Dissertation: Accountability, Disclosure, and SWF Reporting Standards

This dissertation delves into the accountability, disclosure, and reporting standards of Sovereign Wealth Funds (SWFs). It examines the role of SWFs in diversifying revenue streams and investing in financial assets. The study assesses whether SWFs adhere to effective accounting and reporting standards, referencing IFRS. The research includes an analysis of secondary data, indicating improvements in SWF performance over time and the adoption of sound accountability and disclosure practices. The report explores the research aim, objectives, and questions, followed by a literature review covering SWF characteristics, challenges, and solutions. The methodology section outlines the research approach, philosophy, and data collection methods. The data analysis chapter presents findings on SWF objectives, accounting standards, disclosure practices, performance, and associated issues. Finally, the conclusion and recommendations provide insights and suggestions for improvement. This comprehensive analysis offers valuable insights into the governance and transparency of SWFs, contributing to a deeper understanding of their financial operations and impact.

Do sovereign wealth fund has sound accountability,
disclosure and reporting standards?
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ABSTRACT
Sovereign wealth fund (SWF) is the investment which is created by it for the diversification
of revenue streams. Fund is invested by the institutions in financial assets such as stocks, bonds,
real estate, precious metals and other alternative investment projects. Present dissertation is based
upon SWFs which is having responsibility to invest funds given by Central bank for making high
value addition on the same. In this, researcher will develop understanding about sovereign fund and
then it will be assessed that whether SWF uses effective accounting and reporting standards or not.
Furthermore, it can be said that SWF also appointed Deloitte as an independent auditor for the
financial accounts of fund. Sovereign Wealth Fund prepares its financial statement by taking into
account generally accepted principles so that performance of the same can be measured in terms of
rate of return and effectiveness on nation. From the secondary data, it has been assessed that
performance level of Sovereign Wealth Fund has significantly improved as compared to the past
years. Apart from that, it also has been articulated that SWF has sound accountability, disclosure
and reporting standards for the preparation and disclosure of information.
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ACKNOWLEDGEMENT
Completing the entire study at own level is a typical task where one needs greater assistance.
Hereby, I would like to impart my sincere thanks to my mentor who provided guidance throughout
the study. I would also like to say thanks to my colleagues for collecting secondary data in order to
reach at the aim of research. Apart from this, my friends' have also made a great contribution in
accomplishing the objective of study and drawing a valid conclusion. For assessing the level to
which sovereign wealth fund has disclosed information according to the standard reporting
standards, interpretivism philosophy and inductive approach has been undertaken by the scholar.
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TABLE OF CONTENTS
ACKNOWLEDGEMENT....................................................................................................................3
CHAPTER 1: INTRODUCTION.........................................................................................................5
1.1 Background of the study............................................................................................................5
1.2 Research aim and objectives......................................................................................................5
1.3 Research questions.....................................................................................................................6
1.4 Rationale of the study................................................................................................................6
1.5 Significance of the study............................................................................................................6
1.6 Structure of dissertation.............................................................................................................7
CHAPTER 2: LITERATURE REVIEW..............................................................................................8
2.1 Introduction................................................................................................................................8
2.2 Sovereign wealth fund...............................................................................................................8
2.3 Main problems of sovereign wealth funds.................................................................................9
2.4 Ways to overcome the difficulties that are faced by Sovereign Wealth Fund..........................10
2.5 Identifying whether sovereign wealth fund is adopting effective accounting and reporting
standards........................................................................................................................................10
2.6 Understanding standards adopted for disclosure of information by sovereign wealth fund
(SWF).............................................................................................................................................12
2.7 Generic characteristic of Angolan sovereign wealth fund.......................................................13
2.8 Literature Gap..........................................................................................................................15
Chapter 3: RESEARCH methodology...............................................................................................16
3.1 Introduction..............................................................................................................................16
3.2 Research Type..........................................................................................................................16
3.3 Research approach...................................................................................................................16
3.4 Research philosophy................................................................................................................17
3.5 Research design.......................................................................................................................17
3.6 Methods of data collection.......................................................................................................18
3.7 Data analysis plan....................................................................................................................18
3.8 Ethical consideration................................................................................................................19
3.10 Reliability and validity...........................................................................................................20
CHAPTER 4: DATA ANALYSIS.......................................................................................................21
Theme 1:Sovereign wealth fund aims to support government's strategic objectives....................21
Theme 2: Sovereign wealth fund undertakes accounting and reporting standards........................22
Theme 3:Sovereign wealth fund follow effective disclosure practices for publishing report.......23
Theme 4: Present performance of Sovereign wealth fund is better in comparison to the before
times...............................................................................................................................................24
Theme 5: Several issues are facing by Sovereign wealth fund in relation to the adoption of
accounting standard.......................................................................................................................25
Chapter 5: CONCLUSION and Recommendations...........................................................................27
Conclusion.....................................................................................................................................27
Recommendations..........................................................................................................................28
REFERENCES...................................................................................................................................29
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CHAPTER 1: INTRODUCTION
Topic: Do sovereign wealth fund has sound accountability, disclosure and reporting standards?
