Lobbying of the International Accounting Standards Committee: The Case of Construction Contracts

Many cultural, political, economic and other environmental factors have been suggested as impediments to the efforts of the International Accounting Standards Committee (IASC) to harmonize international accounting standards. We investigate the relationship between lobbyists’ position, and: (1) their home countries’ financial accounting standards; and (2) their home countries’ tax rules. The factors are tested both separately and jointly to increase our understanding of lobbying and obstacles to harmonization. Long-term construction contracts are used as our case study. Construction contracts were traditionally accounted for by either the completed contract method (CCM) or the percentage of completion method (PCM). Originally, the IASC’s Standards (IASs) allowed both CCM and PCM. Thus, most countries’ accounting standards complied with IASs. However, the IASC’s Comparability Project, beginning with Exposure Draft (ED) 32, proposed to eliminate CCM. Thirty-nine comment letters submitted on ED 32 contained specific references to long-term construction contracts. Although almost 60% opposed the complete elimination of CCM, the IASC eliminated it. However, in many ways, the IASC co-opted lobbyists by allowing the Zero Profit Method, which may effectively result in the same timing of profit recognition as CCM. Support is found for a strong link between respondents’ lobbying position and both their home country’s accounting standards and tax laws. Each factor may hinder the harmonization process. A high positive correlation also exists between the accounting standards and tax laws of lobbyists’ countries. Beyond the possible importance of the tax and financial reporting linkage affecting harmonization, the issue of multicollinearity should signal caution when interpreting the results of lobbying studies that simultaneously include highly correlated variables in the same model.     

Valuing Volunteers: Expanding the Relevance and Reliability Debate

Volunteers’ inputs to public and other not‐for‐profit organisations are significant. However, while statisticians gather data on volunteering, accountants do so less often due to a debate as to whether the relevance of recognising volunteer input in financial reports outweighs the reliability of that data and the costs of its derivation. This paper presents a survey of voluntary organisations that publish financial reports. It explores whether the promise of funding for volunteer effort has been matched with increasing financial reporting of volunteering. The results show there is little recognition of volunteer labour in financial reports, reflecting the unresolved relevance‐reliability debate in the accounting profession.     

The value relevance of superannuation disclosures by Australian-listed firms sponsoring defined benefit plans

This paper investigates the value relevance of (employer sponsored defined benefit plan) superannuation disclosures required by AASB 1028. It addresses the competing claims by standard setters and lobbyists that such disclosures would (not) enhance the relevance and reliability of financial statements. It presents three principal findings. First, disclosed superannuation information is value relevant in the industrial sector, where these items tend to be material. Second, the market weights on the required disclosures are typically higher than those on recognised assets and liabilities. Third, and in contrast to the findings in similar US studies, accrued benefits do not have higher explanatory power relative to vested benefits.     

The information compliance indexes. The illustrative case of income taxes

The adoption of IASB’s standards has represented, in the European Union, an important effort of harmonization towards the financial reporting comprehensiveness, reliability, relevance and comparability. This paper seeks to highlight the importance of Information Compliance Indexes (ICI), based on the accounting standards, as a proxy for reporting quality awareness. This approach is evidenced through an illustrative example about disclosures on deferred taxes, as required by IAS 12. This standard prescribes the accounting treatment for current taxes, deferred assets and liabilities. These issues are usually perceived by stakeholders as indicators of companies’ continuity and potential future returns. Based on non-financial listed companies of Euronext Lisbon regulated market, with reference to the end of fiscal years 2008 and 2012, an information compliance index was performed, based on that accounting standard. Then, this index was regressed with a set of performance and control indicators. Evidences have provided several statistical significant insights, which corroborate the findings that information compliance and disclosure levels depend from several performance and control indicators.     

Ambiguity intolerance and financial reporting alternatives

Authoritative accounting pronouncements almost always require more, rather than less, financial reporting disclosures and accountants rarely, if ever, act to overturn the required disclosures. Since the personality literature suggests that desire for more information is linked to an individual's intolerance for ambiguity, this study tested selected hypotheses about the relationship between accountants' intolerance for ambiguity and their desire for financial reporting alternatives. The findings of the study did not disclose a significant relationship between accountants' intolerance for ambiguity and their desire for financial reporting alternatives. However, the results did disclose a relationship between education level and two dependent variables: desire for disclosure and consistency of desired disclosures with generally accepted accounting principles. Therefore, additional research should pay more attention to the effects of demographic information, which may in fact be more informative than many previously tested variables such as personality characteristics.     

