Corporate governance and disclosures on the transition to International Financial Reporting Standards

For reporting periods ending on or after 30 June 2004, Australian companies were required to disclose the expected impact of applying Australian equivalents of International Financial Reporting Standards effective from 1 January 2005. The objective of this paper is to examine the association between the level of disclosure and corporate governance quality. Using a sample of listed companies with 30 June balance dates, we find that the quantity of disclosure was positively related to some aspects of superior corporate governance, such as the frequency of board and audit committee meetings and the choice of auditor.     

Disclosure of the impacts of adopting Australian equivalents of International Financial Reporting Standards

This study investigates two disclosure variables (Extent and Quality) in relation to compliance with paragraph 4.1 (b) of AASB 1047 Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards. Using a sample of 150 Australian listed firms, I find that the extent and quality of disclosure is influenced by firm size, leverage and auditor firm size, with the latter variable being the most significant. In general, the results suggest that many companies might have relied on sample disclosures provided by their auditors, perhaps limiting both quality and intent. Additionally, the ultimate usefulness of broad and imprecise standards might be questionable. Smaller companies might also require more guidance and assistance with their preparation for the adoption.     

Impact of International Financial Reporting Standard adoption on key financial ratios

Although previous research has investigated the economic consequences of International Financial Reporting Standard (IFRS) adoption, there is little evidence on the impact of IFRS adoption on key financial ratios. To fill this gap, we examine this issue in a continental European country (Finland). Our results show that the adoption of IFRS changes the magnitude of the key accounting ratios. Moreover, we extend the literature by showing that the adoption of fair value accounting rules and stricter requirements on certain accounting issues are the reasons for the changes observed in accounting figures and financial ratios.     

Converging to International Accounting Standards: Views from Japan

Many countries, including the European Union member states and Australia, adopted international accounting standards in 2005. This year was also critical in Japan for convergence activities. Based on a review of 2005 financial statements and a survey of securities analysts, this study identifies key issues for convergence of Japanese and international accounting standards. We find that accounting requirements relating to fair value measurement, comprehensive income items, leases and business combinations are relevant to Japanese firms. A survey of 974 members of the Security Analysts Association of Japan about these issues indicated support for convergence and the use of fair value measurement, disclosure of comprehensive income, recognition of leases and use of the purchase method for consolidation. We report support for several positions favoured by the International Accounting Standards Board (IASB), a positive signal for achieving convergence goals in Japan, which will be of interest to capital market participants in Japan and other countries .     

International Financial Reporting Standards in an Emerging Economy: Lessons from Romania

International Financial Reporting Standards (IFRS) are a reference point for the modernisation of accounting models in emerging economies. Previous literature documents a diverse IFRS experience, especially among emerging economies. The IFRS implementation strategy and local institutional characteristics shape the way in which the standards are used in practice. We use the Romanian case to illustrate the effect of various contextual factors, some historical, on the process and outcomes of IFRS implementation. We show that IFRS implementation can follow a different pattern in emerging economies.     

Trust and Financial Reporting Quality

Using unique survey data from Great Place to Work® Institute, we investigate the association of intraorganizational trust (i.e., employees’ trust in management) with three aspects of financial reporting: accruals quality, misstatements, and internal control quality. We find that trust is associated with better accrual quality, lower likelihood of financial statement misstatements, and lower likelihood of internal control material weakness disclosures. However, these effects are not uniform across all companies. Consistent with trust improving financial reporting quality through improved information production and information sharing, we find that trust is significantly associated with financial reporting quality in relatively decentralized firms, but not in firms that are relatively centralized. Our results are robust to several analyses that attempt to control for potential alternative explanations.     

CFO Narcissism and Financial Reporting Quality

We investigate the effect of CFO narcissism, as measured by signature size, on financial reporting quality. Experimentally, we validate that narcissism predicts misreporting behavior, and that signature size predicts misreporting through its association with narcissism. Empirically, we examine notarized CFO signatures and find CFO narcissism is associated with more earnings management, less timely loss recognition, weaker internal control quality, and a higher probability of restatements. The results are consistent for within‐firm comparisons focusing on CFO changes and are robust to controlling for CFO overconfidence and CEO narcissism. The results highlight the importance of CFO characteristics in the domain of financial reporting decisions.     