1.1 Background of the study
Sovereign wealth fund (SWF) refers to the state-owned investment which is created for the
diversification of revenue streams. Such fund is invested by company in the financial assets such as
stocks, bonds, real estate, precious metals and other alternative investment projects. This fund is
invested by the authority at global level with an aim to earn high returns by lowering the risk level.
In this regard, foreign-exchange reserves held by central bank is the main financial source which is
undertaken by SWFs for the investment purpose (Megginson and Fotak, 2015). In the highly
dynamic and strategic business environment, SWFs plays a vital role in maximizing the long-term
returns, managing liquidity and making stabilization in the currency rates. In this way, SWFs makes
remarkable contribution for the growth and development of economy to a large extent by offering
hedging and other investment opportunities.
Sovereign wealth fund has the responsibility to invest fund in such kind of securities which
may result in higher profit margin. Hence, for assessing the performance level of SWF, stakeholders
make assessment of reports which are published by them. In this regard, faith can be developed and
maintained among stakeholders when reports are prepared as well as disclosed according to the
rules of IFRS. Moreover, reports which are prepared according to the rules and regulations of IFRS
ensures high level of accountability, understanding and reliability. This in turn provides
stakeholders with an effectual framework for decision making (Kreander, McPhail and Beattie,
2015). Present dissertation is based upon SWFs which has responsibility to invest fund given by
Central bank for making high value addition on the same. In this context, dissertation will discuss
the level to which SWFs follows reporting standards for disclosing information in a highly
structured manner.
1.2 Research aim and objectives
Researcher’s aim behind this study is to evaluate accountability, disclosure and reporting
standards that are adopted on the part of sovereign wealth fund. By taking into consideration the
aim, following objectives have been drafted by the scholar:
 To develop understanding of sovereign fund
 To identify whether sovereign wealth fund is adopting effective accounting and reporting
standards or not
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 To understand the standards adopted for disclosure of information by sovereign wealth fund
(SWF)
 To evaluate performance of sovereign wealth fund in the recent past and recommend ways
to incorporate improvements
1.3 Research questions
In order to carry out the whole study in right direction, researcher is required to frame
suitable questions on the basis of aim and objectives. This in turn helps scholar in conducting the
study effectually. Research questions for the present study are enumerated as below:
Q 1. What is sovereign fund?
Q 2. What is the extent to which sovereign wealth fund undertakes accounting and reporting
standards?
Q 3. Which kind of standards are adopted by sovereign wealth fund for the disclosure of
information?
Q 4. What is the difference between past and present performance of sovereign wealth fund?
1.4 Rationale of the study
The rationale behind conducting such investigation is to gain deeper insight to the level at
which SWFs consider reporting standards while framing and disclosing accounting reports. It is the
main issue now because faith of stakeholders is associated with the level of accuracy maintained by
institution in financial information. Moreover, reports which are drafted and published according
the reporting standards such as IFRS are highly reliable and comparable in nature (Wang and Li,
2016). Further, reports published in accordance with the rules and regulations of IFRS are highly
transparent in nature. Thus, this investigation helps in assessing the transparency which is
maintained by SWFs in accounting and reporting aspects. This issue will be investigated by scholar
through the means of primary and secondary data. In this way, by analysing the both; researcher has
become able to find out a fair solution of the research issue or problem.
