Linking Financial Statement Valuations to the Nature of Azienda : The Theorization by Egidio Giannessi

This paper focuses on the contribution given by Egidio Giannessi (1908-1982), the founder of the Pisa University‟s business school, to Italian studies in Economia Aziendale. In order to better understand his scientific profile and highlight the novelty of his thought, we have set the scholar in the scientific school of which he was one of the most prominent members, the Tuscan School of Economia Aziendale. Our study has mainly looked at two fundamental contributions of his scientific production: the general theory of azienda and the theory of financial valuation, two strictly interrelated scientific constructs where, more specifically, the latter is a consequence of the former. In the authors‟ opinion, it is exactly the originality of the conception of azienda formulated by Giannessi that helps understand his theory of financial valuation.


Introduction
Egidio Giannessi has been one of the most important Italian scholars in the field of Economia Aziendale, as well as the founder of the business school of the University of Pisa during the academic year [1955][1956]. His contribution to the development of such discipline in Italy has been of paramount importance and even today his thought deeply affects research in this field and is frequently recalled in the scientific debate (see, among others: Iannone, 1993;VV.AA., 1994;Marasca, 1999, pp. 58-63;Musaio, 2005, p. 13;Tozzi et al. 2012, p. 110;Adamo, 2013, p. 591;Corsi, 2013, pp. 6-7;Paolini, 2013, p. 51;Franceschi Ferraris, 2013).
Giannessi"s scientific production spans about fifty years -from the 1930"s to the 1980"s, i.e. from the birth of Economia Aziendale until its maturity and progressive opening to influences from the foreign scientific debate, so it expressly provides a complex and fortunate combination between innovation and continuity in the wake of tradition. The scholar owes much to his school of thought, particularly to the two decades of very close scientific cooperation with Professor Ceccherelli, the founder of the Scuola Toscana di Economia Aziendale, further developed by his direct disciples, including Giannessi himself. In spite of this, he developed a groundbreaking theory that deeply influenced the evolution of studies in Economia Aziendale in Italy.
Of the many themes dealt with by Giannessi, in this paper we will focus on the notion of azienda and the theory of financial valuation, two themes that, in our opinion, are closely interconnected in the scholar"s theoretical construction, in a relationship of dependence of the latter on the former. The theory of financial valuation is inspired by the features and operating mechanisms of the azienda; this is why we cannot fully explain his ideas on financial valuation without referring to the notion of azienda he developed and to the broader scientific context within which it finds a place. For a better understanding of the factors that defined the scientific profile of the scholar, we primarily elected to recall the characteristic traits of the Italian economic and legal framework, and subsequently described the scientific reference framework, with a special focus on the most significant theoretical contributions of the Tuscan School of Economia Aziendale, where Giannessi was trained and to which he eventually contributed significantly. Following a brief biography of Giannessi is shown that highlights the location of the scholar in the context described and recalls his main publications. The purpose is to highlight the novelty of the contribution of Giannessi to the "general theory of azienda" (Giannessi 1960, p. 85) and the theory of financial statement valuations, which will be finally analysed in depth in the last two sections of this paper.

