Evolution of intangible asset accounting: Evidence from Australia

This study investigates how the adoption of IFRS in Australia has changed the accounting for goodwill and identifiable intangible assets (IIA). Based on unique hand‐collected data for 802 Australian firm‐years during 2000–2010, we find that expenses related to IIA are higher under IFRS, which is consistent with the view that IFRS accounting policies for IIA are stricter than those under Australian domestic accounting standards pre‐2005 (AGAAP). Our results show two effects that accompany higher IIA expenses under IFRS, which reduce a negative impact on earnings: (i) lower goodwill expenses, and (ii) a shift in recognition of IIA from those with finite useful life to IIA with indefinite useful life. Finally, our market value analyses suggest that the market does not treat mechanical goodwill amortization as a genuine expense, but does treat as genuine expenses discretionary impairment charges, and more lenient IIA amortization under AGAAP. Our results are in line with prior Australian studies claiming that imposing stricter accounting rules for intangible assets under IFRS tends to diminish the quality of investors' information set.     

On the Relationship between Voluntary Disclosure,Earnings Smoothing and the Value-Relevance of Earnings: The Case of Switzerland

Abstract

This paper examines whether voluntary disclosure by Swiss firms constrains the use of discretionary accruals to smooth earnings, and explores the effect of voluntary disclosure on the value relevance of earnings. We focus on Swiss firms because Switzerland's financial reporting system provides managers with extensive discretion in corporate disclosure, and there are important variations in the level of information provided in their annual reports. We consider that managers can choose two different ways to voluntarily convey information, either through the quality and quantity of annual report disclosure or, through compliance with International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP). Relying on a simultaneous equations approach, our results suggest that Swiss firms use discretionary accruals to smooth earnings. However, this relation is reduced for firms that voluntarily disclose more information in their annual report or comply with IAS/IFRS or US GAAP. Moreover, we show that discretionary accruals of high disclosers or of firms voluntarily complying with IAS/IFRS or US GAAP receive a lower valuation weight.     

The Impact of Mandatory IFRS Adoption on Equity Valuation of Accounting Numbers for Security Investors in the EU

Motivated by the European Union (EU) decision to mandate application of the International Financial Reporting Standards (IFRS) to the consolidated financial statements of all EU listed firms (Regulation (EC) 1606/2002), starting in December 2005, we compare the value relevance of accounting information in 14 European countries in the year prior to and the year of the mandatory adoption of the IFRS. We focus on three accounting information items for which measurements under IFRS are likely to differ considerably from measurements under domestic accounting practices across the EU countries prior to the introduction of the international standards: goodwill, research and development expenses (R&D), and asset revaluation. These three items, selected on an a priori basis, have been shown in previous research to differ in the effect of uncertainty on their future benefits. We use valuation models that include these three variables and in addition the book value of equity and earnings. Overall, our study suggests that the adoption of the IFRS has increased the value relevance of the three accounting numbers for investors in equity securities in the EU. Association tests support our two hypotheses: (1) in the year prior to the mandatory adoption of the IFRS, the incremental value relevance to investors of the three domestic GAAP-based accounting items was greater in countries where the respective domestic standards were more compatible with the IFRS; and (2) the higher the deviation of the three domestic GAAP-based accounting items from their corresponding IFRS values, the greater the incremental value relevance to investors from the switch to IFRS. These associations prevail when considering cross-country differences in the institutional environments, which tend to provide complementary effects.     