1.5 Significance of the study
Present study defines the level to which accountability has been maintained by SWFs in
information disclosed by it. In this regard, outcomes of the present study will provide stakeholders
with the most valuable information for decision making. Along with this, study and its outcomes
also provide a deeper insight to SWFs regarding the level to which it has maintained sound
accountability, disclosure and reporting standards. Further, study and its results will also provide
assistance to other scholars who are going to conduct study on such topic. Hence, by taking
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assistance of such study, other scholars can develop the understanding about such issue. This in turn
also provides assistance to them for developing new research topic on the basis of gap identified in
study. Thus, it can be said that findings of this study will offer several benefits to other scholars,
SWFs and learners.
1.6 Structure of dissertation
Chapter 1: Introduction
In introduction chapter, researcher sheds light on the background of study. On the basis of
research background, scholar frames aim and objectives of study for directing his efforts in the right
direction. Further, researcher also discusses rationale behind conducting the present study. Along
with this, investigator also presents the extent to which current study and its outcomes are highly
significant. In this section, researcher depicts the structure that will be undertaken by the scholar
during study.
Chapter 2: Literature review
In this, scholar will critically evaluate all secondary sources such as books, journals and
scholarly articles which are associated with the research issue. Hence, by evaluating all such
sources, scholar has become able to gain deeper understanding regarding the research issue. This in
turn helps researcher in preparing thesis for the section of data analysis.
Chapter 3: Research methodology
Researcher determines the approaches and philosophies in this section that will be adopted
by him for the purpose of data collection and analysis. Further, in this, scholar also identifies the
type of investigation that will be undertaken by him for assessing the level to which sovereign
wealth fund follows reporting standards and other norms.
Chapter 4: Data analysis and findings
In fourth chapter, researcher makes evaluation of the data which is gathered by him by
taking into account the suitable technique. Hence, in this, scholar exhibits outcomes of study in a
highly structured format through the means of graph and tables.
Chapter 5: Conclusion and recommendations
Investigator concludes all findings of study in such a manner which reflects that the aim and
objectives are fulfilled by scholar to a large extent. Besides this, scholar also gives
recommendations on the basis of issues identified during study.
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CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
Literature review is the most important chapter of dissertation which consists of detailed
information related to research. It assists scholars to understand the concept behind associated
matter and accordingly, develop in-depth understanding. In the current study that is on evaluating
accountability, disclosure and reporting standards adopted by sovereign wealth fund, researcher has
used secondary study under which number of sources were considered for the collection of
information. Here, researcher has gathered important information related to topic so that fruitful
results can be produced. At first, researcher developed understanding about sovereign wealth fund
and then it has been assessed that whether sovereign fund uses effective accounting and reporting
standards or not. Apart from this, standards adopted for disclosure of information of by SWF has
also been understood with the help of different sources of information. Apart from this, performance
of SWF in the recent past has been evaluated.
2.2 Sovereign wealth fund
The Fundo Soberano De Angola (FSDEA) is known as sovereign wealth fund owned by
Republic of Angola. It follows investment policy and guidelines for the purpose of diversification
across asset classes and number of industries. It aids to generate long term financial return for the
enhancement of society and to determine economic development with specific focus upon
generating wealth of people of Angola. It was launched in October and receiving huge coverage
from media such as CNN, Euro-money and New York Times. During April 2015, FSDEA thought
to allocate finance on new vehicles which will perform the investment activities in different sectors
such as timber, mining and agriculture (Fundo Soberano De Angola, 2016). Along with that,
healthcare sector of country was also considered with investment of 400 million dollar whereas 250
million dollar were decided to be invested on timber, agriculture and mining. It proves to be
effective to generate appropriate return and accordingly, to fulfil the expectations of people living in
society.
Sovereign wealth fund (SWF) is a state owned investment that is being spent on real and
financial assets such as bonds, precious metals and stocks. Along with that, alternative investments
hedge funds and private equity fund are also included. Main objectives of sovereign wealth fund is
to protect & stabilize the budget from excess volatility in export or revenue (Fundo Soberano de
Angola announces 2015 investment update, 2016).
Political strategies are also adopted by fund in order to ensure successful operation. It proves
to be effective to earn greater rate of return than on foreign exchange reserves. It enables the
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management to assist monetary authorities in an effectual manner because unwanted liquidity is
dissipated. Another aim of this fund is to increase the saving for future generation that will be
effective for corporation or entire society. However, the basic purpose behind this fund is to
establish balance of payment and fiscal surpluses as well as sum related to transfer. It proves to be
effective to cater the requirement of nation as well as economic growth can be ensured. Here,
classification of sovereign wealth fund can be done in several forms such as pension reserve,
reserve investment as well as stabilization. Along with that, strategic development SWF and future
generation funds are also included which can be used for the purpose of investment.
