MN5904 - Ecovista PLC Chairman's Statement Analysis and Findings

This report provides an in-depth analysis of Ecovista PLC's Chairman's Statement, focusing on financial reporting and potential impression management techniques. The analysis begins with an introduction to Ecovista PLC, followed by an overview of the relevant regulations and background information. The core of the report examines the narratives within the Chairman's Statement, including readability assessments using the Flesch and LIX indices. The findings are then compared with the company's financial statements, specifically the Profit and Loss Account and Balance Sheet, to assess the presence of impression management. The report also compares the findings with previous research on the topic. Furthermore, the report investigates the tone of the Chairman's message, identifying the use of active and passive voice, personal references, and the portrayal of good and bad news. The analysis reveals the variability in readability across different sections of the statement, aligning with prior research. The report concludes with a summary of the findings and their implications for understanding Ecovista PLC's financial communications.

Contents
INTRODUCTION......................................................................................................................................1
REGULATION AND BACKGROUND...................................................................................................1
NARRATIVES CHAIRMAN’S STATEMENT........................................................................................2
CONCLUSION........................................................................................................................................12
References:...........................................................................................................................................13

INTRODUCTION
Ecovista PLC is an investment company investing in real estate
property .The main purpose of Ecovista is to search for the
property were development is required and has the potential to
increase the value of the sites or to procure development sites so
that it can be developed very quickly. Ecovista has its main
headquarter located at Bishops Stortford, Hertfordshire and was
founded in the year 2009.It is a public company limited by shares.
The size of the company is not very big; it has almost ten
employees working in a company. (Microsoft Corporation,
2019).The financial statement of Ecovista Plc is presented in
currency pound, as this is the main currency of the entity.
REGULATION AND BACKGROUND
The Financial statement of Ecovista Plc is presented under
historical cost concept. It also includes the revaluation of
investment property in accordance with the financial reporting
standard applicable in UK and the companies Act 2006.The
company recognizes the revenue when it is received or
receivable. Rental income of the company is recognised over a
straight-line basis based on the tenure of the lease. The company
recognizes the tax as the sum of current tax payable and deferred
tax. The current tax is computed as per the rate prescribed by the
act. Deferred tax is recognised based on timing difference
between the carrying amount of the assets and liability in the
company’s financial records. Initially investment property is
measured at cost and it includes transaction cost too. After
recognizing initial investment at cost, subsequently it is measured
at fair value. Any gains or losses arising from the changes in the
fair valuation are recognised in the profit and loss statement of
the company in the period in which they arose. All the property of
the company is held under operating lease in order to earn
rentals for the company or to appreciate the capital of the
company. (Welbeck Associates, 2017)

The company Ecovista Plc also apply the provisions of Section 11
“Basic Financial Instruments” and section 12 “Other Financial
Instrument issues “of FRS 102.The Financial assets and liabilities
of the company are offset and the net amount of the assets and
liabilities are reflected in the financial statement of the company.
Financial instruments are recognised only when there is a
contractual provision to recognise such financial instrument and
when the company becomes party to it. Impairment of the assets
is reviewed at each reporting date in order to find any indication if
there is any assets suffering from impairment loss if any. If any
impairment is recognised than recoverable amount of, the asset
is estimated and compared with the carrying amount of such
assets. If the recoverable amount is lower than the carrying
amount of the assets is reduced to the recoverable amount and
the impairment loss in recognised in the profit and loss of the
company. The foreign exchange transaction of the company,
which the company engages in not in their functional currency, is
recorded at the rate on which any foreign transaction took place.
The other financial liabilities of the company like loans are initially
recognised at the fair value and subsequently measured at
amortized cost using interest method. (Welbeck Associates, 2017)
NARRATIVES CHAIRMAN’S STATEMENT
Readability of accounting narratives : Source (Jones and
shoemaker,1994)
Readability of a statement can be measured scientifically through
the use of various indices in which the flesch index is the most
popular index in US.Readability of a statement may be generally
measure by using any of the three following tools:
(a) Flesch Index: It is one of the most popular US index and is
designed by educationalists of 1948 to measure the age of the