Issues for a Contextualization
Over the period examined the Italian economy was characterised by a fast and strong development that, apart from the 1929 recession, peaked several times forming a veritable "economic boom" after World War II (Bianco 2003). Those were the years when the Italian economic system passed progressively from being mostly agricultural and commercial to being more industrialized. The manufacturing industry increased by almost two thirds, and its workers, who did not even reach 25% of the employed population at the beginning of the century, were 45% at the end of the Sixties (Romano 1991, p. 164). The industry became the standard setters (Di Pietra, McLeay and Riccaboni, 2001). Particularly in the period considered, the financial statement was a subject initially regulated by the Codice di Commercio of 1882, and subsequently by the Civil Code issued in 1942.
In the 1882 Code of Commerce, the subject of financial reporting was dealt with in some articles in a rather brief and incomplete manner. Referring to limited companies, said code ratified the obligation for directors to prepare the financial statement (art. 176, paragraph 1) and required it "… to demonstrate with evidence and truth (evidenza e verità ) the actually realized profits and the suffered losses" (art. 176, paragraph 2). Furthermore, the Code established that it was forbidden to pay "… dividends to shareholders, unless on profits actually realized according to the approved financial statement" (art. 181, paragraph 1). The directors were personally liable to shareholders and third parties "for the actual existence of the dividends paid" (art. 147, point 2). However, said indications were followed by no reference to specific valuation principles or criteria to be used to favour the achievement of the above-mentioned objectives. In this regard, the legislator had required companies only to indicate in the Articles of incorporation or in the Bylaws the standard to be complied with in "… preparing financial statements and calculating and distributing profits" (art. 89, paragraph 1, point 6). From this one can clearly infer that, although said regulations had been set forth, during the applicability period of said code (1 st January 1883 -21 st April 1942), any valuation principle and criteria was fully lawful if compliant with the rules set forth in the Articles of incorporation or Bylaws. Hence, a wide margin of discretion remained for directors in preparing the financial statement (Ceccherelli, 1970, p. 277;Coda and Frattini, 1986, p. 113 ff.).
When the Civil Code was issued in 1942, the subject matter of financial statement valuations was defined for the first time. In particular, with art. 2425, the legislator introduced some valuation criteria concerning specific assets: tangible and intangible fixed assets, inventory, shares, fixed income securities, account receivables (Note 3). These criteria, however, seemed to be rather generic (Faccipieri and Rullani, 1982, p. 113). In addition, one should note that said valuation rules still left a wide margin of discretion to directors, reinforced by the option to make exceptions to the regulations set forth for "special reasons" (speciali ragioni), with the only obligation for them and for statutory auditors to justify the exceptions in their respective reports (Consorti, 2001, pp. 195-196). In the period examined, in substance, accounting regulation was developed only to a limited extent. Consider that, over the period at issue, Italian professional institutionsthe Collegio dei Ragionieri (CNR, Board of Accountants), created in 1910, and the Consiglio Nazionale dei Dottori Commercialisti (CNDC, National Council of Chartered Accountants), created in 1953had not yet taken any interest in accounting regulation. It was only in the mid-seventies that said institutions would start to develop accounting standards by creating a specific commission for the purpose (Note 4). Also note that such a situation left a wide space to the development of theories by accounting scholars.
As regards the studies in the fields of accounting and Economia Aziendale, it could be useful to mention a few significant aspects for this investigation that concern the notion of azienda and the vision of financial statement in the Italian doctrine of the time. In the period at issue, International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 Gino Zappa"s studies started to spread (Zappa, 1920(Zappa, -1929(Zappa, , 1927). Besta"s paradigm was gradually replaced by Zappa"s one (D"Amico, 1999, p. 41 ff.). By observing the ongoing changes, and particularly the increasing complexity of the manufacturing structures and operating processes of the larger firms, such as their progressive mechanization (Catturi, 1989, p. 132 ff.;Di Stefano, 1991), Zappa finally and consciously introduced in the Italian doctrine the systemic notion of the azienda (see Bertini, 1990, pp.20-28;Canziani, 2013, p. 76)), and said, about this: "When closely observed, all the phenomena regarding the azienda … appear established as a single coordination of economic actions aimed at achieving a specific goal. Perhaps this notion cannot be described more effectively than by using the notion of system ..." (Zappa, 1920-29, p. 330) (Note 5).
So it is not by chance that Zappa was defined as the herald of a "radical holistic approach" (Zan, 1994, pp. 288 ff.). By adopting this perspective, the scholar gave a better interpretation of the evolution of the azienda as a phenomenon and, by so doing, he pushed accounting researchers to consider the new needs that were arising in the field of accounting. This had two significant implications: the financial position was viewed as a "fund of coexistent values", that is "… a whole that … determines the quantity of parts …" (Zappa, 1920-29, pp. 15 and 3) (Note 6); the principle of the unity of operations over time, as well as in space, by virtue of which each accounting period is linked to the previous and to the next, seamlessly (Zappa, 1920-29, p. 508). This, in our opinion, favoured the development of a systemic and dynamic interpretation of the financial valuation by Italian scholars. We should also add that, over the period considered, Zappa"s studies contributed in Italy to progressively replace the static vision of financial statement, typical of the 19 th century, with a dynamic notion (Alexander, Fasiello and Giaccari, 2017), in the same way as happened in Germany and in the United States (Buckmaster, 1997). The main purpose of the financial statements was no longer the determination of financial position, but the calculation of the period"s income, a central theme in Zappa"s vision (Canziani, 1994, p. 153;Galassi, 1996, p. 617), in order to explain, as accurately as possible, the formation of income itself. This is the aspect on which the attention of Italian accounting scholars progressively focused. So it was that, in Italy, the sistema patrimoniale (asset-based accounting), conceived by Besta, was gradually replaced by the sistema del reddito (income-based accounting) proposed by Zappa (Giannessi, 1969, p. 472).

The Tuscan School of Economia Aziendale: The Main Contributions
A "school of thought" can be defined as a group of scholars who share a common scientific vision. But to be really defined as such, a school of thought must meet at least two requirements: the logical consistency of the key ideas developed by its members and simultaneously their capacity to be distinguished from other traditions of thought (Negru, 2013, p. 984). Usually, a school of thought is formed around a first core of innovative and original concepts developed by a person who will be later recognised as the "founding father" of that school, to be further developed and reinforced with the contributions of the ideas of its disciples in order to investigate its subject matter more and more effectively. ISSN 2162-3082 2018 This is also the case of the School commenced in Italy by Alberto Ceccherelli (1885-1958 and further developed by his direct disciples: Alberto Riparbelli (1907Riparbelli ( -1971, Egidio Giannessi (1908, and Guido Ponzanelli (1910Ponzanelli ( -1984) (Note 7). Defined by Giannessi himself as one of the "modern schools" of Italian accounting, and initially called by him Scuola Fiorentina di Ragioneria (1954, p. 409) probably referring to the origin of its leader and to the place where he conducted its activity, the University of Florence, it has long become known as Scuola Toscana di Economia Aziendale (see Bandettini et al., 1996).

