Does Size Influence the Suitability of the IFRS for Small and Medium-Sized Entities? – Empirical Evidence from Germany

This study is set within the context of the IASB's initiative to develop an IFRS for small and medium-sized entities (SMEs). It is based on a questionnaire survey of small and medium-sized entities in Germany exploring the suitability of the IASB's proposed SME standard for entities of different size classes. Quantitative size criteria are used in many national jurisdictions to differentiate financial reporting requirements between entities. However, there is very little empirical evidence on the question whether the economic size of an entity has an impact on the economic issues that should be regulated by accounting rules and on management's preferences for specific accounting methods. This paper addresses these deficiencies by exploring to what extend an entity's economic size has an impact on its international exposure, the relevance of specific accounting issues and preparers’ perceptions on costs and benefits associated with the application of selected accounting methods. Our findings are ambiguous. Size effects are revealed with regard to the structure of entities, their international exposure and to a large extent to the relevance of particular accounting issues. Cost and benefit assessments of accounting methods also differ within and between the size clusters investigated, albeit a generalisation of size as a factor determining the cost-benefit considerations of firms with regard to particular accounting treatments and methods is not supported by the study's results.     

Voluntary adoption of International Financial Reporting Standards by large unlisted companies in Portugal – Institutional logics and strategic responses

Common explanations for the voluntary adoption of International Financial Reporting Standards (IFRS) have been based on economic efficiency arguments. This paper introduces new theoretical arguments to explain how institutional pressures influence decisions to adopt IFRS voluntarily. Through recourse to an institutional theory context, we combine the analytical framework proposed by Oliver (1991) with the concept of institutional logics, and apply this framework to the financial accounting field for the first time. This combined model shows how multiple forms of rationality constrain company responses to pressures to adopt a new accounting regime.     

On the ‘Review of Structure and Effectiveness of the IFRS Foundation’: the EAA’s Financial Reporting Standards Committee’s View

In July 2015 the International Financial Reporting Standards (IFRS) Foundation launched its third five year review of its structure and effectiveness of the organisation. In a public call, the Trustees solicited stakeholders’ input on the relevance of IFRS Standards with respect to broadening the IFRS scope and to the impact of new technology, on the consistent application of IFRS and on the governance and funding of the International Accounting Standards Board and the IFRS Foundation. The European Accounting Association (EAA)’s Financial Reporting Standards Committee responded to this request for views by submitting a comment letter based on research-informed opinions. This article provides an overview of this Review of Structure and Effectiveness of the IFRS Foundation and the EAA’s opinions in response to this Review.     

The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence from European Countries

Abstract

I present a summary and analysis of a series of papers from this special issue of Accounting in Europe that examine the role and current status of International Financial Reporting Standard (IFRS) in the completion of National Accounting Rules applicable to large ‘non-listed in a regulated market’ non-financial undertakings trading for gain in 25 European countries following the recent implementation of the new European Accounting Directive 2013/34/EU. IFRS has had a varying degree of influence across European countries. Some refer and are closely aligned to IFRS or to IFRS for small and medium-sized entities, some while influenced by IFRS retain complete independence and some show limited influence mostly when accounts are for other purposes such as taxation, dividend distribution or creditor protection. I present a number of classification schemes and contrast these with Nobes [(2008). Accounting classification in the IFRS Era. Australian Accounting Review, 18(3), 191–198] two group accounting classification of European accounting systems as strong equity/commercially driven versus weak equity/government driven/tax-dominated systems.     

On the ‘Disclosure Initiative – Principles of Disclosure’: The EAA Financial Reporting Standards Committee’s View

Abstract

This paper summarises the contents of a comment letter produced by a working group of 12 academics in response to the International Accounting Standards Board (IASB) Discussion Paper on principles of disclosure. The comment letter was submitted by the Financial Reporting Standards Committee (FRSC) of the European Accounting Association (EAA). The work includes reviews of relevant academic literature of areas related to the various questions posed by the IASB in the Discussion Paper, including the ‘disclosure problem’ and the objective of the project, the suggested principles of effective communication, the roles of the primary financial statements and notes, the location of information and the use of performance measures. The paper also discusses the disclosure of accounting policies, the objectives of centralised disclosure, and the New Zealand Accounting Standards Board staff’s approach to disclosure.     

Prudential Application of IFRS 9: (Un)Fair Reporting in COVID‐19 Crisis for Banks Worldwide?!