person reading the statement, especially among children
through words, sentences and syllables;
(b) Fox Index: It is also one of the popular US tools which is used
for measuring the reading age of children;
(c) Lix: It is a popular Sweden tool which is used to measure the
difficulty of reading texts written in foreign.
The tools used for analyzing the Narratives Chairman
Statement are Flesch Index and Lix.
Readability of accounting narratives (General findings)
 Classify annual report as difficult and very difficult
 Analyse chairman statement most readable part.
 Annual reports generally are harder to read than the report
of employees
 It is becoming more harder over time.
Readability ,understandability Source:cloze Smith &Taffler
(1992)
 Readability doesnot correspond with the understandability
 CLOZE procedure :consider only text and subject and
interaction
 One used to conduct an experiment with the accounting
students,accounting practitioners,and narratives of failing
companies.
 Find out the difference between three indices
Cloze/Lix/Flesch.
Understandability Source :Jones and Smith(2014)
 Find out the alternative ways to understand the report.

 Analyse it through various experiment to assess
Cloze,Meaning Identification Test,Sentence Verification
Technique.
 Cloze procedure is a good measure of predictability but it
does not measure the understandability. (Research Gate,
2019)
Annual report readability VARIABILITY Source:Courtis (1998)
(Emerald Publishing Limited, 2019)
 There is a trend for management to use disclosure more
narrative therefore readability is very much important
 Use of Flesh index is not so much convenient and perfect but
it is the best cost economical measure which is available.
 This study generally looks at variability and to bury the bad
news.
 This study is generally based on 120 Hongkong public
companies year 1994-1995.
Flesch Index
Under Flesch Reading Easy Score test, the test is carries out using
the following formula:
0.39* Average number of words that are used in a sentence+
11.8 * Average Number of Syllables per word-15.59
If the value derived from the aforesaid computation is in the
range of 90-100 it implies that it easily understandable by a 11
year old student while a score of 60-70 shall imply that the
narrative shall be understandable by a 13 year to 15 year student
and a score of 0-30 shall imply that it shall be best understood by
university student.
Further typical scores under this method are:
(a) 95 which implies a comic book;
(b) 82 which implies a consumer advertisement;
(c) 65 which implies a Reader’s digest;

(d) 39 which implies a Newspaper;
(e) 38 which implies a Chariman Statement;
(f) 25 which implies footnotes
[Source: Clatworthy and Jones, AAAJ, 2001]
The computation of Flesch Index in the present context has been
carried out as under:
0.39 * Average number of words that are used in a sentence i.e
25 approx + 11.8* Average Number of Syllables per word i.e 2-
15.59
0.39*25+11.8*2-15.59
9.36+23.6-15.59=17.37
Thus, the chairman statement shall fall under category that is
shall be best understandable by a university student. Thus, the
chairman statement shall be understandable by those to whom it
is directed.
Further, on the basis of above it can be inferred that the narrative
of chairman which is generally of accounting nature is difficult to
read and understand for a 11 year kid as well as for 13 -15 year
teen. Further, the construction of sentence is small with lower
usage of syllable. Accordingly, one needs a better experience and
knowledge to understand the narrative. Further, reading and
understanding are not the same. Accordingly, the index does not
guarantee clear interpretation.
LIX
The company ecovista Plc chairman statement is depicted in the
form LIX index
Number of words per sentence
+

Percentage of words longer than 7 characters
=
Lix Score
Lix scores
LIX Index Table
 0-24 Very Easy
 25-34 Easy
 35-44 Standard
 45-54 Difficult
 55 and above very difficult
Lix Overall Score for BT Chairman’s message
Total words 642
Total Long words 230
Total Sentences 46
Lix index is
642/46 +(230/642*100)
=14+36
=50=’Difficult’