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As we said above, a school of thought is a system of ideas shared by a group of scholars; more specifically, these ideas may concern, inter alia, the following aspects: -the specific subjects of research of the school itself, -the research direction and study methodology adopted by its members, and -the theoretical notions developed by them.
When reviewing the studies produced by the Tuscan School of Economia Aziendale, one aspect that is very clearly and immediately revealed by our analysis is that its members, starting with Ceccherelli, devoted to research, each according to his own inclinations, in both fieldsaccounting and Economia Aziendale. So, we are in front of researchers with wide-spanning interests, who deeply believed in a unitary notion of the disciplines regarding the azienda (Bertini, 2010, p. 681).
As regards the Economia Aziendale, the Tuscan School devoted more specifically to the development of a general theory of the azienda (Ceccherelli, 1964, p. 18) considered as a fundamental field of investigation of Economia Aziendale itself (Ceccherelli, 1948, p. 15;1964, p. 25) (Note 8). This was an innovative approach to these studies, one that was introduced by the Tuscan School in Italy, and particularly by Ceccherelli, who defined the content of Economia Aziendale as follows, inter alia: "The determination of the main object of the investigation includes the development of a theory of the azienda, not as a contingent or accessory element, such as accounting and management consider it, but as the very fabric of an orderly constructive drawing." (Ceccherelli, 1948, p. 15) Indeed, in those years the theme of the azienda was being tackled more as a theoretical introduction to accounting by Italian scholars (Ceccherelli, 1964, p. 18). They merely looked for a definition of the azienda and classified the different types of azienda, while developing accounting theories, to provide a stronger foundation to accounting (Ceccherelli, 1964, p. 18). With Ceccherelli and his disciples, the interest for the subject took on a totally new meaning: studying the azienda became an end in itself and a research on how the phenomenon worked, even by investigating the relationships between the azienda and its surrounding environment (Ceccherelli, 1923(Ceccherelli, , 1948(Ceccherelli, and 1964Riparbelli, 1954 and1962;Giannessi, 1960, pp. 39-462;1969;Ponzanelli, 1956Ponzanelli, , 1961Ponzanelli, and 1977. So, the azienda was sometimes observed by adopting the organic analogy, i.e. by comparing it to a living organism, which was the thesis advocated by Ceccherelli, Riparbelli and Ponzanelli; but in other cases the mechanical analogy was used, to consider the azienda as a system, as Giannessi did. The two interpretations are not in contradiction with one another, as it may seem; on the contrary, they have significant similarities. Apart from the specificities that differentiate the organic from the systemic vision, it is not difficult to note that, in the two approaches, the azienda is always seen as a whole (an organism or a system), consisting of a number of interrelated parts (organs or elements), characterised as an entity open towards the external environment, having a dynamic nature, with operating structures and processes, aimed at achieving a goal. Finally, one further feature that characterises Tuscan studies is that the azienda was looked at not only in its physiological manifestations, but also in its pathological ones (Riparbelli, 1950).
Another distinguishing feature is the direction and the methodology of research defined by the master and his disciples. Since the first works by Ceccherelli, one clearly perceives his willingness to tackle the study of accountingalthough this would also be true later on for Economia Aziendaleaccording to a more scientific approach, in order to favour the growth of that discipline by developing scientific theories, albeit still departing from the study of reality (Ceccherelli, 1922, p. 6; see also pp. 11-12) (Note 9).
He expanded the scope of investigation of the discipline from accounting methodology to facts and phenomena of azienda. This would allow scholars to better highlight the critical-interpretive nature of accounting and attribute to it a semiotic and cognitive value (Giannessi, 1960, p. 491). Mentioning the need to develop general theories and studying the uniformities stemming from the manifestations of the azienda, rather than merely describing accounting practices, might perhaps be taken for granted today, but was not obvious at that time.
But perhaps, the feature that most of all differentiates the School examined from the other Italian schools is to be found in the specific theoretical notions developed by its members about the function of accounting, Economia Aziendale and the relationships existing between these disciplines.
In the vision of the Tuscan School, the task of accounting is mainly to investigate the phenomena of the life of the azienda (Ceccherelli, 1934, p. 122;Riparbelli, 1950, p. 11). Therefore, the function of this discipline cannot be limited to bookkeepinga useful activity, International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 indeed, to recall the transactions carried out and consequently to control the directors" behaviour -but must "… reach, through observations, interpretations and deductions, an in-depth knowledge of dynamics of the azienda" (Ceccherelli, 1934, p. 122; see also : Ceccherelli, 1948, pp. 3-4;Riparbelli, 1950, pp. 9-13;Giannessi, 1954, p. 417;Ponzanelli, 1961, pp. 87-89). The recording of financial transactions is not an end in itself, but the means to achieve the true purpose of the discipline: to know and interpret an azienda"s phenomena. Knowledge and study of management are essential both to produce accounting reports, such as the financial statements, and to infer operating trends from the information so produced. There is nothing mechanical in the process of "converting an azienda"s dynamics into figures" and "reconverting figures into economic trends" (Giannessi, 1960, p. 494 and 509) (Note 10). This is a nodal point that the Tuscan authors repeatedly stress: both the activities recalled above, of which accounting studies the guiding principles (Giannessi, 1954, p. 417), require an interpretive process where humans play a determining role.
At this point, we seem to be able to say that the Tuscan scholars propose a peculiar notion of accounting, which is seen as a discipline aimed at producing information suitable to meet the needs of management; in other words, a discipline mainly focused on the decision-making process (Antonelli and Sargiacomo, 2015, p. 124). In this regard, Ceccherelli said: "… accounting does not offer only measurement procedures, but also administrative provisions." (Ceccherelli, 1934, p. 123).
The Tuscan School is also characterised by a peculiar notion of Economia Aziendale, other than Gino Zappa"s orthodox vision (Zappa, 1927). Indeed, Economia Aziendale is not seen as the mere combination of three doctrinesaccounting, management and organizationbut as a higher-level theoretical system consisting of general principles, particularly of the theory of the azienda, which cannot be logically positioned among the minor doctrines above mentioned. Economia Aziendale, which "is a special spontaneous evolution of accounting …", according to Ceccherelli can be defined, in fact, as "… a synthesis of general deductions outside and beyond the individual specialisations …" (Ceccherelli, 1948, p. 14). A particularly interesting aspect of the Tuscan approach is also the relationship existing between Economia Aziendale and Accounting. If we accept that Economia Aziendale, being focused on "… the real life of firms, considered in the transformation processes that, through the concrete phenomena of the operation and investment of capitals, of the costs and of the revenues lead to the product and profit" (Ceccherelli, 1948, p. 33), then it is evident that the theories developed by this discipline "… always find their origin and their cause in a process of economic-technical interpretation of numerical values, processed and collected according to the rules of the accounting methodology" (Ceccherelli, 1948, pp. 14-15) (Note 11). In such a theoretical system, accounting offers Economia Aziendale some "food for thought" by providing it with its natural "raw material". On the other hand, since it deals with the general principles that concern the operation of the azienda, we may define Economia Aziendale as "… a science … that provides a general introduction to the knowledge of the firm universe" (Giannessi, 1960, pp. 21-22). For this reason, it seems we can say that Economia Aziendale, and particularly the theory of the azienda, provides a valuable framework within which we can build the interpretive processes implemented by accounting (Ceccherelli, 1931, p. 6; International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 Riparbelli,1968, p. 14) (Note 12).