Truman (2011) reflected that the investor’s classification is also done on several basis such
as liability sovereign investor and their main objectives are to get investment return and liability.
Furthermore, intergeneration sovereign investor fulfils the objective of investment return where a
liquidity sovereign investor and his main objective is to get investment return and liability. He
further argued that fiscal, constitution and company as well as constitutive law are included. It
facilitates to set regulations and resolve all related queries. Clark, Dixon and Monk, (2013) asserted
that sovereign wealth fund supports macroeconomic directly however, with three exceptions, it is
supported. The first one is related to transfer to budget by taking into account exceptional needs.
The second exception is showing that domestic businesses are stabilized whereas third one reflects
that funds are drawn down for transferring to the central bank. In addition to this, different types of
sovereign investment vehicles are included such as public pension funds, state owned enterprises
and SWFs. All of these vehicles play an important role in bringing balance in the economy by
catering requirement of all associated parties (Gelb and et. al., 2014).
2.3 Main problems of sovereign wealth funds
The lack of transparency and fiscal discipline during the period of 1997 to 2002, sovereign
wealth fund failed to fulfil its goals and objectives. In this period, around $4.2 billion disappeared
from government coffers. Thus, this aspect has placed a negative impact on the growth and
performance level of same. This fund is also facing issue related to external interference whereby it
becomes typical to manage the performance of the same. However, this fund work well just because
of economical reasons only. Owing to this, effective improvement can be done for effective
performance of the fund and ensure its well being for all related community members or citizen. It
can be critically evaluated that possible external interference must be reduced for better
management all its fund. This proves to be effective to cater need of all related parties and resolve
potential issues associated with funds.
Furthermore, a fund must have specific span of control in order to ensure its promotion and
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advantage to all related parties. It can be critically evaluated that interference of different parties
make it highly complicated and delay in delivering the advantage to end users. It happens because
of investment decision of varied stakeholders and its direct impact on cost of the same. Here, the
fund get affected due to investment decisions and performance of the project. However, the assets
prices might distorted by SWFs as it deals in non-commercially motivated securities. Through,
information are not passes or leaked to others still the impact can be seen due to external
interference. This against shows that lack of transparency create issue of investors and all other
stakeholders which increases their level of dissatisfaction. In this manner, external interference can
be reduced to a great extent for the support all other parties and provide then appropriate rate of
return as well as effective life.
2.4 Ways to overcome the difficulties that are faced by Sovereign Wealth Fund
In accordance with the views of Castelli and Scacciavillani, (2012) by using corporate
governance technique Sovereign wealth fund can overcome the issue of transparency. Corporate
governance implies for the rules and practices which are undertaken by the company to control the
performance aspect. This technique is highly effectual which in turn enables personnel to ensure
proper and high of stakeholder’s interest such as management, suppliers, customers, government,
financiers etc. Hence, by following specific rules and guidelines Sovereign wealth fund can
maintain better transparency in the accounting aspects or practices. Thus, by conducting corporate
governance team of Board of Directors and committees can offer high level of benefit to the
stakeholders. However, Megginson and Fotak, (2015) criticized that not only corporate governance
rules are sufficient to develop transparency is the accounts and operations. However, Sovereign
wealth fund is required to employ the rules and regulations which are introduced by International
accounting standard. In this way, by following standard accounting rules and principles Sovereign
wealth fund can provide investors highly suitable financial reports for decision making. Moreover,
now investors take decision about investment after making comparison of one performance with
another. In this, by adopting standard principles Sovereign wealth fund can attain ensure greater
transparency in the accounts and thereby enables investors to make suitable decisions.