IFRS 9 and ASC 326 were developed after the 2008–2009 financial crisis, and both accounting standards include an expected loss model as a means of providing for credit losses. As a result of the COVID‐19 worldwide pandemic, however, banks face considerable uncertainty about the potential scale of the bad debts for which they will need to provide. Banks need to reassess their loan assets, by updating their risk models with expectations about potential default rates and future macro‐economic and financial developments. However, we see several interventions worldwide. The European Securities and Markets Authority addresses a position paper on the prudential application of IFRS 9. The Coronavirus Aid, Relief, and Economic Security Act in the US has given banks an optional deferral of implementation of the CECL model until 31 December 2020. This paper addresses the challenges banks face when applying the expected losses model during the current crisis. More importantly, it discusses the impact of supervisor and regulators’ intervention on future financial reporting comparability, transparency and whether there is a level playing field.     

International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis

This study uses a sample of 715 banks from 95 countries and two-stage data envelopment analysis (DEA) to provide international evidence on the impact of regulations and supervision approaches on banks’ efficiency. We first use DEA to estimate technical and scale efficiency. We then use Tobit regression to investigate the impact of several regulations related to capital adequacy, private monitoring, banks’ activities, deposit insurance schemes, disciplinary power of the authorities, and entry into banking on banks’ technical efficiency. We estimate several specifications while controlling for bank-specific attributes and country-level characteristics accounting for macroeconomic conditions, financial development, market structure, overall institutional development, and access to banking services. In several cases, the results provide evidence in favour of all three pillars of Basel II that promote the adoption of strict capital adequacy standards, the development of powerful supervisory agencies, and the creation of market disciplining mechanisms. However, only the latter one is significant in all of our specifications. While the remaining regulations do not appear to have a robust impact on efficiency, several other country-specific characteristics are significantly related to efficiency.

On the validity of the augmented Fama and French’s (1993) model: evidence from the Hong Kong stock market

This paper investigates the performance of four-factor asset pricing model using Hong Kong stock returns. Our four-factor model is constructed by adding a momentum factor into the Fama and French’s (J Finance Econ 33(1):3–56, 1993) three-factor model. We find that the four-factor model may explain return variation using Hong Kong data. Our results show evidence that all the four factors are significant in the model and intercepts are not significant. In addition, the reasonably high values of adjusted R ² and the insignificance of an additional explanatory variable of residual standard deviation provide supportive evidence to the model. The robustness of the model is also checked for two effects: up- and down-market conditions and seasonal behavior.     

A Rejoinder to Commentaries on ‘Integrated Reporting: A Review of Developments and their Implications for the Accounting Curriculum’

This auditing case study focuses on a company presenting significant audit risk for an incoming audit firm. By presenting a variety of audit risks, hence audit implications, the case demonstrates the holistic approach to audit required in order to avoid an inappropriate audit opinion. The case is aimed at undergraduate students of auditing in the final year of their studies and students of the ACCA Paper 6 or equivalent. The case provides an efficient and original vehicle for instruction in auditing and can be used to complement other teaching aids.     

(Unusual) weather and stock returns—I am not in the mood for mood: further evidence from international markets

This paper investigates the explanatory power of weather variables deviations in two leading international financial trading centres (New York and London) on 58 global stock indices over the period September 2000 to December 2013. The empirical results find that unusual deviations of weather variables from their monthly averages have a statistically significant effect on stock returns across global returns. The paper also attempts to explain these effects through the sales and energy prices mechanisms. The results provide strong support to both mechanisms.     

Payments in lieu of taxes (PILOTs): How characteristics of requests for PILOTs impact nonprofits’ fairness perceptions and likelihood of compliance

Despite the growing importance of PILOTs for cities and nonprofits, little is known about how characteristics of requests for PILOTs influence fairness perceptions and compliance. We examine how PILOT frame (carrot versus stick) and procedure (systematic versus ad hoc) jointly influence the fairness perceptions of requests for PILOTs and whether these perceptions, in turn, influence the likelihood of compliance. We conduct an experiment and find that requests framed as a carrot, rather than a stick, are perceived as more fair. Requests that are administered in a systematic, rather than ad hoc manner, are perceived as more fair, but only when the request is framed as a carrot. Perceptions of fairness, in turn, increase the likelihood that nonprofits will comply with the request for PILOTs. A follow-up survey of senior nonprofit executives confirms that PILOT frame and procedure affect their perceptions of fairness similar to our experimental participants. Importantly, survey participants indicate that perceptions of fairness are a significant determinant of their cooperation with the city, not only on the request for PILOTs, but also on future collaborative initiatives. We discuss the implications of our study for entities affected by PILOTs.