Building IASB Research Capacity: A Commentary

This Commentary summarizes and remarks on several discussions of the link between academic accounting research and financial reporting standard setting. Our Commentary is prompted by references to building the International Accounting Standards Board's (IASB) research capacity, included in three due process documents: Report of the Trustees' Strategy Review, IFRSs as the Global Standard: Setting a Strategy for the Foundation's Second Decade; Agenda Consultation 2011; and Feedback Statement: Agenda Consultation 2011. Pursuant to its mission, the International Association for Accounting Education and Research (IAAER) has undertaken activities, including hosting two roundtables, related to the link between academic accounting research (and researchers) and the IASB's standard‐setting activities. We discuss the main issues addressed and themes emerging from the IAAER roundtables including whether academic research is relevant to standard setters; types of academic research, and areas of inquiry, that would be most relevant to accounting standard setters; perceptions on why academic research is not more useful to standard setters and challenges to academic researcher's engagement in standard setting. We summarize the IAAER Committee response to the consultation paper, Status of Trustees' Strategy Review. Finally, we identify areas where we believe academia can assist in building a dedicated research capacity at the IASB and note specific areas where future academic research is needed to inform the IASB.     

An interview with IASB Chair Dr. Andreas Barckow

This paper provides an overview of two interviews conducted with Andreas Barckow where he reflected on his outlook for the International Accounting Standards Board (IASB) and his role as Chair. The interviews included (1) a discussion of the IASB′s Third Agenda Consultation Feedback Statement, (2) key areas for future collaborations of the IASB and the International Association for Accounting Education and Research (IAAER) directed primarily at building the IASB's Research Capacity, (3) strategic challenges facing the IASB, (4) the formation of the International Sustainability Standards Board (ISSB) including the emerging model for the coexistence of the IASB and the ISSB and (5) the unique position the International Financial Reporting Standards Foundation holds as the only global organization to house both financial accounting reporting and sustainability disclosure standard-setting boards. The interviews also addressed areas where the IAAER can encourage academic research to inform both the IASB and the IAASB and perhaps also the ISSB.     

The adoption of International Accounting Standards in the European Union

Abstract

This paper discusses the IASB's process of developing accounting standards for adoption by listed companies within the European Union. Issues addressed include the structure of the IASB, its role as a global standard setter and its programme. Particular attention is given to two topics that are both controversial and important, accounting for financial instruments and reporting financial performance.     

Formal Participation in the IASB's Due Process of Standard Setting: A Multi-issue/Multi-period Analysis

This paper sets out to enquire about the nature of constituents' participation in the IASB's due process in terms of representation (constituents' diversity and characteristics) and drivers to participate. We choose to adopt a multi-issue/multi-period approach to investigate constituents' formal participation. An analysis of comment letters sent directly to the IASB over the period 2002–2006, reveals that preparers sent most letters followed by the accounting profession and standard setters. With regard to timing, we find that preparers concentrate their participation efforts at a later stage in the process compared to the other constituents, who react earlier. Formal indirect participation in the IASB's due process by submitting comment letters to EFRAG is infrequently used by European constituents. In those cases where constituents exert influence to both IASB and EFRAG, they often use exactly the same comment letter. Concentrating on the drivers to participate, the data reveal that preparers, accountants and standard setters react significantly more when proposals have a major impact on the accounting numbers of a company. Users, stock exchanges and their supervisory authorities write significantly more comment letters when disclosure issues are at stake. Finally, participating preparers in the IASB's due process are larger and more profitable than non-participating preparers.     