The Impact and Importance of Mandatory Adoption of International Financial Reporting Standards in Europe

In this paper we report the results of conducting a two‐stage analysis on the impact and importance of mandatory adoption of international accounting reporting standards (IFRS) on European Union firms. In the first stage we determined the impact of mandatory adoption of IFRS across 13 countries and twenty industries. This was accomplished by identifying significant differences in return on assets (ROA) for firms computed under IFRS and local, generally accepted accounting principles (LG). Significant positive differences were detected for firms in Belgium, Finland, France, Italy, the Netherlands, Sweden, Switzerland and the United Kingdom: only German and Norwegian firms exhibited a negative average significant difference between ROA calculated using IFRS and LG. Repeating the analysis of differences in ROA on an industry‐by‐industry basis yielded additional Portuguese and Spanish firms for the second stage of the analysis in which the impact of mandatory IFRS adoption was assessed. Defining impact in terms of market and financial reporting quality, we found a statistically significant relationship between accounting information and market returns for firms in the all‐countries‐combined sample of 3,530 observations, and in the countries of Belgium, Finland, France, Greece, Italy, the Netherlands, Norway, Sweden and the United Kingdom. Support for the timeliness of accounting information was uncovered for firms in the all‐countries‐combined sample, and in the countries of Belgium, Finland, France, Germany, Italy, the Netherlands, Norway, Sweden and Switzerland. Finally, evidence to support the proposition that accounting regimes produce quality discretionary accruals was found for firms from the all‐countries‐combined sample of 3,480 observations and from Finland, Greece, the Netherlands, Sweden and the United Kingdom. When comparing differential accounting information constructed under IFRS and LG, however, few differences could be found. Specifically, there was no statistical support for any of the samples that accounting information produced under IFRS was any more value relevant than the accounting information derived using LG. When our examination shifted to the timeliness of earnings, a positive differential impact between earnings constructed on the basis of IFRS and local accounting standards was detected only for the all‐countries‐combined sample. Finally, the quality of discretionary accruals was shown to be significantly higher under IFRS than LG for firms in Finland, Greece and Sweden.     

Value-Driving Activities in Euro-Zone Banks

We develop and test accounting-based valuation models for commercial banks. We extend Begley et al.'s framework (2006) and propose a valuation model where goodwill is generated by virtually all commercial and investment banking activities. Key features of our model are: the development of a relation between future cash flows from fee income and the bank value that depends on lending, borrowing and off-balance sheet business; and the inclusion of proprietary investment and trading as value-driving activities. Empirical tests on a sample of Euro-zone banks from 1998 to 2006 provide the following evidence. Unrealised expected cash flows from fee income are the most important source of unrecorded goodwill. This is consistent with the increasing importance of revenue from the sale of financial services to banks' income. The contribution of fee income to goodwill is higher for banks with large deposits and new loans. Equity securities are a source of unrecorded goodwill, but the introduction of fair value accounting, with the adoption of the International Financial Reporting Standards (IFRS), reduces their valuation role. Yet equity securities remain positively associated with unrecorded goodwill after IFRS adoption, suggesting that the fair value standards do not fully capture market expectations about future cash flows of investment assets.     

The Role of International Financial Reporting Standards in Accounting Quality: Evidence from the European Union

Previous studies on the effect of International Financial Reporting Standards (IFRS) on accounting quality often have difficulties to control for confounding factors on accounting quality. As a result, the observed changes in accounting quality could not be attributed mainly to IFRS. We use a unique research setting to address this issue by comparing the accounting quality of publicly listed companies in 15 member states of the European Union (EU) before and after the full adoption of IFRS in 2005. We use five indicators as proxies for accounting quality. We find that the majority of accounting quality indicators improved after IFRS adoption in the EU. That is, there is less of managing earnings toward a target, a lower magnitude of absolute discretionary accruals, and higher accruals quality. But our results also show that firms engage in more earnings smoothing and recognize large losses in a less timely manner in post‐IFRS periods. In addition, we examine the effects of institutional variables on financial reporting quality. Our contribution to the literature is that we show the improved accounting quality is attributable to IFRS, rather than changes in managerial incentives, institutional features of capital markets, and general business environment, etc.     