Egidio Giannessi: A Short Biography
Egidio Giannessi was born in Pisa on 28 July 1908. In 1932 he graduated magna cum laude in Tecnica Industriale (Management) working with Prof. Teodoro D"Ippolito at the Regio Istituto Superiore di Scienze Economiche e Commerciali of Florence. His scientific education was undoubtedly very positively affected by contacts with other academic milieus outside the Florentine university. One particularly fruitful intellectual exchange was his collaboration with the Bocconi University in Milan, where he worked as volunteer assistant of D"Ippolito (Giannessi, 1971, p. 3) and where he could meet Gino Zappa, the founder of the Italian Economia Aziendale.
The year 1936 was very important in Giannessi"s life, as he left Milan and went back to Tuscany to teach in a secondary school (Note 13). At that time he met Prof. Ceccherelli at the University of Florence, who offered Giannessi to become his assistant (Giannessi, 1971, p. 4 The table below lists the most important among his numerous publications, prevalently in Italian, but also in German, English and Portuguese, in chronological order (Note 14). Giannessi also had a long cooperation with several Italian scientific reviews, such as the Rivista Italiana di Ragioneria, and also foreign scientific journals, such as Der Österreichische Betriebswirt, Zeitschrift für handelswissenschaftliche Forschung, Zeitschrift für Betriebswirtschaft, in German, and the Revista Paulista de Contabilidade, in Portuguese (Corticelli, 1982, pp. 489-490).
The listed publications provide evidence of the multiple themes dealt with by the scholar and the broad range of his scientific interests, as well as the novelty and interdisciplinary nature of his approach, which certainly also benefited from the juvenile experience in the Milan universities and in Zappa"s school. ISSN 2162-3082 2018 Continuity with the thought of his master Ceccherelli did not prevent Giannessi from starting an important theoretical change for the Tuscan School with groundbreaking contributions on a range of subjects, some of which are recalled below: This paper will focus on two of the most significant subjects in Giannessi"s scientific production: the general theory of the azienda and financial valuation.

The General Theory of the Azienda
One of the main contributions fed by Giannessi to studies in Economia Aziendale is his personal general theory of the azienda. Before examining this theory, however, it is right to specify the meaning of the term azienda within the framework of Economia Aziendale (Viganò and Mattessich, 2007, pp. 25-26). In Italian studies, the term azienda is used with reference to different kinds of human organisations created and managed with the purpose of conducting an economic activity aimed to produce or consume/distribute wealth. Within such a framework, the notion of azienda includes both "public organisations" and "private organisations", namely public administrations like the State itself and its local governmental units, in the former group, and profit organizations or firms (also called businesses or enterprises) and not-for-profit organizations, such as foundations and associations (e.g. NGOs and other not-for-profit organizations) and households, in the latter group. More specifically, it should be pointed out that, in Italian studies, the enterprise is a special form of azienda whose prevalent function is the production of new wealth.
After this necessary premise, we may recall Giannessi"s words, which describe the azienda as: "… a system of operations, that derives from the combination of specific [productive] factors and from the composition of internal and external forces, where the phenomena of production, distribution and consumption are arranged for the purpose of achieving a given economic equilibrium, that has to be valid over time, susceptible of offering an adequate remuneration to the factors used and a reward, proportional to the results achieved, to the economic actor on behalf of which the activity is carried out." (Giannessi, 1960, p. 46) (Note 15).
Giannessi particularly highlighted three elements, which were later defined as the three constituents of the azienda (Gonnella, 2014): the operations ("system of operations"), the productive structure ("combination of specific factors"), and the relationship between the azienda and the environment ("composition of internal and external forces"). ISSN 2162-3082 2018 According to the scholar, the various manifestations of the economic activity substantiate in the azienda: the production of goods and services, their distribution and their consumption for the satisfaction of human needs.

