Is it U.S. GAAP or IFRS? Understanding how R&D costs affect ratio analysis

While financial reporting standards under U.S. GAAP and IFRS are fundamentally similar, differences do exist that may affect our analysis of company financial statements. This is particularly true when comparing a U.S. company following U.S. GAAP to a firm that uses IFRS. To illustrate, we compare research and development (R&D) accounting methods under both sets of standards and illustrate how they affect the analysis of financial results of firms in a specific industry—automotive manufacturers. Our results provide insight into settings in which differences in R&D accounting may have the greatest impact on financial analysis.     

Spotlight on pensions

Pensions represent a significant financial burden for many companies and a critical source of retirement income for employees. Accordingly, it is important that corporate financial statements transparently present information about the financial health and consequences of pension plans. Numerous criticisms have been levied at financial reporting for pensions, leading to a recent project to revise pension accounting. This article discusses implications of changes to pensions accounting for financial statement users and corporate managers. In general, research suggests that likely changes in pension accounting could increase financial statement users' perceptions of companies' pension burden and risk. In turn, these perceptions could affect corporate managers' decisions with respect to pension commitments and investments.     

Compliance with Mandatory Environmental Reporting in Financial Statements: The Case of Spain (2001–2003)

Corporate, Social, Ethical and Environmental Reporting (SEER) should ideally discharge the accountability of an organisation to its stakeholders. Voluntary reporting has been characterised by a dearth of neutral and objective information such that the advocates of SEER recommend that it be made compulsory. Their underlying rationale is that legally specified disclosure requirements and enforcement mechanisms will enhance the quality of such reporting. This paper sets out to explore how realistic this scenario actually is, in view of the conflicting interpretations in the literature on this subject. To that end, a survey of the reporting patterns of 78 of the largest Spanish companies between 2001 and 2003 examines the extent of their compliance with the ICAC-2002 standard, which obliged them to make environmental disclosures in their financial statements. The results suggest that progressive and improved regulation could increase the volume and quality of SEER disclosures. They also suggest, however, that persistent non-compliance means that the problems associated with voluntary disclosure still exist. Finally, through an impression management perspective, the study reveals, the diverse strategies, ranging from dismissal to concealment, that are employed by companies to avoid transparency. As regulation improves and enforcement expectations rise, it becomes more difficult to dismiss compulsory reporting norms. As a result, some firms engage in more complex concealment strategies to attain corporate legitimacy, depriving stakeholders of regulatory information. The latter point serves to reconcile apparently contradictory explanations in the literature as to whether legitimacy theory might explain partial compliance with SEER regulation. Irene Criado-Jiménez is a Doctoral Candidate at the Departamento de Economía y Administración de Empresas, Universidad de Burgos. Her research interests include accounting for sustainable development and corporate accountability. Manuel Fernández-Chulián is a Doctoral Candidate at the Departamento de Economía y Administración de Empresas, Universidad de Burgos. His research interests include sustainability reporting and full cost accounting. Francisco Javier Husillos-Carqués is Assistant at the Departamento de Gestión de Empresas, Universidad Pública de Navarra and a Doctoral Candidate at the Universidad de Burgos. His research interests include social and environmental reporting and environmental management. Carlos Larrinage-González is Associate Professor at the Departamento de Economía y Administración de Empresas, Universidad de Burgos. His research interests include social and environmental accounting. He writes for interdisciplinary journals in accounting. He has co-edited special issues in European Accounting Review and Accounting, Auditing and Accountability Journal and currently is an Associate Editor of the Revista de Contabilidad-Spanish Accounting Review.     

20-F reconciliations and investment recommendations by financial professionals

As part of the U.S. regulatory requirements, non-U.S. companies registered on U.S. stock exchanges (‘foreign registrants’) are required to compile financial reports that comply with U.S. Generally Accepted Accounting Principles (‘GAAP’) or provide a reconciliation of non-U.S. GAAP financial statements to U.S GAAP (20-F reconciliation). The objective of this study is to determine if identical information with respect to U.S. GAAP may be evaluated differently depending on whether the 20-F reconciliation information is presented in a positive (20-F reconciliation gain) or negative (20-F reconciliation loss) way. The research results indicate that the financial professionals' investment recommendations were significantly lower for a firm when it reports a reconciliation loss relative to when it reports a reconciliation gain or when it reports under U.S. GAAP, although the financial results were identical in all cases. Further, consistent with Bradshaw [Bradshaw MT. How do analysts use their earnings forecasts in generating stock recommendations? Account Rev 2004;79(1):25-50.], the financial professionals' expectations of earnings growth were significantly and positively associated with their investment recommendation.     