Accounting disclosure and firms' financial attributes: Evidence from the UK stock market

This paper focuses on the disclosure of accounting information in the financial statements of UK firms. The primary objective of the study is to analyse the financial characteristics of firms that provide extensive disclosures, and assess the financial impact of their motives, such as for example the need to raise equity finance. The study examines the financial attributes of firms that disclose information about key accounting issues including risk exposure, changes in accounting policies, use of international financial reporting standards and hedging practices. Firms are inclined to disclose accounting information in order to assure the market participants that their accounting policies are consistent with the accounting regulation and meet the information needs of their stakeholders. The study shows that in order to raise finance in the capital and debt markets, firms tend to provide extensive accounting disclosures. Firms that provide informative accounting disclosures appear to display higher size, growth and leverage measures. The findings also show that the disclosure of sensitive accounting information has not adversely affected firms' profitability. In fact, firms that provide detailed accounting disclosures tend to exhibit higher profitability. The implementation of international financial reporting standards enhances the quality and the comparability of financial statements; hence it promotes consistency and reliability in financial reporting and facilitates companies in raising capital internationally.     

Banks’ Financial Reporting and Financial System Stability

The use of accounting measures and disclosures in banks’ contracts and regulation suggests that the quality of banks’ financial reporting is central to the efficacy of market discipline and nonmarket mechanisms in limiting banks’ development of debt and risk overhangs in economic good times and in mitigating the adverse consequences of those overhangs for the stability of the financial system in downturns. This essay examines how research on banks’ financial reporting, informed by the financial economics literature on banking, can generate insights about how to enhance the stability of the financial system. We begin with a foundational discussion of how aspects of banks’ accounting and disclosures may affect stability. We then evaluate representative papers in the empirical literature on banks’ financial reporting and stability, pointing out the research design issues that empirical accounting researchers need to confront to develop well‐specified tests able to generate reliably interpretable findings. To this end, we provide examples of settings amenable to addressing these issues. We conclude with considerations for accounting standard setters and financial system policy makers.     

Lobbying of accounting standard-setting bodies in the U.K. and the U.S.A.: A Downsian analysis

This paper examines the response of those affected by financial accounting standards to new accounting rules. The efforts of individuals and organizations to promote or obstruct such rules are described collectively as lobbying. The Downsian voting model provides the framework for the discussion of important aspects of lobbying, namely the characteristics of lobbyists, the timing of their lobbying and the methods they are likely to employ. The analysis is illustrated with examples drawn from U.K. and U.S. experience of standard-setting.     

Reporting accountant appointments and accounting restatements: Evidence from UK private companies

In recent years, regulators have exempted an increasing number of companies from the requirement to appoint auditors, yet little is known about the role of the accounting profession in preparing and validating the financial statements of unaudited companies. In this paper, we examine empirically the factors associated with the appointment of reporting accountants. We then provide novel evidence on whether unaudited UK small private companies are less likely to restate their annual accounts when they have been prepared by an external accountancy firm (i.e., a reporting accountant). Based on a cross sectional analysis of a large sample of small private unaudited UK companies, we find that, in accordance with the ‘confirmation hypothesis’, larger companies that voluntarily disclose more financial information are more likely to appoint a reporting accountant. We also find that the accounts of companies with a reporting accountant are significantly less likely to be restated than those without. This result is more pronounced for companies disclosing more financial information and for those employing a larger accounting firm. Given the dwindling number of private companies opting for audits, our findings contribute to debates on the role of the accounting profession in enhancing private company financial reporting quality.     

Implications for brokerage firms’ financial disclosures: From CSR perspectives

Given the importance of transparency in today's financial environment, it is surprising that limited research has examined investors’ attitudes toward brokerage firms’ financial disclosures and how their attitudes toward brokerage firms’ financial disclosures influence subsequent responses such as perceived trust and attitude toward brokerage firms. Research on Corporate Social Responsibility (CSR) practices and the Social Contract Theory suggests that investors may put a relatively high value on brokerage firms that practice financial disclosures responsibly. This research probed the relevance of this assumption by testing the relations among investors’ attitudes toward brokerage firms’ financial disclosures, attitudes toward CSR practices, perceived trust toward brokerage firms, attitudes toward brokerage firms and behavioral intentions toward brokerage firms with a survey study. The study used brokerage firms’ financial disclosures in general as the focus of this study's survey questions and a convenience sample consisting of investors. The results suggested that investors’ positive attitudes toward brokerage firms’ financial disclosures positively enhanced their attitudes toward brokerage firms’ CSR practices and perceived trust toward brokerage firms, whereas investors’ attitudes toward brokerage firms’ CSR practices mediated their attitudes toward financial disclosures to enhancing their perceived trust toward brokerage firms. Moreover, investors’ attitudes toward brokerage firms mediated their perceived trust toward brokerage firms on enhancing their behavioral intentions toward brokerage firms.     

