Does IFRS Mandatory Adoption Affect Information Asymmetry in the Stock Market?

The purpose of International Financial Reporting Standards (IFRS), adopted mandatorily by European listed firms in 2005, is to increase the transparency and the comparability of accounting information, which should have led to improvements in these firms’ information environments. This study uses market microstructure proxies for information asymmetry to examine the effects of IFRS adoption on the level of information asymmetry in the Spanish stock market. Therefore, we consider a setting with substantial differences between local standards – Spanish Accounting Standards (SAS) ? and IFRS and where the level of enforcement is low. By controlling for conventional determinants of information asymmetry and firms’ characteristics that influence their information environments, we find a reduction of information asymmetry after IFRS adoption. Our findings suggest that the mandatory switch from local accounting standards to IFRS conveys benefits to the market, even when the enforcement level is not strong.     

Management accounting innovations for rationalizing the cost of services: The reassessment of cash and accrual accounting

ABSTRACT

Management accounting can be a useful tool in austerity government because it produces information about the costs of public services and can be used for informed decision-making. Spanish local governments are required to submit data on the cost of their services to central government, which publishes this information online. The calculation of costs is based on budgetary cash accounting instead of accrual accounting; therefore cash accounting is being used for decision-making and accrual accounting has no role in this process. This paper critically analyses the innovation from three perspectives: the use assigned to the cost information in the legal framework; the opinion of academics and experts; and the perception of professionals about the usefulness of the information produced with the new system.     

The (uncertain) invisible college of Spanish accounting scholars

In order to test empirically the invisible college thesis in an accounting academic community and evaluate the internal mechanisms that are embedded in its reproduction, we explore in this paper the social network of Spanish accounting scholars. The social network examined arises from one event that combines formal and informal aspects of interaction between scholars: the selection of members of Ph.D. panels for the period 1994–2003. Results are consistent with the existence of an oligarchic academic community that shows a strong and positive association with measures of local influence, but that is decoupled from measures of scholarly contribution. In this regard it is difficult to sustain that high profile scholars in this community generate a disproportionate volume of new ideas, which is the basic tenet of the invisible college hypothesis. This finding is also indicative of the schizophrenia in which non-tenured Spanish accounting scholars live, between increasing demands of refereed publications by academic institutions and a hierarchical academic community sponsoring very different values.     

AN EPISTEMIC COMMUNITY AS INFLUENCER AND IMPLEMENTER IN LOCAL GOVERNMENT ACCOUNTING IN AUSTRALIA

This paper explicates the dual role of epistemic communities as influencers of accounting policy within regulatory space and as implementers who effect change within the domain of accounting. Set within the context of New South Wales in Australia, and the challenge of the financial sustainability of its local councils, the study was informed by documentary sources, and used data from interviews and a survey. Accounting and finance professionals, as an epistemic community, played a pivotal role in formulating accounting policy and in embedding fair value measurement of infrastructure assets.     

The Usefulness of Financial Reporting in Spanish Local Governments

Since 1992, accounting for Spanish local governments has been undergoing substantial change. The application of a new regulation has introduced the double entry system, an approximation to the accounting terminology used in the private sector and the presentation of financial statements beyond the purely budgetary reporting. In this context, the paper attempts to examine the extent to which the new regulation has achieved the objectives of financial reporting, who the users of the information could be, what the usefulness of the financial statements is and what they are used for in local governments. The results prove that the financial reporting of local governments can be useful for potential users like audit institutions, financial institutions or creditors. However, there is a long way to go before we can say that the information is used to the maximum. This implies that further progress is necessary in the use of financial information in local governments, and fundamentally it is necessary to introduce techniques of financial analysis traditionally used in business entities.     

ACCOUNTING MODELS AS AN INQUIRING SYSTEM IN LOCAL GOVERNMENT

Budgetary processes of local governments have been studied a lot, but there seems to be a lack of knowledge on how the accounting systems are actually used and how they fit into these processes . This is the theme of this paper, which is based on studies of local governments in Sweden. The paper is divided into two parts. In the first part there is a discussion of the budgetary process, the accounting system and their interrelationship. Two particular problems are discussed; the first relates to the fact that the accounting system is systematically filtering away what seems to be relevant financial information; and the second is that the accounting system is also very badly adapted to that process of commitments, which is understood to be the budgetary best. In the second part of the paper, it is argued in a normative manner that changes should be made to solve these two problems.     

MANAGEMENT ACCOUNTING IN LOCAL GOVERNMENT

Most of the management accounting activity in local government has traditionally been thought of as being confined primarily to the requirements of budget preparation and budgetary control. The budget is generally recognised as being at the heart of planning, decision-making and control and yet there have been many examples of the limitations in conventional budgeting and budgetary control practices being pointed out. It might have been expected that the period of consistent financial stringency faced by local government from 1979 onwards would have quickly exposed any limitations and brought about changes. In reality it seems that the management accounting and budgeting practices in local government responded surprisingly slowly to the financial pressures and it is only with the relatively recent introduction of the 'private sector' philosophies of devolved management and market testing that widespread developments in management accounting have begun to occur. Many of these developments are still evolving and because of this it seemed inappropriate at this stage to attempt a cross-sectional survey of current practices. This paper therefore concentrates on the position in two specific local authorities and examines the current DSO accounting practices. In addition, the analysis undertaken by one of the authorities of the steps needed to implement internal trading accounts for financial support services is discussed and the interesting experimental attempt by one of the authorities to introduce zero base budgeting for a major service is also examined.     