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The aspect that should be particularly highlighted, also for its connection with the theory of financial valuation conceived by the scholar, is that the survival and development of the azienda are linked with the achievement of a given long-run economic equilibrium. The economic equilibrium is nothing but a cost/revenue relationship. In the long period, revenues have to be appropriate for covering costs and for leaving an adequate margin for the "economic actor", namely the individual or the group on behalf of whom the activity is carried out. The need to achieve this economic equilibrium over a long period of time is, in Giannessi"s general theory of the azienda, exactly the common denominator of each form of azienda.
As regards the achievement of the economic equilibrium as a basis for the azienda, Giannessi further specified: "The economic equilibrium of the azienda may be considered as established only when the following conditions are met: -The results must be such as to permit an adequate remuneration of all factors, none excluded, which took part in the combination of the azienda; -The results must permit the awarding of a return, determined proportionally to said results, for the "economic actor" on behalf of whom the activity is carried out. Said return may be reduced down to a minimum, but it may not be lacking; over time, it has to balance itself on an average return that is remunerative for the investment or remain above the such average return; -Both the adequate remuneration of the factors that took part in the productive combination and the return due to the "economic actor" must be ensured for a period of time that must be considered satisfactory in probabilistic terms." (Giannessi, 1960, pp. 74-75).
The excerpt above shows quite clearly that the elements at the basis of the achievement of the economic equilibrium are both the measure of the rewards paid to the various productive factors and to the "economic actor", and the their duration: the measure must be adequate and the duration must be ensured for a satisfactory period of time (Giannessi, 1960, p. 93).
At this point, we should better clarify the notion of remuneration of productive factors, before examining its adequacy. There are two kinds of remunerations: sometimes they are prices negotiated within the framework of exchange transactions with third parties, as in the case of productive factors like raw materials, human labour, services; other times, they are the result of valuations made by the azienda, such as in the case of the depreciation and amortization of assets and the provisions for risks and charges. The two types of remuneration are defined by Giannessi as "external" and "internal" rewards, respectively (Giannessi, 1960, p. 75). Therefore, it appears clear why Giannessi observed the following concerning the adequacy of the remuneration of the various productive factors: International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 "The remuneration that is due to the productive factors must be adequate. This condition may be considered as met when the remuneration does not differ much from market price levels, for external rewards, and from the functional valuation criteria adopted by the azienda in the formulation of its period assumptions, for internal rewards." (Giannessi, 1960, p. 75).
The meaning of the expression "functional valuation" is provided in the next section. Note that it is precisely financial valuations that determine the internal remunerations, thus affecting the equilibrium positions of the azienda and the return that can be paid to the "economic actor". In fact, in this regard, Giannessi maintained: "The determination of the adequate remuneration of productive factors is a particularly difficult aspect of the valuation problem in azienda." (Giannessi, 1960, p. 75).
The scholar classified the possible situations regarding the dynamics of the azienda based on the level of return and its trend. As regards the first parameter, he defined three different areas: equilibrium, disequilibrium and uncertainty. As to the second parameter, he identified two possible situations: the evolutive trend and involutive trend of economic equilibrium. By combining these two parameters, Giannessi eventually produced the following interpretative scheme of the dynamics of the azienda.  Giannessi, 1960, p. 94 In Giannessi"s vision, the continuous reference to the equilibrium positions reached by the azienda is essential both for decision-making (Giannessi, 1960, p. 93) and for financial valuation (Giannessi, 1960, p. 591).

From the Equilibrium of Azienda to the Theory of 'Functional Value'
In Giannessi"s thought, the theory of financial valuation is closely related to the theory of azienda. To justify this consideration, we should recall the notion of accounting developed by  ISSN 2162-3082 2018 Giannessi. He conceived accounting as a "science that studies the conversion of azienda"s dynamics into numbers and the reconversion of these numbers into economic trends" (Giannessi, 1960, p. 22). In such a context, the financial statement is viewed as a historical-probabilistic document (Giannessi, 1960, p. 815), with the purpose of "… determining an appropriate result to identify the positions of equilibrium of the azienda and the nature of their related motion" (Giannessi, 1960, p. 805).