Impacts of Additional Guidance Provided on International Financial Reporting Standards on the Judgments of Accountants

This pioneering study examines the impact of the provision of additional guidance on International Financial Reporting Standards (IFRS) as a “decision aid” on the accuracy of judgments of the accountants. To extend the prior research on accounting judgment and decision-making, we also examine the interactive effects of task complexity and additional guidance on the judgments of accountants. The results provide evidence that those accountants who are provided with decision aid in the form of additional guidance on IFRS make more accurate judgments than accountants who are not provided with such guidance. Furthermore, the study provides evidence that this additional guidance improves the judgments of accountants when they undertake tasks which they find complex. The results indicate that additional guidance on IFRS needs to be provided and suggests that accountants should exploit any guidance which is currently provided in IFRS and by the International Financial Reporting Standards Interpretations Committee.     

Effects of Increasing Enforcement on Financial Reporting Quality and Audit Quality

A widely held assumption in policy making and empirical research is that increasing the strength of public enforcement improves financial reporting quality and audit quality. This paper provides a more nuanced view. In a model with a manager who can manage earnings, a strategic auditor, and an enforcement institution, we show that enforcement and auditing are complements in a weak enforcement regime but can be substitutes in a strong regime. Although stronger enforcement always mitigates earnings management, the effects of different instruments of strengthening enforcement are ambiguous. We show that they can improve or impair financial reporting quality and audit quality, depending on production risk, accounting system characteristics, and the scope of auditing relative to enforcement.     

The Effects of International Financial Reporting Standards on the Accounts and Accounting Quality of Australian Firms: A Retrospective Study

We examine the effect of Australian equivalents to International Financial Reporting Standards (IFRS) on the accounts and accounting quality of 1,065 listed firms, relying on retrospective reconciliations between Australian Generally Accepted Accounting Principles (AGAAP) and IFRS. We find that IFRS increases total liabilities, decreases equity and more firms have earnings decreases than increases. IFRS earnings and equity are not more value relevant than AGAAP earnings and equity and while adjustments for changes in accounting for provisions and intangibles other than goodwill are value relevant, they weaken associations with market value. Goodwill adjustments improve associations with market value. We also find that the reconciliation note for the earnings adjustments contained no new information.     

Effects of Adoption of International Financial Reporting Standards in Belgium: The Evidence from BEL-20 Companies

This study examines the adoption of International Financial Reporting Standards (IFRS) by BEL-20 companies in Belgium. The research analyses the application of IFRS in the consolidated financial statements of Belgian publicly traded companies. In Belgium, as in several other continental European countries, a close link exists between accounting and taxation. The study provides insight into IFRS implementation problems based on a survey sent to BEL-20 companies. The survey focused on the impact that IFRS conversion has on companies, their internal organization and accounting and finance strategy. The benefits and challenges of the adoption of IFRS are analysed, as well as the level of understanding and experience with IFRS, perception of the quality of IFRS, and the impact of adoption of IFRS on consolidated equity and net income. Principal differences between IFRS and Belgian generally accepted accounting principles (GAAP), having a major impact on the conversion to IFRS, are identified. This study should be important not only to the European Union (EU) countries but to countries which will join the EU in the future, and to other countries worldwide that are adopting IFRS.     

The Impact of Mandatory International Financial Reporting Standards Adoption on Investment Efficiency: Standards,Enforcement, and Reporting Incentives

This paper investigates whether mandatory adoption of International Financial Reporting Standards (IFRS) is followed by a decline in firms’ suboptimal investments. On average, we find that the probability of under‐investment in capital expenditure declines for firms from 23 countries requiring mandatory adoption of IFRS relative to firms from countries that do not have such requirements; meanwhile the probability of over‐investment remains unchanged. However, this real effect becomes smaller when we control for concurrent changes to the enforcement of financial reporting along with the introduction of IFRS in some countries, suggesting that the switch in standards is only one of the drivers for the observed benefits. Moreover, we find that the reduction in suboptimal investments is driven by firms with high reporting incentives to provide transparent financial reports from countries where the existing legal and enforcement systems are strong. We further show that the real effect increases with the predicted changes in accounting comparability. Finally, we find that after mandatory IFRS adoption, capital investment becomes more value‐relevant, less sensitive to the availability of free cash flows, and more responsive to growth opportunities. Our findings provide new insights into the real effects of mandatory IFRS adoption.     