Antecedents of the international association for accounting education and research (1966–1983): A review of early initiatives to develop an international academic accounting association

Interest in this topic followed examination of new data discussing several antecedent proposals for establishing an international academic accounting association in the period 1966–1983, culminating in the 1984 formation of the International Association for Accounting Education and Research (IAAER). Relevant correspondence between several academics is now publicly available in the R.J. Chambers Archive at the University of Sydney. This enables justified statements to be made about the pre‐1984 antecedents of the IAAER, thereby filling a vacuum in our understanding of the history of the organization. We initially discuss Ray Chambers’ and others’ desire for, and attempts to promote an international approach to accounting research and practice. Chambers unsuccessfully attempted to organize an international think‐tank, beginning in the mid‐1960s with something like the International Economic Association of that time. He persisted, through participation in the Accounting Researchers International Association, an elite accounting society. Eventually, those proposals were discarded as he and others like Adolf Enthoven and David Solomons proposed an international confederation of accounting educators and researchers in 1977 and 1978. Efforts of other leading accounting academics of that time, in particular Norlin Rueschhoff and Seigo Nakajima, are also shown to have influenced the eventual formation of the simplified 1984 IAAER body with, initially, its individual‐based membership and objectives. Later, IAAER would become much more like the international confederation of accounting educators and researchers that Chambers had proposed in the 1997 Berlin International Conference on Accounting Education.     

Proposed international standard on auditing financial statements of less complex entities: IAASB IAAER roundtables—Breakout 2 Design,Structure, and Content

In this commentary, we summarize stakeholder views articulated during roundtables addressing the 2021 International Auditing and Assurance Standards Board's (IAASB) Exposure Draft: Proposed International Standard on Auditing of Financial Statements of Less Complex Entities (ED LCE). In support of its mission, the International Association for Accounting Education and Research (IAAER)—together with the IAASB—organized by-invitation roundtables bringing together audit practitioners, academics, and financial statements users. A structured agenda was followed and addressed some of the topics on which the IAASB sought views. This commentary provides a summary of views heard during the second roundtable breakout session focused on Design, Structure, and Content and provides recommendations to the IAASB regarding the way forward. A paper addressing the first breakout session on Authority and Group is available in a previous issue of the Journal of International Financial Management and Accounting.     

Accounting Insights from the Healthcare Sector

There has been a major debate on the merits of accrual accounting in the public sector in general. This paper is an implementation study of accrual accounting in local government. It examines this issue from an implementation perspective. The implementation perspective adopted draws on Matland's ambiguity–conflict model (1995). This research is informed by a combined methods approach: the analysis of public documents and debates; a survey of local authority capital accountants and case study information on management's perceptions of this accounting information. This research reveals a complex outcome of reformers' initiatives which has resulted in these accounting changes being retained within the accounting domain and having limited impact on wider potential users of this information.     

Business Involvement in Accounting: A Case Study of International Financial Reporting Standards Adoption and the Work of Accountants

Abstract

Although Byrne and Pierce [(2007) Towards more comprehensive understanding of the roles of management accountants, European Accounting Review, 16(3), pp. 469–498] found that an increasing regulatory burden may decrease accountants' chances of getting involved in business, little is known about corporate reporting practice and whether, and if yes how, regulation impacts on accountants' work. In order to fill this gap, the paper provides a case study analysis of International Financial Reporting Standards (IFRS) adoption and its impact on and implications for an accountant's role, positions, practices and work in a continental European context. This study describes how IFRS expect information preparers to take more responsibility for reporting than domestic accounting standards. Thus, the present study contributes to the literature by arguing that it depends on the set of accounting standards how they impact on accountants' work. The study shows why and how especially IFRS' requirement of ‘business involvement’ in accounting revolutionises accountants' work and how it has implications on their roles, practices and positions in the case firm. Finally, the paper explains how learning and knowledge creation required by IFRS adoption was made possible through communities of practice and hence how it was possible to clarify the responsibilities of divisional and group accountants in the case firm. Thus, the present study enhances our understanding of reporting activity by describing actual practices of and mechanisms used in corporate reporting.     

Mining frequent itemsets: a perspective from operations research

Mining frequent itemsets is a flourishing research area. Many papers on this topic have been published and even some contests have been held. Most papers focus on speed and introduce ad hoc algorithms and data structures. In this paper we put most of the algorithms in one framework, using classical Operations Research paradigms such as backtracking, depth‐first and breadth‐first search and branch‐and‐bound. Moreover, we present experimental results where the different algorithms are implemented under similar designs.     