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Regarding the historical-probabilistic nature of financial statement, Giannessi stated: "The financial statement … is historical because it contains data regarding the past of which it can offer an effective synthesis, and it is probabilistic because it contains data on the valuation of equipment, inventories and risks by which it somehow anticipates future operations" (Giannessi, 1969, p. 799). This is the reason that pushes Giannessi to define the results of the financial statement as probabilistic, because they depend on how much the underlying assumptions of the financial statement"s valuations reflect reality.
However, we should clarify that income is in any case insufficient to represent the positions of equilibrium of the azienda; while the former has a contingent and speculative nature (Giannessi, 1960, p. 69), the latter may only be conceived, according to Giannessi, in a necessarily broader temporal perspective than the accounting period. In fact, Giannessi wrote: "The period"s income is not appropriate to represent the equilibrium of the azienda; it may be one of the elements for judgement, but not the only and absolute element for judgement." (Giannessi, 1960, p. 74).
The motion of the azienda has a variable character and it never takes a "definitive position", so the consequent equilibrium "… tends to continuously decompose and recompose …" (Giannessi 1960, p. 93).
The period"s income, being a point value, may only be used to capture an image of the motion of the azienda, but it will never suffice alone to reproduce the dynamics of the azienda. It is a necessary tile of a wider mosaic. Only a range of incomes observed in their evolution over time can be of help in recovering a diachronic perspective, and therefore in conceiving an idea of the motion of the azienda.
Giannessi himself highlighted this when he wrote: "For a sufficiently accurate idea of the motion of the azienda, we have to carry out a series of repeated measurements and compare the results obtained among each others." (Giannessi, 1960, p. 93).
In such a theoretical context, financial valuations take up a central role in the reconstruction of the dynamics of the azienda and give an important contribution to the comprehension of the conditions of equilibrium of the azienda itself.
In general, "to valuate -Giannessi wrotemeans to express the essence of an asset in monetary terms" (Giannessi, 1960, p. 589). There are different types of valuations in azienda: ISSN 2162-3082 2018 financial statement valuations, liquidation valuations, and the valuation performed when buying or selling a business. Of these three, Giannessi mainly focused on financial statement valuations, namely "… the most significant expression of the valuation process" (Giannessi, 1960, p. 598). This is explained by the particular recurrence and function of valuation, which depend on the recurrence and function of the financial statement. If, for Giannessi, the financial statement is a "… tool through which a given dynamic position of the life of the azienda is represented" (Giannessi, 1960, p. 799), the financial statement valuation may have the only purpose of "… determining the degree of functionality of the azienda" (Giannessi, 1960, p. 590).

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To achieve the objective, it must be managed according to a specific process and by adopting a given perspective, which Giannessi summarised in the expression "functional valuation" since this valuation "... implies the determination of the notion of functionality", that it to say of the "... position of each factor within the economic combination of the azienda" (Giannessi, 1960, pp. 738-739). In other terms, the valuation cannot be simply resolved in the mere assessment of asset per se, but it also requires considering the way in which the factor becomes a part of the productive combination.
The valuation process consists in a number of steps and generates the "functional value" by successive approximations. The first step consists in the identification of the nature of the asset to be valued, which gives a first attribution of value; however, that initial value must be re-determined. In fact, when the asset becomes part of the productive combination, it ceases to be a free asset and becomes a productive factor, i.e. part of the system of the azienda. Ignoring this change in the valuation of the asset would be denying the very systemic nature of the azienda (Giannessi, 1960, pp. 697-698). This is a central point in Giannessi"s thought, one that seems to find its logical assumption in the research on the different possible combinations of productive factors initiated by Ceccherelli and later continued and studied more in depth by Giannessi. According to Giannessi, in fact, productive factors individually considered are not useful for the azienda (Note 16). Their utility only emerges if we observe them properly combined with each other, as they are effectively in the azienda system (Note 17). In other words, Giannessi believed that valuation should not neglect an important feature of the productive structure of the azienda, i.e. the complementarity of its productive factors. One may also say that Giannessi transposed this propertycomplementarityfrom the economy of the azienda to accounting, from the theory of the azienda to the theory of financial valuations. Productive factors should not be valued individually, as if they were independent entities and by observing only their intrinsic features, but rather as parts of a whole. The valuation of each individual item of the capital is affected by how each given element is combined with the others (n-1) and by the relationships between them. Hence, the same productive factor will have a different value in different aziende (Note 18). Identical assets available in the market traded at identical prices will have different functional values when cease to be "free" and become the productive factors of different aziende (Giannessi, 1960, p. 698).
The contribution of the productive factor to the system also changes with the condition and direction of the equilibrium/disequilibrium of the azienda. The aziendawe should repeat -International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 is not a temporary but a medium/long term phenomenon. So, it cannot be understood and analysed outside its temporal perspective. This means that, whenever the azienda finds itself in conditions of evolutionary equilibrium, the degree of utilisation of productive factors will likely increase over time in consideration of the positive perspectives; therefore, their value shall be increased. Vice versa, if the azienda, although in equilibrium, follows a decreasing path, the economic contribution of the productive factors will likely decrease in consideration of the negative perspectives; hence their value should be reduced.
The functional value has a special feature: unlike other types of values (e.g. historical cost, current cash equivalent, etc.) it does not immediately refer to a real or assumed economic transaction, but stems from a firm-specific valuation (Note 19). It is a value-in-use estimated as a function of the usefulness of the productive factor for the considered azienda. This does not mean that Giannessi ignored the utility of the historical cost, the replacement cost, the net realizable value or other values taken from the market, but it means that they are not identified as functional value, but rather as simple elements required for a judgement on the formulation of the functional value. What is missing, in the end, is a direct link between value and economic transaction, which is typical of other valuation theories (see Lee 1998: p. 26), precisely because the functional value is peculiar to each azienda and to the conditions of its dynamics.
The complexity of the valuation process is also increased by its necessary iterative nature. In fact, the functional value is obtained by successive approximations, by repeating the valuation process many times until the most appropriate value is identified. The preparers of financial statements have to carefully examine the effects that are produced, from time to time, during successive steps, on two fronts: that of the period income and that of the economic equilibrium, until a satisfying solution is reached. Iterativity depends on the circularity that is established among the estimate of the productive factors, their (internal) remuneration, and the equilibrium of the azienda. We have already noticed how the equilibrium exists, for the scholar, only if the azienda is capable of adequately remunerating the productive factors used and of adequately rewarding the "economic actor". The remuneration of factors and the reward for the "economic actor", in their turn, cannot be determined but by taking into account the equilibrium positions of the azienda. Giannessi saw the problem clearly, as he stated: "Equilibrium positions cannot be identified before determining the remuneration of productive factors and the reward for the economic actor; the remuneration of factors and the reward for the economic actor cannot be determined before ensuring the survival of the equilibrium positions over time" (Giannessi, 1960, p. 591).
It is, therefore, only through a iterative process that directors may reach appropriate financial valuations capable of determining an "… income for the period to be used in the reconstruction of the equilibrium positions of the system of the azienda and in the identification of the characteristics of its motion" (Giannessi, 1960, p. 824).
Let"s see, for instance, what Giannessi suggests for the valuation both of the equipment and machinery, and of the products of the farms. ISSN 2162-3082 2018 In order to determine the functional value of equipment and machinery, one should primarily obtain accounting data like the "historical cost", "extraordinary maintenance and repair costs" and the "reproduction cost" (Giannessi, 1960, p. 678-679). However, these data are not sufficient. In this regard, Giannessi says: "The historical cost, extraordinary maintenance and repair costs and the reproduction cost are all useful elements to be used for judgement, but do not consist in the judgement itself. In order to express the latter and formulate the functional valuation of the machine, one must adjust the data so obtained to the specific situation of the firm and the market to which the calculation refers" (Giannessi, 1960, p. 681).