Ethical Issues in Financial Reporting: Is Intentional Structuring of Lease Contracts to Avoid Capitalization Unethical?

Under present accounting rules, lessees frequently structure contracts for leased assets, in situations where they enjoy benefits similar to outright ownership, in a way that keeps both the leased assets and related liabilities off their books. This method of accounting creates off-balance sheet financing and is called operating lease accounting. The paper debates the ethicality of intentionally structuring lease contracts to avoid disclosing leased asset and liability amounts and describes the “slippery slope” of rule-based accounting for synthetic leases and special purpose entities, that, in the author’s opinion, led to the accounting debacles at Enron and other companies. The ethical intent that is implicit in the Securities and Exchange Commission and Financial Accounting Standards Board regulations is discussed and suggestions for improving the ethicality of financial reporting are provided. Thomas J. Frecka is the Vincent and Rose Lizzadro Professor of Accountancy at the University of Notre Dame. He teaches financial reporting and accounting fraud courses.     

Ethical codes of conduct: Deficient in guidance for the Canadian accounting profession

Current trends toward increased pace, more complex substance and lower tolerance of error have caused the financial marketplace to rely more heavily on the integrity of financial data and, therefore, of those who prepare the financial statements. At the same time, these trends place higher challenges before professional accountants and it is essential that they have excellent ethical guidance to live up to modern expectations. However, in view of the current codes of conduct, an accountant may not have a clear understanding of what priority of interests to satisfy, who can be consulted for advice, to whom to report misdeeds, what protection is offered a right-doer and what sanction will be forthcoming for doing wrong. Possible solutions are offered to these problems in ways that ought to strengthen the accounting profession and prevent unscrupulous companies from taking advantage of both members of the profession and the unsuspecting public. To provide the appropriate quality of service to society in the future, the Canadian accounting profession should offer its members the improved guidance and enhanced mechanisms for confidential consultation, assistance and protection outlined herein. Leonard J. Brooks is a Professor of Accounting at the Faculty of Management of the University of Toronto. He is the author of Canadian Corporate Social Performance, published by the Society of Management Accountants of Canada (1986); editor of the Corporate Ethics Monitor, and Vice-Chairman of the Canadian Centre for Ethics and Corporate Policy.     

美国会计准则体系的重大变革及启示

安然事件及近年来的金融危机暴露出美国会计准则体系结构混乱、难以检索、难以应用的缺陷,因此美国对其会计准则体系作出重大变革,重整公认会计原则(GAAP)结构,正式启用,从根本上消除了美国以往由多个机构以多种形式发布多种准则文献的状况.这一举措将极大改善美国会计准则的质量,减少"准则超载"现象.降低准则复杂性,并推动美国会计准则与国际准则的趋同,最终将对各国会计准则的制定形式、格局和走向产生重大影响.     

Cognitive Load Theory: Why It’s Important for International Business Teaching and Financial Reporting

ABSTRACT

Cognitive load theory (CLT) has rarely been applied in the area of financial accounting. This research demonstrates that by using CLT, financial accounting and reporting can benefit in the areas of teaching and decision making. The CLT indicates that by reducing the load of complex concepts in the working memory, a more efficient result is obtained from the expected output. A real example on International Accounting Standard (IAS) 40 on Investment Properties (IP) is used to analyze the assimilation of the true and fair view concept. This standard permits the use of either the fair value or cost value model. Additionally, the study examines whether financial presentation formats are relevant for understanding financial information. The main results show that adequate financial presentation formats reduce extraneous load, and where presentation formats cannot be changed, results can be improved by decreasing cognitive load through dedicating more time to teaching the more complex option. This research aims to aid international business education by recommending these findings to standard setters and improving education material.     

Accounting as a Facilitator of Extreme Narcissism

We add texture to the conclusion of Duchon and Drake (Journal of Business Ethics, 85, 2009, 301) that extreme narcissism is associated with unethical conduct. We argue that the special features possessed by financial accounting facilitate extreme narcissism in susceptible CEOs. In particular, we propose that extremely narcissistic CEOs are key players in a recurring discourse cycle facilitated by financial accounting language and measures. Such CEOs project themselves as the corporation they lead, construct a narrative about the corporation and themselves using financial accounting measures, and then reflect on how their accounting-constructed performance is perceived by stakeholders. We do not present empirical evidence about whether the use of accounting language and measures leads to unethical behaviour by extreme narcissistic CEOs – although the conclusions of Duchon and Drake (2009) suggest empirical support is probable. Rather, we focus on developing alertness to the potential for accounting, when engaged by an extremely narcissistic CEO, to be a precursor or implement of unethical behaviour.     