Real and Accrual‐Based Earnings Management in the Pre‐ and Post‐IFRS Periods: Evidence from China

The purpose of this study is to investigate the prevalence of both accrual‐ and activities‐based earnings management for Chinese A‐share firms surrounding the adoption of substantially IFRS‐convergent accounting standards. Since 2007, all listed A‐share firms in China have been required to comply with a new set of accounting standards that have substantially conformed to IFRS. The new reform also produced a set of new auditing standards and internal control reporting requirements. Based on a sample of 4,050 firm‐year observations from 2002 to 2011, we find that Chinese firms in the post‐IFRS period (2007–2011) are less likely to engage in accrual‐based earnings management. The magnitude of discretionary accruals also declines after IFRS adoption. In response, we see firms turning to real activities manipulation as a substitute for upward earnings management. The reduction in accrual‐based earnings management could stem from higher quality accounting standards associated with IFRS adoption and/or concurrent changes in the governance regimes introduced with the IFRS mandate. A further analysis, however, indicates that the benefits of IFRS adoption in curbing upward accrual‐based earnings manipulation are not evenly distributed across firms. Specifically, the benefit diminishes for firms that are controlled by Chinese central or local governments, are located in less developed regions, and that have weak financial performance and therefore subject to delisting status. We also find that the benefit is less pronounced for manufacturing firms than for their non‐manufacturing counterparts.     

Environmental management accounting in Europe: current practice and future potential

Abstract

We examine the impact of managerial financial reporting incentives on accounting quality changes around International Financial Reporting Standards (IFRS) adoption. A novel feature of our single-country setting based on Germany is that voluntary IFRS adoption was allowed and common before IFRS became mandatory. We exploit the revealed preferences in the choice to (not) adopt IFRS voluntarily to determine whether the management of individual firms had incentives to adopt IFRS. For comparability with previous studies, we assess accounting quality through multiple constructs such as earnings management, timely loss recognition, and value relevance. While most existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt, that is, voluntary adopters. We also find that firms that resist IFRS adoption have closer connections with banks and inside shareholders, consistent with lower incentives for more comprehensive accounting standards. The overall results indicate that reporting incentives dominate accounting standards in determining accounting quality. We conclude that it is unwarranted to infer from evidence on accounting quality changes around voluntary adoption that IFRS per se improves accounting quality.     

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.     

International Financial Reporting Standards adoption and information quality: Evidence from Brazil

This paper examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in Brazil in 2010 has improved the value relevance of accounting information, information content of earnings, financial analyst forecasting activities, and liquidity. We examine the variables in the pre‐IFRS mandatory adoption sample period, considered herein as 2008 to 2009, and the post‐IFRS adoption period of 2011 to 2012. We provide evidence demonstrating improvement in value relevance of earnings and number of analysts following the firms in the period after IFRS adoption, but we do not find improvements in information content of earnings, accuracy in analyst forecasting, and liquidity in the post‐adoption period. Our findings suggest a positive relationship between IFRS adoption and some areas of information quality in Brazil. By focusing on one important economy as it takes significant steps toward full convergence with IFRS, our study contributes to the growing literature concerning the impact of IFRS adoption around the world.     

Effect of non‐IFRS earnings reporting guidelines on underlying earnings reporting quality: The case of Australian listed firms

This study investigates Australian Securities Exchange (ASX) 200 firms in the post–Australian Securities and Investments Commission (ASIC) period (2011–2014) to examine how listed firms follow the non–International Financial Reporting Standards (IFRS) earnings reporting guidelines issued by ASIC to communicate underlying earnings reporting quality. We find that firms that do not comply with the ASIC guidelines have lower underlying earnings reporting quality than do firms that comply with these guidelines. Firms that do not follow the ASIC guidelines are found to exclude income‐increasing underlying earnings adjustments to make underlying earnings appear more profitable than IFRS earnings when they miss earnings targets or make current losses, and that they report underlying earnings opportunistically by excluding recurring expenses that persist into future operating earnings. Unlike ASIC non‐compliance firms, ASIC compliance firms attempt to act as responsible reporters by reporting underlying earnings in a responsible manner to demonstrate a judicious use of discretion in informing shareholders. Further, we find that underlying earnings reported by non‐compliance firms are less value‐relevant than underlying earnings reported by compliance firms.     