Publication trends in the Journal of International Financial Management and Accounting: A retrospective review

This study uses bibliometric analysis to assess Journal of International Financial Management & Accounting (JIFMA's) evolution between 1989 and 2021. In this retrospective review, we investigate the journal's performance, authorship trends, and intellectual structure. The journal's international focus is primarily on cross-country studies and the effects of country-level factors on various accounting and finance outcomes. The collaborative network of JIFMA's authors has also grown substantially consistent with rise in research collaboration in general across the world. We identify nine major themes making up JIFMA's knowledge structure: (1) value relevance of accounting information relating to the adoption of International Financial Reporting Standards, (2) voluntary corporate disclosure, (3) corporate use of financial derivatives, (4) corporate governance, (5) equity valuation, (6) stock return seasonalities, foreign equity ownership, and cost of capital, (7) earnings announcements and pecking order behavior, (8) triple-bottom-line disclosures, and (9) managerial ownership and earnings management. Our findings will likely benefit JIFMA's editorial board and other journal stakeholders including future researchers.     

EUROPEAN ACCOUNTING REVIEW

This study contributes to the accounting literature by providing empirical evidence from China that adopting IFRS does not necessarily lead to IFRS-type accounting practices. We examine the impact of regulatory enforcement, in particular, an important Chinese government compulsory compliance policy implemented in 2001, and audit upon the convergence of Chinese accounting practices. Using a sample of 103 Chinese B-share companies between 1999 and 2004, we reveal that the decline in earnings difference between firms' financial statements under Chinese GAAP and IFRS is the result of the implementation of the 2001 policy and the audit committee which effectively control the firm's application of standards rather than the differences between the standards. The effect of audit committee leads us further to argue that the convergence of accounting practices may be affected by not only the lack of insufficient understanding of IFRS by local accounting professionals, but also the management opportunistic behaviour during the application of different standards. It implies that corporate governance may affect the convergence of accounting practice. However, we do not find evidence for international audit firms outperforming their Chinese local CPAs with regard to IFRS compliance. Therefore, the Chinese government should be cautious in promoting the participation of international audit firms in China for achieving IFRS compliance.     

The Challenge of Setting Standards for a Worldwide Constituency: Research Implications from the IASB’s Early History

Based on Camfferman and Zeff [(2015). Aiming for global accounting standards: The International Accounting Standards Board, 2001–2011. Oxford: Oxford University Press] we reflect on possibilities for academic research on the International Accounting Standards Board (IASB) and its International Financial Reporting Standards (IFRSs). We argue that a research agenda may be formed around the notion that the IASB differs from national standard setters because its constituent base includes jurisdictions as well as the more traditional preparer, user and auditor constituency groups. We show that taking a jurisdictional angle draws attention to the variety among the IASB’s jurisdictional constituents, identifying numerous research possibilities related to their decisions to adopt, or not to adopt, IFRSs, and to the mechanisms they have developed to form their own IFRS policies and to interact with the IASB. We illustrate how the IASB’s structure, governance, processes and standards are influenced by the challenge of reconciling the needs and values of jurisdictional constituents with the objective of setting global accounting standards. We call for research on the ramifications of the diversity of jurisdictional constituents, as well as changing perceptions of standard setting within jurisdictions, for all aspects of the functioning of the IASB. Such research should make greater use of the variety of sources available to researchers today.     