A Critical Analysis of the Accounting Industry’s Voluntary Code of Conduct

The public accounting industry’s voluntary code of conduct in the United States is the American Institute of CPA’s Code of Professional Conduct. Based on our analysis, we conclude that the accounting industry’s current code is limited in its ability to serve the public interest in three respects. Specifically, the code is input-based, requires no third-party attestation of compliance with the code, and contains no public reporting process of code compliance/noncompliance at the accounting firm level. We propose that the accounting profession should reorient its largely input-based Code of Professional Conduct to include output-based performance measurements. We also conclude that third-party attestation of compliance with the profession’s code would help to promote compliance. Finally, we maintain that the accounting industry should initiate a public reporting process at the individual accounting firm level. Such a requirement would add a degree of public accountability as to whether a firm complies or fails to comply with the industry’s voluntary code of conduct. John D. Neill, Ph.D., CPA, is a professor of accounting at Abilene Christian University and has previously published articles in numerous journals including the Journal of Business Ethics, Journal of Accounting Literature, Accounting Horizons, Advances in Accounting,theFinancial Analysts Journal,and theJournal of Accounting, Ethics, and Public Policy. O. Scott Stovall, Ph.D., is an assistant professor of accounting at Abilene Christian University and has published articles in the Journal of Business Ethics, Management Accounting Quarterly, and Cases from Management Accounting Practice. Darryl L. Jinkerson, Ph.D., is an assistant professor of management and chair of the Management Sciences Department at Abilene Christian University and was formerly the Director of Assessment and Measurement for Arthur Andersen.     

Should Historians Trust Late Nineteenth-Century Company Financial Statements?

Business historians generally have been advised to adopt a cautious apporach when using financial accounting statements. This paper reviews the Business History literature on financial accounting practices and argues, by reference to evidence obtained from the exiting accounting and economic history literatures and from new archival sources, that this caution may well be excessive if applied to the corporate data of the late nineteenth century.     

Are all non-GAAP disclosures created equal?

Publicly traded companies in the U.S. must prepare financial statements in accordance with the requirements of U.S. Generally Accepted Accounting Principles (U.S. GAAP). However, many companies also report non-GAAP measures—those calculated outside the requirements of U.S. GAAP—in their earnings announcements, annual reports, and SEC filings. The SEC began regulating the release of non-GAAP measures in 2003 and has expressed ongoing concern regarding firms’ disclosure of the same, but the use of non-GAAP measures continued to increase nonetheless. A 2018 Audit Analytics report found that in 2006, 76% of SEC filers included non-GAAP measures, but in 2017 that percentage rose to 96%. This installment of Accounting Matters provides an overview of the SEC regulations regarding non-GAAP measures, examines how investors react to non-GAAP disclosures, and provides guidance regarding how companies can avoid receiving a non-GAAP disclosure comment letter from the SEC.     

Ethics Failures in Corporate Financial Reporting

Fraudulent financial reporting, financial statements with errors so material as to require restatement, and biased reporting marred by defects such as managed earnings have plagued financial reporting in many countries in recent years. All of those failures are ethics failures that represent breaches of fiduciary duties by individuals who accepted responsibilities but did not fulfill them. The financial reporting system practiced in America is viewed by the parties involved in it as generally satisfactory. However, according to another view, the interests of those primarily and secondarily responsible for those reports conflict with the interests of the intended beneficiaries, or users, of the corporate financial statements. A more realistic view of the actual operation of that reporting system shows that it is fundamentally flawed. Primary responsibility for failures rests with top management and financial management of the reporting corporation who are so strongly motivated to render favorable reports on their stewardship that they neglect their fiduciary responsibilities to investors. Secondary responsibility falls on independent auditors who are so heavily influenced by enterprise management that they, too, fail in carrying out their responsibilities to users of the audited financial statements. Ethics compromises are also found in the performances of academic accountants and members of accounting standards-setting bodies. The conflict between managements interest in reporting its performance in a favorable light and investors interest in decision-useful financial information will always exist and require regulation. However, changes in those regulations and in the basic governance arrangements involving shareholders, management, and auditors could reduce the opportunities and temptations for failures in carrying out fiduciary responsibilities. Most importantly, the close relationships between auditors and management must be loosened in favor of closer relationships between auditors and investors.     