The Effects of IFRS Adoption on Observed Earnings Smoothness Properties: The Confounding Effects of Changes in Timely Gain and Loss Recognition

Ball and Shivakumar [(2006), The role of accruals in asymmetrically timely gain and loss recognition. Journal of Accounting Research, 44, 207–242] show that the observed smoothness of earnings (i.e. negative contemporaneous correlation between accruals and cash flows) is the joint product of the role of accruals in smoothing out transitory fluctuations in operating cash flows (noise reduction role) and the role of accruals in providing timely recognition of economic gains and losses (contracting role). These two roles of accruals have opposite effects on earnings smoothness properties. Using a regression framework that allows us to simultaneously consider both roles, we show that failing to control for changes in timely gain and loss recognition as firms shift to IFRS can lead to erroneous inferences regarding the effects of IFRS adoption on earnings smoothness, and consequently on researcher’ conclusions about how IFRS adoption has affected accounting quality. Our results are consistent with mandatory (2005) IFRS adoption resulting in a change in the contracting role rather than the noise reduction role (or smoothness role) of accruals. A decrease in timely loss recognition, an increase in timely gain recognition, and a net decrease in asymmetric timely loss recognition are what drives the change in observed smoothness properties of earnings around mandatory IFRS adoption.     

CEO Pay Contracts and IFRS Reconciliations

Abstract

We examine whether UK managers exploit the discretion provided in the UK GAAP to IFRS reconciliation process to manage earnings and whether this earnings management is associated with the structure of the managers' compensation contracts. We use a comprehensive data set of mainly hand-collected information from the firms' annual reports to provide evidence that, given the existence of an accounting-related vesting target in their pay schemes, CEOs use UK GAAP to IFRS reconciliations as an earnings management tool. We test our hypotheses under a number of different specifications, including a propensity score matching analysis. Our study contributes to the literature on the relation between earnings management and contractual incentives by focusing on a major structural change in accounting policies.     

商誉会计处理探析

企业商誉的价值越来越受到经营者和投资者及其他相关人员的关注,企业商誉的会计处理又是一个特殊的问题。本文在参考《企业会计准则》和现行会计处理模式及惯例的基础上,介绍了商誉的概念,对商誉的确认、计量及减值损失的会计处理进行了探析,以期能帮助使用者更好地理解商誉。     

IFRS Adoption and Accounting Quality: A Review

Abstract

In 2002, the European Union (EU) Parliament passed a regulation that requires consolidated and simple accounts for all companies listed in the EU to use International Financial Reporting Standards (IFRS) for fiscal years starting after 1 January 2005. This change in accounting systems will have a large impact on the information environment for EU companies. This paper provides a review of the literature on adoption of different Generally Accepted Accounting Principles (GAAP). We thus provide background and guidance for researchers studying the change in accounting quality following widespread IFRS adoption in the EU. We argue that cross-country differences in accounting quality are likely to remain following IFRS adoption because accounting quality is a function of the firm's overall institutional setting, including the legal and political system of the country in which the firm resides.     

The impact of accounting reform on accounting quality: Evidence from Nigeria

The effectiveness of International Financial Reporting Standards (IFRS) is dependent on the strength of enforcement of accounting standards in a given country. This study explores the implications of the adoption of IFRS in Nigeria after the enforcement of accounting standards was strengthened. The strengthening of accounting standards enforcement, and the subsequent adoption of IFRS in Nigeria, was recommended by the World Bank to improve the country's regulatory outlook after a capital market crisis in 2007/2008 that was triggered by widespread accounting irregularities. Results indicate that accounting quality declined in Nigeria following the adoption of IFRS; while earnings management increased, timely loss recognition and earnings persistence reduced. Our study contributes to the burgeoning literature on IFRS adoption and concludes that the effect of IFRS adoption is contextual. Therefore, accounting regulatory institutions operating in a similar context to Nigeria should localize IFRS.     