Disclosure Interactions and the Cost of Equity Capital: Evidence From the Spanish Continuous Market

Abstract:  The purpose of this paper is to provide some new evidence on the relationship between disclosure and the cost of equity capital. We propose a new specification for the empirical test based on the idea that in the previous models one crucial variable was missing: accounting policy choice. We test our theoretical hypothesis using a sample of Spanish firms quoted on the Spanish continuous market from 1999 to 2002. We adopt the ex-ante approach to measure the cost of equity capital, taking analysts predictions as a proxy for expected earnings. As an explanatory variable we use an index measuring annual report disclosure quality. This measure of disclosure is combined with a proxy for the accounting policy choice of the firm. We measure firms' conservatism using the modified Jones model of Dechow et al. (1995) to estimate discretionary accruals. Our results confirm that the relationship between disclosure and cost of capital is affected by the choice of accounting policy.     

Adoption of IFRS in Spain: Effect on the comparability and relevance of financial reporting

EU Regulation 1606/2002 requires application of International Financial Reporting Standards (IFRS) by groups listed on European stock markets. In Spain, listed groups are now obliged to prepare consolidated financial information under IFRS, and legislative changes to bring local rules into line with international standards have been tabled.In this context, the potential impact of IFRS is fraught with uncertainty. Our study of IBEX-35 companies focuses on the effects of the new standards on comparability and the relevance of financial reporting in Spain. We address these objectives by seeking significant differences between accounting figures and financial ratios under the two sets of standards (i.e. Spanish accounting standards and IFRS).The results obtained show that local comparability has worsened. The study reveals that local comparability is adversely affected if both IFRS and local accounting standards are applied in the same country at the same time. Reforms to bring local rules into line with international standards are therefore urgent. We also find that there has been no improvement in the relevance of financial reporting to local stock market operators because the gap between book and market values is wider when IFRS are applied. While there has been no gain in terms of the usefulness of financial reporting in the short-term, improved usefulness may be achieved in the medium to long-term.     

Changes in accounting and financial information system in a Spanish electricity company: A new institutional theory analysis

This paper reports on the results of an intensive case study that investigated changes in the accounting and financial information system of a large Spanish electricity company (Sevillana). Sevillana was acquired by the Endesa Group upon the deregulation of the Spanish electricity sector (SES). Drawing on data from multiple sources including interviews, observations, discussions and documents, the paper aims to theorize the change in the accounting and financial information system. An integrated accounting and financial information system was imposed by the Endesa head office on Sevillana and other Endesa subsidiaries to support organizational changes designed in response to regulatory requirements. The institutional senvironment also interacted with market forces and intra-organizational power relations to either directly or indirectly influence the changes in the accounting and financial information system. Given the interplay between these forces, the paper draws on and extends the New Institutional Sociology (NIS) theory [DiMaggio, P.J., Powell, W.W., 1983. The iron cage revisited: institutional isomorphism and collective rationality in organizational fields. Am. Sociol. Rev. 48, 147–160; Powell, W.W., DiMaggio, P.J., 1991. The New Institutionalism in Organizational Analysis. The University of Chicago Press, pp. 183-203] to understand the dynamics of the change.     

Sustainability accounting regulation in Spanish public sector organizations

In 2011, the Spanish government made sustainability accounting mandatory for public sector organizations. This paper documents why, despite the new legislation, the quantity and quality of sustainability accounting practices remains low.     

Performance-based Incentives and the Behavior of Accounting Academics: Responding to Changes

Abstract

When laws change the rules of the game, it is important to observe the effects on the players' behavior. Some effects can be anticipated while others are difficult to enunciate before the law comes into force. In this paper we have analyzed articles authored by Spanish accounting academics between 1996 and 2005 to assess the impact of a change in the Spanish university regulation. Results indicate a switch from publishing professional papers to academic ones and also to change research methodologies in order to meet the new requirements. This was to be expected due to the explicit mention of the law in favor of academic journals. However, we have also detected a significant decrease in the publication of professional papers. These side-effects could have a negative impact on the transmission of knowledge from university to society putting the relationship between accounting research and professional practice in jeopardy.     

ACCRUALS ACCOUNTING IN U.K. LOCAL GOVERNMENT: A HISTORICAL CONTEXT FOR CONTINUING CONTROVERSIES

Local authorities only adopt the accruals concept in a very narrow sense. Their financial accounting model can be called 'modified accruals', though it remains fundamentally different from best commercial practice. This paper explores the rationale for this unique model, using historical analysis. Because it has been used since before the First World War, and because the first decade of this century saw the only major public debate on local government accounting, the paper concentrates on this period. It was found that the essence of modified accruals is in the political nature of local government and control of it by central government.     

