap in reporting, which is the basic mechanism of accountability. However, this is not enough, because regulatory authorities, which in this case are the auditors, must perform an audit to verify whether the companies are implementing the requirements of the legislation to fill the gaps concerning their non-quantitative information reporting regarding performance, risk management, and environmental and labor issues (Guthrie et al., 2007). This legitimacy gap can be filled in two ways. The first way is to be covered by legislators, who should carefully draft laws and regulations to leave no room for misinterpretation of the laws. The second way is to be covered by supervisory or regulatory authorities, such as statutory auditors, who should check and report whether companies comply with the Greek legal framework and the mandatory regulations of the European Union, as formulated by legislators. The integration of the legal framework into corporate compliance strategies supports the company’s sustainability and create value for all stakeholders (Metin, 2024).

According to the European legislative framework, i.e., Non-Financial Reporting (NFRD) Directive (Directive 2014/95/EU, (The European Parliament and the Council of the European Union, 2014)), small and medium-sized companies (SMEs) will report non-quantitative information for the financial year ending 31 December 2029 and beyond. This means that the stakeholders of small and medium-sized companies in Greece, where 85% of the companies are small and medium-sized, will obtain non-quantitative information for the financial year ending on 31 December 2029 and afterwards. Clearly, this is a significant legitimacy gap, the highlighting of which is the contribution of this research.

Greek legislation has managed to cover this legitimacy gap ten years earlier than the European Directives, because Greek legislation, which consists mainly of laws 4308/2014 (Government Gazette Sheet, 2014), 4336/2015 (Government Gazette Sheet, 2015), 4548/2018 (Government Gazette Sheet, 2018) and Circular of Ministry of Economy (Circular 62784, (Circular of Ministry of Economy, 2017)), imposed since 1 January 2019, states that the management report, a part of the published financial statements, must contain non-quantitative information regarding the company’s performance, business risk management, and treatment of environmental and labor issues (Soras & Christopoulos, 2023).

Our study has limitations, as we have used a sample of companies which are operating in a specific sector in Greece. Therefore, it is necessary to extend the research to other sectors and to other countries. We preferred to use a whole sector as a sample for our research, separately, rather than having a sample consisting of companies in different sectors at the national level, because in this way the sample, which is the whole sector, includes not only medium and large companies, which are subject to statutory audits, but also small companies that are not subject to statutory audits. In this way, we can examine the auditor’s influence on non-quantitative information reporting, identify differences in non-quantitative information reporting, and generally identify differences in corporate behavior related to the size of the company. Note that, in Greece, companies are required to be audited based on their size and not on their legal form. After completing our research involving different sectors, we will be able to make comparisons among various sectors and draw useful conclusions. Soras and Christopoulos (2023) conducted a similar survey for the paper processing, printing, and packaging sector, where they identified the same trends as in this research, but found a lower quality of non-quantitative information reporting compared to the agriculture supplies sector.