美国环境负债会计理论的创新、局限与启示

美国的GAAP在环境负债会计规范上,已初步覆盖了从或有事项环境负债到环境修复负债直至资产弃置义务负债等具体环境负债领域,但仍未满足环境负债信息充分披露的要求。本研究基于对美国环境负债会计规范的历史演进之梳理,以FAS 143资产弃置义务会计准则为例,分析环境负债会计理论的创新与局限,提出完善我国环境负债会计规范的建议。     

美国联邦政府管理成本会计实务中的概念冲突及其准则协调

在政府会计和报告环境中,管理成本会计的多元化目标体现了政府部门成本信息不同使用者的需求,相应的管理成本会计准则需要明确阐述管理成本会计在财务管理中的作用,并指导性地说明如何提供与预算、财务报告、管理控制和决策制定相关的成本信息,也因此会面临政府部门管理成本会计不同目标维度之间的概念冲突。本文对美国联邦政府管理成本会计实务中的概念冲突及其准则协调进行了分析。     

上市公司披露会计师事务所报酬的实证分析

2001年证监会首次要求上市公司在年报中披露支付会计师事务所报酬情况这一信息,该项规定既便于考察事务所的独立性,又便于考察上市公司治理结构,使上市公司信息披露迈进一个台阶。这里拟从2001年年报出发,对首次披露会计师事务所报酬进行实证分析,并探讨产生这一现状的深层原因。     

上市公司关联交易披露存在问题的成因

造成上市公司关联交易披露存在问题的原因主要有上市公司故意操纵关联交易,粉饰会计报表;关联方关系披露不完整;企业对会计准则的理解不够完善等。应对基础工作进行规范,制定有关重要性问题的实施细则,加强对上市公司关联交易的监督。     

The path of lease resistance: How changes to lease accounting treatment may impact your business

In this installment of Accounting Matters, we examine potential consequences of the Financial Accounting Standards Board's Proposed Accounting Standards Updates for Leases. In the context of a previous accounting change (FIN 48), we investigate how these changes will affect firms’ accounting choices, investment decisions, debt covenant requirements, and analysis of other key financial data. Changes in accounting standards may have significant indirect economic effect on companies as they can trigger debt covenant violations, restrict access to capital, and distort key financial information used by investors and lenders. New accounting standards may also directly affect the calculation of employee bonuses and incentives that utilize EBITDA or operating income as benchmarks. We include recommendations for managers and identify specific debt covenant components that may limit the negative consequences of the proposed change to lease accounting.     

Getting to the Bottom Line: An Exploration of Gender and Earnings Quality

For stakeholders, such as investors and lenders, to appropriately assess a company’s financial performance, the reported accounting earnings must closely reflect the economic reality of the organization’s financial activity throughout the reporting period. The degree to which reported earnings capture economic reality is called earnings quality. Managers have an ethical obligation to report high quality earnings to interested stakeholders in a timely matter. Accounting research has identified conditions within an organization, such as management compensation contracts and pending litigation that can impact earnings quality. We extend this line of research by exploring whether another characteristic of an organization, gender diversity in senior management, influences the quality of reported earnings. Companies with more women in senior management are found to be more profitable and have higher stock returns after initial public offerings than those with fewer women in the management ranks. Our findings suggest that the improved bottom line for companies with more women senior executives is not produced through the management of earnings or lower quality earnings. Instead, earnings quality is positively associated with gender diversity in senior management. Gopal Krishnan is an associate professor and holds the VSCPA Northern Chapter Professorship in Public Accounting at the School of Management at George Mason University. He has published several articles on corporate governance and the role of auditors in journals such as Accounting Horizons, Contemporary Accounting Research, Journal of Accounting, Auditing and Finance and Auditing: A Journal of Practice & Theory. Linda Parsons is an assistant professor at the School of Management at George Mason University. She is the author of several papers that examine the value relevance of accounting in the nonprofit sector, especially as it impacts decision-making by donors. Her work has appeared in journals such as Journal of Accounting, Auditing and Finance, Research in Governmental and Nonprofit Accounting, and Journal of Accounting Literature.     

Truthfulness in Accounting: How to Discriminate Accounting Manipulators from Non-manipulators

Accountants preparing information are in a position to manipulate the view of economic reality presented in such information to interested parties. These manipulations can be regarded as morally reprehensible because they are not fair to users, they involve in an unjust exercise of power, and they tend to weaken the authority of accounting regulators. This paper develops a model for detecting earnings manipulators using financial statements’ ratios in a sample of Spanish listed companies. Our results provide evidence that accounting data can be extremely useful in detecting manipulators. This approach can be used by a large category of users of accounting information among which we can cite stock exchange supervisors or investing professionals.