International Journal of Accounting and Financial Reporting
In Giannessi"s theoretical system the valuation of equipment and machinery, as for any other asset, requires the formulation of a veritable judgement, which must rest on adequate pieces of information. This is the reason why the scholar accurately indicates a set of informative elements to be examined for valuation of equipment and machinery (Giannessi, 1960, p These elements must be examined in addition to the historical cost, to the extraordinary maintenance and repair costs and to the reproduction cost, in order to formulate the evaluation of the equipment and machinery. The approach that consists in examining the various elements for judgement to be considered in financial statement valuation is also found in the functional valuation of agricultural products. When he discusses the functional valuation of the products of farms, Giannessi identifies three first elements for judgement (Giannessi, 1960, pp. 711-714): -The destination of products; -The state of negotiations; -The degree of preservability of products . ISSN 2162-3082 2018 In Giannessi"s view, in fact, the value of agricultural products changes if they are destined to the reuse in production or to the sale in the market, according to the presence or absence of sales agreements of various kinds or commitments to sign agreements and to the possibility of preservation of the products for a longer or shorter period of time after harvest. The value of products must take into account the various possible situations that concern said parameters. But that is not all. Giannessi writes:

International Journal of Accounting and Financial Reporting
"The functional valuation [of the agricultural products] implies the consideration of all the technical, economic and financial conditions that identify product batches. Technical conditions are important for the relationship existing between products to be reused in production and products to be directly sold in the market; the economic conditions for the relationship existing between historical pricing and the probabilistic determination of prices; the financial conditions for the interest the firm may have to sell immediately, or wait for the most appropriate time ..." (Giannessi, 1960, p. 714; see also pp. 821-822).
We can say, ultimately, that for Giannessi valuation is a logical operation that transcends any rigid and mechanical application of valuation criteria (Note 20). Vice versa, it consists in formulating a judgement starting from an adequate system of quantitative and qualitative information elements, concerning essential aspects of the firm and its surrounding environment (Note 21). These elements for judgement must be identified on a case by case basis, in connection with the asset to be estimated; this is the reason why they change between assets. The judgement so formed is a summary of the different pieces of information available, although it differs from each one of them. In this regard Giannessi says: "The functional criterion uses all the data available, both historical and related to the market, but does not coincide with any of them" (Giannessi, 1960, p. 709).
So, what is the role played by valuation criteria in the theory of valuation at issue? We may answer that they lose their status of valuation rules and take on the role of elements for judgement, together with other kinds of information to be used for valuation. This is a leitmotiv of Giannessi"s thought (Note 22).
In summary, the functional valuation consists in a highly discretionary judgement based on a complex system of quantitative/qualitative information (Note 23), which concern certain essential features of the azienda and its environment. Such an approach, on the one hand, threatens the very function of the financial statement as an instrument for the control of the actions carried out by directors and, on the other hand, enhances the efficacy of the financial statement for the purpose of exercising an internal control on corporate trends. This is precisely the perspective adopted by Giannessi, and shared by most Italian scholars of the time (Note 24). The information we can infer from the financial statements prepared with functional values is particularly useful to help managers make decisions, also regarding strategic problems. This is the reason why said values are consistent with the notion of the financial statements as a tool for the control of the economic trends of enterprise. This is in line with the characteristics of the Italian economic system of the time, which mainly consisted in small-size firms, sole or one-family proprietorship, and only in rare cases in large family-run or State-owned enterprises, but which did not yet include cases of significant International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 separation between ownership and control, and where the stock market was hardly making its way ahead. Only when these conditions started changing, from the beginning of the seventies, Italian accounting would be pushed to redesign the financial statement as a tool for communication with the external world, in order to meet public interest purposes (Poli, 1971, p. 113 and ff) (Note 25).