Variability in Plc Chairman message
Lix First 100 words
=100/6.8 +(26/100*100)
=15+26
=41=’standard’
Variability in Plc Chairman message
Lix last 100 words
=100/6.20 +(38/100*100)
=16+38
=54
=’Difficult’
Variability in Plc Chairman message
Lix Middle 100 words
=100/5.7 +(38/100*100)
=18+38
=56
=very difficult.
Variability of readability in PLC
1st 100 words Middle100wo
rds
Last 100
words
In Line with
courtis

(1998)
41 54 56 Yes
Standard Difficult Very Difficult
Variability in PLC Chairman’s message
Conclusion (of courtis)
Similar Findings:
 1st 100 most readable
 Last 100 next also most readable easily by the expert and
layman
 Middle 100 most difficult to read and analyze and tough
there is a little difference not much as compared to the last
100.
Good and bad news in PLC Chairman’s Message
Coding of Sentences
 Good news 27
 Indifferent 7
 Bad 0
 Ambiguous 4
 Total 38
 In line with clatworthy and Jones (2003)
Readability of accounting narratives
PLC performance from accounts –Profit and Loss Account
For the year ended August 2017

Year Ended
Aug ,2017
Year Ended
Aug ,2016
TURNOVER (Pound) (Pound)
Cost of Sales 200 5,142
Gross Profit 200 5142
Loss on sale of
Invest
(169941)
Loss on reval of
invest
(482208)
Administrative
expense
(219356) (222445)
Operating Loss (871305) (217303)
Financial income - 7411
Financial expense (14497) (6645)
Loss Before Tax (885802) (216536)
Taxation - -
Loss for the period (885802) (216536)
Earnings per share
Basic per share loss (0.009)p (0.006)p
(Welbeck Associates, 2017)
PLC performance from accounts –Balance Sheet
For the year ended August 2017
2017 2016
Fixed Assets
Goodwill - 1,745
Investment Properties 1253529 1165000
Investment in
Subsidiary
- -
Investments 278586 760794
TOTAL 1532115 1927539
Current Assets
Debtors 70225 72124
Cash at Bank and in 124310 31822

Hand
TOTAL 194535 103946
Creditors (80071) (119104)
Net Current Assets 114464 (15158)
Total Assets less
liability
1646579 1912381
Creditors (after 1 year) (454645) (184645)
TOTAL 1191934 1727736
Capital and Reserves
Called up share capital 173190 163190
Share Premium Account 2683045 2343045
Equity Reserves 22000 22000
Profit and Loss Account (1686301) (800499)
Shareholders’ Funds 1191934 1727736
(Welbeck Associates, 2017)
The above financial statement of the company have been
approved by the board of directors of the company as on 31 st
January 2017 and signed .
PLC Chairman’s message –attribution to Good and Bad
news
 Good -Self :17
-External :2
(Shareholder’s,Customers,Suppliers)
 Bad -Zero Bad news
 Indifferent -Self 3
External 2
In line with Clatworthy and Jones (2003)

Ecovista Plc Chairman’s message tone
 Active voice or passive voice: The chairman message is
drafted in the form of active voice with an accuracy of
almost 92 percent.
 Personal References:In the chair message first person
used 43 times, .The directors of the company do not
recommend any dividend throughout the year. The other
points include that the company has only one employee
excluding the director of the company. The company
generally chooses to report the business review ,the future
growth and prospects of the business .The risks and
uncertainties the company face during the operations of its
business. (Welbeck Associates, 2017)
The last sentence in the report and the signature.
 ‘Good news in numbers vs. ‘bad ‘news in words?
 Paragraph on the first financial results.
 Recent sell of a company Willow cottage Limited is
very ‘bad news’ as this created a very huge loss to the
company and other members in the group and board
believes that this fund otherwise would be use to
create wealth for the shareholders of the company.
 Launch of a new 10,000,000-pound Euro bond to be
listed on the GEM exchange in Dublin in the near
forth-coming month in order to continue in its
expansion project and further acquisitions in the
competitor target market .This would help the
company to further prosper and widens the scope of
opportunity in the property market prevailing in UK.
(Welbeck Associates, 2017)This is ‘good news.
 Regulation of the company is ‘bad news ‘