2.5 Identifying whether sovereign wealth fund is adopting effective accounting and reporting
standards
According to Al-Hassan and et. al., (2013) state owned fund is important for a nation
because it supports the society to improve the living standards of people. This fund handles
different activities related to management of social and economic condition of nation. At this
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juncture, it becomes important to adopt effective accounting and reporting standards. It proves to be
appropriate to meet the expectations of all stakeholders. However, sovereign wealth fund is
adopting effective accounting and reporting standards whereby record related to return in particular
year can be maintained. However, investment decisions are taken on the basis of economy and
finance in nation. At this juncture, Generally Accepted Principles and Practices (GAPP) serve as the
guidelines through which fund can be operated successfully. GAAP refers to the common set of
accounting principles and procedures which organization must follow while preparing the financial
statements. Further, it also entails the ways and standards in relation to the recording as well as
reporting information. In this way, GAAP ensures high level of clarity in the financial statements
which are prepared by the firm. However, GAPP is followed with an objective to maintain a global
financial system and to maintain flow of capital as well as investment. It can be critically evaluated
that regulatory requirement is fulfilled on the basis of country where they invest. Not only this, but
disclosure requirements are also considered by SWFs so that transparency can be maintained
accordingly.
However, maintaining transparency is a crucial aspect for any state owned fund to follow the
sound governance structure laid down by government. It facilitates to control the operations and
manages risk as well as accountability aspects. Moreover, the existing SWF practices are used to
draw general accepted principles and practices in number of countries. Apart from this, GAPP
makes it possible for SWF to ensure successful operation with increased rate of return so that
accordingly, expectations of all associated people can be met. Here, guidelines set by GAPP help to
clarify about SWF in an effectual manner in home as well as in foreign financial market. In such a
manner, guidelines stated in GAPP tends to extract economic and financial benefits for home
countries as well as for international financial system. Monk (2011) asserted that macroeconomic
policy framework is complied with support of GAPP in the mentioned fund. In this manner, open
and stable investment climate is created because of stated legislation related report which helps to
reduce protectionist pressure and makes the global financial system stable. He further argued that
reporting and accounting standard assists SWFs to develop, strengthen as well as to review their
investment practices and policies effectively. In such a manner, transparency is maintained and open
investment environment is created for investors who are willing to take part in SWF.
According to Megginson and Fotak, (2015) GAPP covers different aspects such as legal
framework and objectives as well as investment and risk management along with governance
structure. However, sound governance structure is important in such kind of state owned fund
because it separates the owner's function and governing body so that operational independence can
take place. Accordingly, investment decision and operations will be free from any kind of political
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influence. On the other hand, reliable risk management framework plays a vital role in promoting
the soundness in accountability and reporting. As per FSDEA by laws, audit report of financial
account is required to be published for disclosure purpose in the local press. Not only this, but
FSDEA also provides detailed information related to portfolio allocation and financial performance
as well as investment strategy. Moreover, by evaluating the portfolio, investors can determine the
relationship between risks and return aspect. Earning high returns by reducing the risk level is one
of the main objectives of investors. In this regard, by evaluating securities which are involved in
portfolio, investors can make idea about the return which will be generated by them in the near
future. Along with this, investors and other stakeholders are highly concerned in relation to gain
information about the liquidity and solvency aspect of firm. In this, by disseminating complete
important information related to financial results of fund to associated parties, fruitful decisions are
taken by keeping transparency into account (Hammond, 2011).
2.6 Understanding standards adopted for disclosure of information by sovereign wealth fund (SWF)
There are several standards adopted by FSDEA for disclosure of information. For this
purpose, board of fund will appoint an independent auditor so that entire accounting information
will be presented effectively. Furthermore, Article 10 reflects the Statutes of FSDEA, internal
supervision of the activities and operations of fund. It is responsible for different aspects where first
one is about overweening management and complying the stated rules and regulations for fund in
an effectual manner. Similarly, value of assets held by SWF is also certified along with the
supervision of assets of fund. Not only this, but relevant authorities ensure that fund works well in
accordance with the stated objectives. Doriye (2010) asserted that regular information is provided to
the government along with proper record keeping. In this regard, investment policy, annual report as
well as annual and multi-annual business plans are important to meet the expectations of
stakeholders. It will be effective for fund to secure the right of investors and other associated
parties. Moreover, investment objectives and principles are increasing the wealth of nation by
maximizing returns along with risk minimization. Similarly, infrastructure and industry is
developed by taking into account short time span. Castelli and Scacciavillani, (2012) reported that
efficient fiscal policy contributed towards the wellbeing of fund so that welfare of society can be
ensured.
However, financial or annual report of fund is published publicly where facts and figures
related to own equity, net assets detail and income statement are also shown. This aids to provide
information related to funding interest and operating cost so that details of net or operating profit
can be collected. By taking into account such information, stakeholders can evaluate the
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