Adoption of International Financial Reporting Standards: Impact on the Value Relevance of Intangible Assets

We examine whether the value relevance of reported intangibles differs between financial reporting regimes pre- and post-adoption of Australian Equivalents to International Financial Reporting Standards (AIFRS) and Australian Accounting Standards (AGAAP) respectively. Using AIFRS and AGAAP measures of goodwill and identifiable intangible assets for the same financial year and testing their association with share prices, we find evidence that AIFRS generally convey incremental useful information for investors about goodwill. For aggregated identifiable intangible assets there is no evidence that AIFRS conveys information beyond that in AGAAP. In contrast, we find evidence that AGAAP provides incremental information for investors in relation to identifiable intangibles, but not goodwill .     

Internal Audit Quality and Financial Reporting Quality: The Joint Importance of Independence and Competence

In light of the growing importance of internal audit functions (IAF) and the limited archival evidence on internal audit quality, we examine an interactive model of IAF quality (comprised of competence and independence) to better understand the determinants of IAF effectiveness as a financial reporting monitor. Our tests support the hypothesis that the joint presence of competence and independence is a necessary antecedent to effective IAF financial reporting monitoring. In sum, our results show that, the answer to “what is the effect of internal audit competence (independence) on financial reporting quality?” is “it depends on the independence (competence) of the internal auditor.” Our study extends the understanding of IAF quality determinants in the realm of financial reporting as it relates to ongoing discussions by researchers, standard setters, regulators, and practitioners.     

Governance regulatory changes,International Financial Reporting Standards adoption,and New Zealand audit and non‐audit fees: empirical evidence

This study examines the association between overseas and New Zealand governance regulatory reforms and New Zealand companies’ audit and non‐audit fees. Our models use temporal and International Financial Reporting Standards (IFRS) indicator variables to relate the timing of the fee changes to the incidence of the overseas and local reforms. We find that audit fees increased in New Zealand over 2002–2006. Such increases associate reliably with the transition to and adoption of NZ IFRS and not with earlier overseas governance reforms. Our study also documents a decrease in non‐audit fees over the same period, but we find no IFRS effect for non‐audit fees.     

国际财务报告准则第2号:以股份为基础的支付

目标 1.本国际财务报告准则的目的是规范主体从事的以股份为基础的支付交易的财务报告.特别是,它要求主体在其损益和财务状况中反映以股份为基础的支付交易的影响,包括与授予雇员股票期权交易相关的费用.     

Shareholder Litigation and Corporate Disclosure: Evidence from Derivative Lawsuits

Using the staggered adoption of universal demand (UD) laws in the United States, we study the effect of shareholder litigation risk on corporate disclosure. We find that disclosure significantly increases after UD laws make it more difficult to file derivative lawsuits. Specifically, firms issue more earnings forecasts and voluntary 8‐K filings, and increase the length of management discussion and analysis (MD&A) in their 10‐K filings. We further assess the direct and indirect channels through which UD laws affect firms' disclosure policies. We find that the effect of UD laws on corporate disclosure is driven by firms facing relatively higher ex ante derivative litigation risk and higher operating uncertainty, as well as firms for which shareholder litigation is a more important mechanism to discipline managers.     

The Impact of Information Processing Costs on Firm Disclosure Choice: Evidence from the XBRL Mandate

This paper examines the effect of market participants’ information processing costs on firms’ disclosure choice. Using the recent eXtensible Business Reporting Language (XBRL) regulation, I find that firms increase their quantitative footnote disclosures upon implementation of XBRL detailed tagging requirements designed to reduce information users’ processing costs. These results hold in a difference‐in‐difference design using matched nonadopting firms as controls, as well as two additional identification strategies. Examination of the disclosure increase by footnote type suggests that both regulatory and nonregulatory market participants play a role in monitoring firm disclosures. Overall, these findings suggest that the processing costs of market participants can be significant enough to impact firms’ disclosure decisions.     

Facial Structure and Achievement Drive: Evidence from Financial Analysts

We use a large pictorial sample of Chinese financial analysts to test the association between facial width‐to‐height ratio (fWHR) and performance in men. Financial analysts offer an ideal setting for our investigation because we can objectively track individual analysts’ behaviors and performance. We find that high‐fWHR analysts are more likely to conduct corporate site visits and they exhibit better performance. The positive fWHR–performance association survives a battery of robustness checks and the association is more pronounced for analysts with lower status, for firms with higher uncertainty, and for analysts facing more intense competition. Our results suggest that the dominant trait predicted by fWHR is achievement drive.