Financial comparability and environmental diversity: an international context

Accounting and environmental management both hold improved resource‐use efficiency as an ultimate goal, but intermediate processes and objectives vary and consequently it is separately assessed within each discipline. This paper intends to make visible the globalizing trends in accounting practice, which aim to standardize financial reporting to produce comparable information so that shareholders can maximize their economic wealth. This paper seeks to contrast this comparability strategy with the apparent need for diversity in accounting information exhibited by actual accounting practices, the information needs of environmental management and, ultimately, the cultural needs of sustainable development. We argue that a more pluralistic model, that enables a holistic assessment of corporate performance and balances diverse stakeholder objectives, is better suited to an uncertain future. Implementation requires accountants and environmental managers jointly to create and test a new order of reporting. There are many practical challenges but most significantly accountants and environmental managers must combine to enhance the visibility and credibility of these diverse performance measures. Copyright © 2002 John Wiley & Sons, Ltd. and ERP Environment     

Determinants and Valuation Implications of Compulsory Stock Option Disclosures in a Weak Regulatory Setting—The Case of France

Using a sample of listed French firms in 2005, the year of mandatory IFRS adoption in the European Union (EU), we investigate the determinants of disclosure compliance of stock option expenses under IFRS 2, Share‐based Payment. Stock options are a popular means of executive compensation in France relative to other EU countries. Prior to 2005, French accounting standards and corporate governance regulations did not require recognition of option expense amounts and required minimal supplementary disclosures. There was also a perception that enforcement was imperfect, in particular with respect to IFRS 2. Given this setting, we explore what factors influence the willingness of firms to follow compulsory IFRS requirements in a weak regulatory setting. We find that overall compliance with IFRS 2 disclosure requirements increases with U.S. and U.K. institutional ownership, U.S. cross‐listing, provision of English language statements, and decreases with CEO and family ownership of the firm. We also investigate how stock market prices are affected by the recognition and disclosure of stock option expenses according to IFRS 2 in this regulatory setting and find that investors value option expenses positively, particularly when accompanied by high‐disclosure compliance. Our findings have implications for other jurisdictions in the process of adopting or converging to IFRS.     

The Effect of Aggregation of Accounting Information via Segment Reporting on Accounting Conservatism

In a sample of U.S. multiple-segment firms, we document a negative association between aggregation via segment reporting and timely loss recognition. A higher level of aggregation, as reflected in a firm’s reported organizational structure (the definition and characteristics of its segments), causes a multiple-segment firm to exhibit less cross-segment variation in profitability than a matched control portfolio of single-segment firms. We find that firms that engage in more aggregation report accounting numbers that provide less timely information about economic losses. We also observe that firms that provide more disaggregated segment data subsequent to adopting SFAS 131 experienced an increase in timely loss recognition. This result implies that higher quality segment reporting leads to an increase in timely loss recognition, which, per extant research, is associated with better governance. Our results complement results in Berger and Hann [2003. The impact of SFAS No. 131 on information and monitoring. Journal of Accounting Research, 41, 163–223] that show a decline in inefficient internal-capital-market transfers subsequent to the adoption of SFAS 131. Overall, we provide evidence supporting Beyer, Cohen, Lys, and Walther’s [2010. The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics, 50, 296–343] contention that accounting conservatism is, in part, a function of managers’ aggregation choices.     

Analyst following,disclosure quality,and discretionary impairments: Evidence from China

Financial statement preparers’ discretion in fair value measurements is integral to asset impairment accounting. Firms may misuse this discretion to report more or less impairment loss than is warranted by underlying economic circumstances. Using data from a sample of publicly listed firms in China, this study finds that analyst following reduces abnormal impairment loss, the portion of reported impairment loss that cannot be explained by corporate economic circumstances and that this effect is more pronounced for firms with lower information disclosure quality. However, the reducing effects of analyst following and its interaction with disclosure quality are greater for income‐decreasing than for income‐increasing abnormal impairment loss. Additional analyses support the argument that these differences are attributable to the dominance of accounting’s contracting role over its informational role. Overall, the findings indicate that the influence of analyst following on discretionary impairment accounting decisions is moderated by disclosure quality and by the relative importance of accounting’s contracting and informational roles in an emerging market setting.