Concluding Remarks
In the paper we dealt with two of the most significant themes of Giannessi's thoughtthe notion of azienda and "functional valuation"which, being closely interrelated, show all the intrinsic coherence of the thought of the scholar.
The systemic vision of the azienda is closely related with the theme of financial valuations, which flowed into the theory of functional value.
The functional value, developed by Giannessi, aims to express, in terms of values, the economic attitude of the different production factors that take part in the combination of the azienda, that is to say the contribution given to the achievement of the degree of functionality of the azienda. This value is, therefore, reachedas we have seenonly at the end of a complex and multifaceted logical process which starts with the assessment of the value of the individual asset, but then requires subsequent repeated revisions aimed at detecting the links of complementarity among the different assets, also in the light of the evolutive or involutive conditions and of the dynamics of the azienda (Note 26).
The functional value derives its qualifying features from the properties of the azienda as a phenomenon; in fact, it has a systematic, dynamic, and probabilistic nature (Giannessi, 1956, p. 103).
Its systematic nature stems from the fact that the functional value of an asset must express its productive possibilities within a given productive combination. The value must fully reflect the complementary nature of productive factors. Actually, the theme of the conjunction of productive factors was not new in the Italian doctrine on this subject matter, as other Italian scholars had already mentioned it in their works (Note 27), but it was only with the functional valuation that the link between the complementarity of productive factors and going-concern values became a qualifying element. This is why we can share the opinion expressed in the literature, according to which the functional value, unlike other valuation bases, has an intrinsically relational character (Note 28).
The functional valuation also reflects the dynamic nature of the azienda; the value judgement, in fact, is drawn from historical, contingent and future data, by following a diachronic approach.
Finally, the functional valuation has a probabilistic nature, as the financial statement values are influenced by the perspectives on future trends of the azienda and of the reference environment.
Based on the consideration developed, we believe we could say that functional valuation is the clearest expression of the holistic approach to the valuation problem, typical of the Italian tradition, which contrasts the extreme simplification of a valuation process that is reduced to the adoption of standardized criteria. The functional valuation reflects the complexity of the azienda in the financial statement, which is transformed from an aggregation of values to an actual "system of values" (Onida, 1940, p. 74).
However, we cannot deny that the functional valuation is basedas we repeatedly highlightedon a judgement formed by the preparers of the financial statement. Such judgement is characterised by a high level of subjectivity and uncertainty. So, the discretionary nature that is typical of every valuation is even reinforced in this case, because the valuation is guided by a principle and is no longer bound to a criterion; this allows a greater degree of freedom to the preparers of the financial statement. Moreover, the complexity of the process that leads to the final value, which examines many valuation parameters, increases its intrinsic subjectivity and uncertainty. Being an entity-specific valuation, which also reflects the expectations, the assumptions and the intentions of directors, functional valuation is strongly affected by the "personal equation" of the preparer of the financial statement (Note 29), and consequently it can be more easily manipulated. And, for the same reason, it is more difficult to audit.
But another limit also emerges clearly: the functional valuation process a rather difficult one to implement and very time and energy consuming. In fact, the formation of a judgement requires a preliminary collection and careful analysis of a large information base, including both quantitative and qualitative information, and the research, finally, of a point of convergence capable of providing a solution for the problem of the circular relationship existing between the period"s income and the perspective economic equilibrium.
We may conclude that the main strength of the theory of functional valuation is its foremost weakness too. In other words, functional valuation draws its inspiration from a robust theory of the azienda and an approach that considers the financial statement as a tool to be used to understand the equilibrium conditions of a specific azienda for prevalent internal control purposes. Hence the need for financial valuations to reflect the conditions of the dynamics of the azienda, and therefore share with it the features of complexity and uniqueness. Subjectivity and application challenges are the consequences.
In spite of the limits described, we believe that the contribution of the theory formulated by Giannessi to the doctrinal growth of the Italian accounting is undeniable, although such theoretical construct did not directly lead to changes in accounting regulation and practices (see Alexander and Servalli 2011) (Note 30). The valuation approach adopted stands out for its broad theoretical foundation, which aims at defining a guiding principle rather than at prescribing standardized technical rules and regulations. The result is a veritable theory of value in a Schumpeterian sense (Note 31), one closely related to the azienda-phenomenon. The novelty of the approach is also proved by the fact that the functional value is characterised as a usage value, unlike the most common approaches that connect financial statement values either directly or indirectly to market transactions (Note 32). It is probably due to this doctrinal robustness that the theory of the functional value still continues to arouse a scientific interest in Italy. ISSN 2162-3082 2018 something which is fortuitous or extrinsic to "reality"" (Zappa 1920-29: p. 331).

International Journal of Accounting and Financial Reporting
an asset requires the re-determination of its value is that of a fixed asset to be sold, where