公允价值会计实践的理论透视

本文对影响公允价值会计实践的因素进行了理论分析,认为历史成本会计对不稳定的经营环境的不适应性,是公允价值会计实践的根本诱因;决策有用观的财务报告目标,为公允价值会计实践创造了适宜的环境;对经济学收益计量的追求,为公允价值会计实践提供了内在的动力;而相关性与可靠性的权衡,则构成了公允价值会计实践的关键限制。因此,为相关性和可靠性的权衡制定明确的标准,并对决策有用会计信息质量特征进行反思和重构,是推动公允价值会计实践的根本要求和有效途径。     

Value relevance of earnings: Evidence from Middle Eastern and North African Countries

Researchers as well as regulators are increasingly more interested in enhancing their understanding of the factors that influence value relevance of reported earnings in financial statements. In the light of globalization and increased exposure to international accounting practices, a better comprehension of factors contributing to or reducing value relevance of earnings is essential. This paper investigates the value relevance of earnings and its components for a number of Middle Eastern and North African (MENA) countries. Additionally, the paper examines how differences in levels of mandated disclosures, source of accounting standards, and legal systems moderate the informativeness of earnings to investors. We find that mandated disclosure and source of accounting standard, (especially non-governmental source) are positively associated with earnings informativeness. Additionally, MENA countries with French civil law and systems have lower value relevance relative to countries in our sample with English and related legal codes. Further, the firms that have adopted international financial reporting standards have higher value relevance than firms in MENA countries which adhere to local standards.     

Corporate Lobbying,Visibility and Accounting Conservatism

In this study, we examine the relationship between a firm's lobbying activities and financial reporting quality using a US setting where public scrutiny of corporate political activities is high. More importantly, we examine whether and how a firm's visibility shapes the relationship between its corporate lobbying activities and accounting conservatism. Adopting annual lobbying expenditure data to measure firms’ lobbying activities, and using a propensity‐score‐matching methodology to control for differences in firm characteristics between lobbying and non‐lobbying firms, we find a positive relationship between a firm's lobbying intensity and the degree of accounting conservatism in its financial reporting. We further find this positive relationship to be more pronounced in lobbying firms with a higher level of visibility. These results are robust after controlling for a firm's political connections, across various conditional conservatism measures, and across a number of visibility measures including firm size, the number of analysts following the firm, the age of the firm, the number of foreign stock exchanges that the firm is cross‐listed in, and the level of the firm's media coverage. Together, our findings add to the literature on how firms’ political activities shape their accounting practices in general, and accounting conservatism in particular. More importantly, our findings suggest that the heightened public attention paid to political activities in the US yields incentives for firms to be more conservative in their accounting practices.     

Constituent Participation in the Australian Public Sector Accounting Standard-Setting Process: The Case of ED 55

The Australian public sector has recently undergone a period of intense reform including a comprehensive reform of financial reporting policies. A major aspect of this reform is the involvement of the Australian accounting profession in the formulation of financial reporting standards through the Public Sector Accounting Standards Board (PSASB). Despite this extensive change, scant research has examined constituent participation in the Australian public sector accounting standard-setting 'due process'. This paper considers the regulatory model adopted for accounting standard-setting in the public sector in Australia and identifies the implications of this model for constituent access to the 'due process'. In particular, the co-operation between the PSASB and the various regulatory bodies in each Australian jurisdiction suggests that these bodies may have more direct influence over the standard-setters than other constituents. The submissions made on ED 55 Financial Reporting by Government Departments are examined as a case study of the 'due process' as it operates in the public sector. Different constituent groups were found to respond in varying proportions, to hold conflicting positions on some issues contained in ED 55 and to use different strategies to present these positions. The research identifies a lack of input by the major group affected by the proposed standard, the account preparers (government departments). In addition, account preparers which did respond to ED 55 were found to use less sophisticated lobbying strategies than other respondents who weighted their responses by commenting on a greater number of issues and by supporting their position with conceptual arguments. These results support the contention that some constituents have favourable access to the 'due process' and that standard-setters may not have received all pertinent information from affected and/or knowledgeable constituents.     