Accounting Discretion in Goodwill Impairments: UK Evidence

This study examines managers’ use of discretion in determining goodwill impairment losses following the mandatory adoption of IFRS 3 “Business Combinations,” and whether this discretion reflects opportunistic reporting by managers or the provision of their private information. Although IFRS 3 was issued to improve the accounting treatment for goodwill and provide users with more useful and value‐relevant information regarding the underlying economic value of goodwill, it has been criticized on the grounds of the managerial discretion inherent in impairment testing. Therefore, ex‐ante, it is unclear how the impairment‐only approach has affected the reporting of goodwill impairment losses. After controlling for economic factors, empirical results reveal that managers are exercising discretion in the reporting of goodwill impairments following the adoption of IFRS 3. Specifically, goodwill impairments are more likely to be associated with recent CEO changes, income smoothing and “big bath” reporting behaviors. However, the results also indicate that goodwill impairments are strongly associated with effective governance mechanisms suggesting that managers are more likely to be exercising their accounting discretion to convey their private information about the underlying performance of the firm rather than acting opportunistically. These inferences are robust to various modeling specifications and variable definitions, suggesting that IFRS 3 has provided managers with a framework to reliably convey their private information about future cash flows consistent with the IASB's objectives in developing the impairment standard.     

The Information Content of Stock Prices,Legal Environments,and Accounting Standards: International Evidence

Abstract

In this paper, we investigate the impact of accounting standards on the information content of stock prices using a sample of 44 countries from around the world. We find that the adoption of International Financial Reporting Standards or US Generally Accepted Accounting Principles per se does not make stock prices more informative, but that better accounting standards are helpful only in countries having effective legal environments. In particular, we find a significantly negative relationship between stock price synchronicity and the quality of accounting standards in countries with a common-law legal origin and generally better shareholder protection. Our findings are consistent with the theoretical prediction in Zhang [(2013). Accounting standards, cost of capital, resource allocation, and welfare in a large economy. The Accounting Review, 88(4), 1459–1488] that improving accounting standards effectively would increase social welfare in general.     

Research into product costing practice: a European perspective

The period 2007–2010 marked one of the most severe economic and financial crises in living memory. In this paper, we focus on two of accounting's key functions within organisations and markets, financial reporting and governance. In this respect, we find that accounting exhibited shortcomings in its structural foundation and in its application. Salient is its failure to account for uncertainty and to adequately capture, measure and disclose the impact of risk-taking on the financial statements, thus undermining their reliability and, potentially, their relevance as indicators of economic performance. Consequently, boards were provided with misleading numbers, and compensation was based on paper profits that did not materialise. As such, accounting carried undesirable elements that interacted with other malicious market characteristics such as excessive risk-taking by bankers, and failure in regulatory and market oversight, thus potentially contributing to deteriorating economic conditions. The paper concludes with suggestions for further research in this area.

Guns don't kill people, but they sure help. (Exchange between Clive Owen and Paul Giamatti, Shoot 'Em Up, 2007)     

Accounting change in Norway

During the last twenty years, a change from a continental towards what can broadly be characterized as an Anglo-Saxon perspective of accounting has taken place in Norway.

This paper discusses whether the new Norwegian Accounting Act of 1998 and the accounting standards issued by the Norwegian standard-setting body represent a further focus on the Anglo-Saxon perspective. Important parts of Norwegian accounting regulation, particularly the Norwegian Conceptual Framework, are highlighted and compared with the positions of European (EC Accounting Directives) and international (IASB) accounting.

The findings indicate that the Anglo-Saxon perspective of accounting appears to be strengthened by the new Norwegian law. Even if the findings indicate that the IAS solutions are generally accepted under the new regulation, the flexibility of the regulation seems to indicate that other solutions are accepted as well. These ‘specific Norwegian’ accounting solutions may generally lead to balance sheets which are less prudent than the balance sheets set up under IAS.

If one accepts that a characteristic of Anglo-Saxon accounting is that it is, historically, generally less prudent than continental European accounting, it can indeed be concluded that Norwegian financial reporting has become more Anglo-Saxon than Anglo-Saxon countries in general. One factor seems to weaken this conclusion: Norway does not allow the revaluation of fixed assets.     