PUBLIC SECTOR ACCOUNTING IN JAPAN MAINLY RELATED TO MUNICIPALITY

This paper is concerned with the development of Public Sector Accounting in Japan and is concentrated on Municipality Accounting. The paper deals with the philosophical aspect of local government and accountability first, and then it explores current debates on the reform of accounting systems in local government which have been developed both by the Local Autonomy Association and the Kobe Research Group. Attentions have been laid on CIPFA proposals for Capital Accounting in Local Authorities . Comparative studies on evaluation systems are focused in this paper.     

Governmental Accounting in Spain and the European Monetary Union: A Critical Perspective

During the last twenty-five years, the changes in Spanish accounting have been radical and significant, especially since 1986 when Spain joined the European Union. Those changes were first introduced in business accounting, following the patterns of the Fourth Directive, but governmental accounting has also been affected by structural reforms that have modified the financial reporting system, the accounting standards and the accounting principles to be applied. However, the governmental accounting system needs further improvement, particularly given the EMU framework and the relationship between governmental accounting and national accounting.     

Priorities for the development of vocational skills in management accountants: A European perspective

In recent years there have been many calls for a re-orientation of accounting education in order to include the development of competencies such as communication, group working, and problem solving skills. However, concern has been expressed that the proposed changes are possibly biased towards the interests of public accounting employers. This paper presents and compares the opinions of the employers of management accountants in Spain and the UK, and then by using a weighted importance indicator determines vocational skills development priorities. The factors that the Spanish and UK employers identified as major constraints to the development of vocational skills are also compared.     

Accounting quality in railway companies during the nineteenth and twentieth centuries: the case of Spanish NORTE and MZA

Prior literature studying railway accounting during the nineteenth and twentieth centuries defends the thesis of lack of reliability of accounting figures. This prior research, which mainly studies the cases of the United Kingdom and the United States, offers mixed views on the causes, or simply accepts this thesis without providing conclusive evidence, as is the case of historical research in Spain. We provide novel evidence on the quality of railway accounting and contribute to this prior debate by (1) analysing the accounting for two material accruals: depreciation and prior period adjustments; (2) studying the persistence of earnings and its components, and (3) analysing how accrual accounting affects persistence. These analyses are conducted for the period 1856–1939 for the two major Spanish railway companies (MZA and NORTE). The reported evidence suggests that earnings are highly persistent. However, we show that there are significant differences across firms and that these differences are particularly obvious when analysing the adjustments for prior period earnings. Overall, our evidence does not support the thesis that accounting was underdeveloped, but rather, that managerial accounting choices lowered accounting quality.     

Deadlines and software: disentangling local government accounting reforms in Brazil

ABSTRACT

This paper shows how ongoing accounting reforms in Brazilian local governments were affected by a shift from a universal to a gradual implementation approach. Deadlines being postponed led to a decrease in local governments’ willingness to reform. This effect varied according whether the accountants involved depended on commercial software to operate a particular accounting policy. An important finding from this research was that software providers are to some extent setting the IPSAS implementation agenda in Brazil.     

PRIVATE EQUITY INVESTING IN EMERGING MARKETS

After a proliferation of emerging market funds in the 1990s, growth has slowed drastically due to disappointing preliminary results. Private sector funds initially appeared promising because of the burgeoning demand for capital in emerging markets, the new receptivity of governments to foreign investors, and the prospect of high returns. But in many cases, the regulatory and legal frameworks did not provide adequate investor protection, and dramatic differences in accounting standards, corporate governance, and exit potential created problems. These problems are often accentuated because local owners are adept at navigating the legal and accounting systems, placing investors at a disadvantage.
As global competition intensifies, local policies, regulations, and business practices are becoming increasingly important in attracting investors. Local governments must institute the reforms necessary to improve the investment environment, including the strengthening of shareholder rights and corporate governance standards and improving access to public equity markets. Development finance institutions must provide direction and leadership in these areas. And fund managers must align their business models more closely with emerging market realities by establishing a local presence, adopting a more hands-on approach to monitoring their investments, and developing creative exit strategies.     

Financial crisis and accounting quality: Evidence from five European countries

This study investigates how the economic crisis affects the scope for earnings manipulation and the value relevance of reported financial numbers for companies that are audited by a big 4 auditor. The analysis is focused on Portuguese, Irish, Italian, Greek and Spanish listed companies. The findings show that Portugal, Italy and Greece tend to engage more in earnings management in their effort to improve their lower profitability and liquidity, and accommodate their higher debt and growth. Ireland exhibits less evidence of earnings manipulation, while the findings for Spain are to some extent conflicting. Additionally, the reported financial numbers of Portuguese and Greek companies that are audited by a big 4 auditor were found to be of higher quality before the crisis. In contrast, Irish, Italian and Spanish companies report more value relevant financial numbers during the crisis. The results of this study are particularly useful for accounting regulators when preparing accounting rules that seek to reduce information asymmetry and earnings manipulation and increase the quality of reported disclosures in light of a crisis and for investors that need further assistance for the establishment of a profitable investment strategy in periods characterized by high uncertainty and volatility.