Integrated Reporting: A Review of Developments and their Implications for the Accounting Curriculum

Integrated reporting (IR) is a major development in a number of sustainability-related accounting initiatives and, if widely adopted, will require significant developments in professional and university accounting curricula. These will include: a strategic rather than operational or transactional focus; longer- rather than short-term outlook; prospective rather than retrospective analysis; qualitative commentary as well as quantitative information; and reports on wider business performance metrics rather than on narrower external financial reporting data or audit compliance. This paper reports on ACCA's support of and response to the latest initiatives in IR, in particular the impact this will have on the education and training of accountants in order to reflect these new principles to prepare the twenty-first-century accountant for a much more challenging role in the near future. These developments can only be in the wider public interest of improving the relevance of information for decision-making, for all stakeholders, and allow greater efficiency in the allocation of financial and other resources and in adding public value.     

Taxes and Financial Constraints: Evidence from Linguistic Cues

Using a new measure of financial constraints based on firms’ qualitative disclosures, we find that financially constrained firms—firms that use more negative words in their annual reports—pursue more aggressive tax planning strategies as evidenced by: (1) higher current and future unrecognized tax benefits, (2) lower short‐ and long‐run current and future effective tax rates, (3) increase in tax haven usage for their material operations, and (4) higher proposed audit adjustments from the Internal Revenue Service. We exploit the unexpected closures of local banks as exogenous liquidity shocks to show that firms’ external financial constraints affect their tax avoidance strategies. Overall, the linguistic cues in firms’ qualitative disclosures provide incremental information beyond traditional accounting variables or commonly used effective tax rates to reveal and predict tax aggressiveness, both contemporaneously and in the future.     

A critique of the influence of globalization and convergence of accounting standards in Fiji

The globalization of the world's economies has inevitably brought with it moves to establish a single set of financial reporting standards. Prima facie, the formulation and promulgation of International Financial Reporting Standards (IFRSs) is concealed behind reified icons of ‘relevance’. This paper adds a new dimension to the international accounting debate by discussing themes of regulation, public and private interests, from a critical perspective. Specifically, this paper examines the reasons for the willingness to accept IFRSs in Fiji. A critical conception of ‘relevance’ and ‘accountability’ is developed to demonstrate how the needs of private interests’ are met in adopting the IFRSs. This paper demonstrates that in this process of convergence, the influence of these private interests – multinational enterprises and large international accounting firms – can lead to a transfer of economic resources in their favour, wherein the public interests are usually ignored. The paper offers suggestions on how public interest might be best served within the current financial reporting system and how, in principle, the needs to report both globally and locally can be reconciled.     

Risk reporting quality: implications of academic research for financial reporting policy

In this paper, I survey empirical research on the relevance of firms’ financial report information for the evaluation of their risk. I recommend that financial reporting policymakers require or encourage firms to enhance their risk reporting quality in four ways. First, firms should report comprehensive income statements that: (1) use fair value or a similarly information-rich accounting measurement attribute and (2) separate the components of comprehensive income that are primarily driven by variation in cash flows from those that are primarily driven by variation in costs of capital. Such comprehensive income statements would provide users of financial reports with the flexibility to calculate alternative summary accounting numbers and to perform different types of risk assessment analyses. Second, firms should conduct and disclose the results of back-tests of prior significant accrual estimates, indicating any identified trends in and drivers of revisions to those estimates, and describing the effects of those revisions on current or future summary accounting numbers. Third, firms should aggregate and present risk disclosures in tabular or other well-structured formats that promote the usability of the information. Identifying existing best disclosure practices and encouraging new best practices are the most natural way to do this. Fourth, for model-dependent risk disclosures, firms should disclose the primary historical and forward-looking attributes of the models and their implementation in practice, sensitivity of the model outputs, and benchmarking of the models to standard portfolios of exposures.     

Superannuation in Society: What are the Accountability Relationships and is there a Role for (Group) Accounting?

Superannuation fund reporting is a topical issue: it is in a state of flux and currently on the Australian Accounting Standards Board (AASB) work program for 2012, with the release of ED 223 Superannuation Entities in December 2011. Issues under debate include uncertainty regarding the users of superannuation financial reports, and the application of the principle of ‘transaction neutrality’ to accounting for corporate groups by superannuation entities. Accountability reporting by superannuation funds has remained largely unchanged since the introduction of compulsory superannuation 20 years ago. This paper describes the changing nature of superannuation from a managerial gratuity to a type of deferred pay, and how accounting for superannuation is likely to increase in significance as it responds to the shifting economic nature of superannuation, especially since the global financial crisis. This paper uses basic content analysis to analyse member submissions to the Australian Government's Review into Governance, Efficiency, Structure and Operation of Australia's Superannuation System 2009, and submissions to the AASB's consultation paper on consolidation accounting for superannuation entities in 2007. Limited characterisations of members as being not interested in financial reporting are out of step with the underlying nature of superannuation, and will likely change as the economic significance of superannuation increases in the future.