Accounting and the Truth of Earnings Reports: Philosophical Considerations

This paper investigates the philosophical nature of accounting reports of earnings. Standard setters' authoritative pronouncements (conceptual frameworks, GAAP, EITFs, etc.) hold to the realist philosophical view that true earnings reports are ex post representations of some ex ante out-there, preexisting, extra-linguistic real economic increase in the enterprise's wealth. Contra this view, in practice financial accounting executives, in league with investment analysts, routinely engage in earnings management and manipulation in order to satisfy the capital market's insatiable demands for earnings levels which will support and enhance the enterprise's stock market price. The paper considers this state of affairs from Harold Frankfurt's truth, lies and ‘bullshit’ treatise (2005, 2006). It sees earnings reports as ‘short of lies’, and so the accountants can only be faulted for their indifference to the truth and for giving the impression that they are trying to present the truth. A poststructuralist philosophical perspective, however, problematizes this conclusion on the basis that accounting language is not a transparent medium but rather is the material used to manufacture accounting ‘truths’. It sees accounting ‘truths’ as contingent upon linguistic doctrinal accounting discourses currently ceded place of privilege by standard setters and upon the subjective considerations of accountants when they produce reports of earnings. The paper concludes that both Frankfurt's perspective and that of poststructuralist philosophers can provide valuable insights into this ironic state of affairs.     

An Experiment in Fair Value Accounting: UK Investment Vehicles

Abstract

We use the British real estate and investment fund industries as experimental settings where historic cost (HC) and fair value accounting (FVA) can be compared. Both industries have the majority of their assets marked to market and hence the difference between the two accounting systems is profound. However, as the valuation of real estate is arguably more subjective than that of investment funds, we are able to contrast fair value accounting in a near ideal setting with one where it remains important, but where valuation difficulties may permit bias. As this distinction is incorporated in the recently issued SFAS 157, which also formed the basis of the IASB's relevant discussion document, the results of our study may be particularly timely. As expected, we find that fair value income is considerably more value relevant than historic cost income. However, in the presence of changes in FVA balance sheet values, income measures become largely irrelevant. This implies that there is no obvious advantage from adopting FVA income accounting if FVA balance sheet values are available to the user. Furthermore, FVA for our real estate sample is considerably less value relevant than for the investment companies and the evidence for this sample, if not conclusive, is consistent with earnings management. We interpret these results as confirming that fair values are highly relevant and largely unbiased where the values are unambiguous. Where valuation is ambiguous, which will normally be the case, value relevance will be lower and biased accounting may be revealed.     

On the Construction of the European Economic Sentiment Indicator*

Economic sentiment surveys are carried out by all European Union member states and are often seen as early indicators for future economic developments. Based on these surveys, the European Commission constructs an aggregate European Economic Sentiment Indicator (ESI). This paper compares the ESI with more sophisticated aggregation schemes based on statistical methods: dynamic factor analysis and partial least squares. The indicator based on partial least squares clearly outperforms the other two indicators in terms of comovement with economic activity. In terms of forecast ability, the ESI, constructed in a rather ad hoc way, can compete with the other indicators.     

On interdisciplinary movements: The development of a network of support around Foucaultian perspectives in accounting research

Abstract

This paper seeks to better understand interdisciplinary movements in the making. Our investigation focuses on the processes through which a network of support surrounding Michel Foucault's ideas originally developed in the sociological and organizational stream of accounting research. Drawing on the sociology of translation, we first examine how a network of support emerged around the journal Accounting, Organizations and Society (AOS), which is generally perceived as the main vector of dissemination of sociological and organizational accounting research. Our investigation then focuses on how Foucault's ideas, a few years after the founding of AOS, came to the attention of a group of accounting academics in the UK – a group in which the editor-in-chief of AOS was a key actor. We also examine how a network of support surrounding Foucault's ideas subsequently developed in the greater accounting research community. Our analysis emphasizes the role of epistemological uncertainty in the constitution of networks of support around journals and ideas, and the role of trials of strength (Latour, 1987 Latour, B. 1987. Science in Action, Cambridge, MA: Harvard University Press.  [Google Scholar]) in fuelling or mitigating this uncertainty, thereby influencing actors' interests and commitments to particular networks. Our analysis also highlights the critical role that imitation and social differentiation play in the travel of ideas between scientific fields and the creation of scientific knowledge.