Disclosure Practices by Family Firms: Evidence from Swedish Publicly Listed Firms

Abstract

I investigate the effect of family ownership on firms’ disclosure practices in their annual reports. In specific, I study Swedish publicly listed firms, which are typically characterized by controlling owners that have a strong influence in the corporate governance decisions of the firm, including corporate disclosures. To measure disclosure, I construct a comprehensive disclosure index covering information on (1) corporate governance, (2) strategic and financial targets and (3) notes to the financial statements. The results reveal that overall, family firms provide less disclosure in annual reports than non-family firms do. The finding is consistent with the premise that through their management positions, family owners can directly monitor managers and avoid costly public disclosures. Overall, the results suggest that ownership structure of firms is important to consider in understanding firms’ disclosure incentives, particularly in settings where controlling owners play a significant role in the governance of the firm.     

Convergence in accounting standards: Insights from academicians and practitioners

The efficiency and competitiveness of global capital markets depends on the ability of financial statement preparers to communicate effectively with investors through financial reports. Despite the global movement to adopt IFRS, US adoption of IFRS is still uncertain. To assess potential for convergence, this study compares perspectives of academicians and practitioners regarding convergence to a set of global accounting standards. The majority of respondents believe that effective convergence to a set of globally accepted accounting standards would be beneficial to preparers, users, auditors, analysts, and standard setters. Convergence in accounting standards can require extensive and possibly costly changes to the standard-setting infrastructure and enforcement process in the US and other countries, and will also require proper training for management, auditors, and investors.     

A content analysis of the comment letters to the FASB and IASB: Accounting for contingencies

In this study, we read and analyze 369 comment letters written in response to the IASB's Exposure Draft (ED) of Proposed Amendments to IAS 37 and the FASB's Exposure Draft of Proposed Amendments to FASB Statement No. 5. We also examine how responses to the IASB ED are affected by whether or not the use of IFRS is mandated or permitted by the respondent's country. Although responses were overwhelmingly unfavorable to both EDs, more support was shown for the IASB's proposal to eliminate the probability recognition criterion than for the FASB's proposal to amend the U.S. GAAP disclosure rules. Users responding to the FASB ED provided significantly more intense support than corporate preparers, financial preparers, and legal practitioners. Significantly more respondents to the IASB ED were from countries required or permitted to use IFRS than from countries required to report under their national GAAP. In addition, constituents required or permitted to use IFRS were significantly more likely to express an unfavorable response to the ED and to cite relevance to support their position.     

IFRS adoption: A costly change that keeps on costing

This paper documents the results of a study exploring the transitionary and ongoing costs incurred by Australian companies from their use of IFRS. A longitudinal survey approach was adopted. Challenging the underlying logic of convergence, survey results highlighted that IFRS is costly for firms both in the lead up to adoption and thereafter. Specifically, the transition to IFRS imposed significant AIS, staff training and development, financial statement user education, and financial statement adjustment costs on many firms. Furthermore, many firms perceived that IFRS adoption has resulted in an ongoing increase of 20% or more on annual accounting and compliance costs.     

How is the IFRS for SME accepted in the European context? An analysis of the homogeneity among European countries,users and preparers in the European commission questionnaire

In this paper we analyze the answers to the “Questionnaire on the public consultation of the IFRS for SMEs”, promoted by the European Commission. Our aim is to evaluate the homogeneity among respondents, according to the different perspectives of analysis between both users, preparers and also in European Countries. Results show a substantial diversity among respondents. In particular, preparers demonstrate a strong opposition to the IFRS for SMEs, while users are more favorable. Concerning Country classification, German-speaking Countries and Latin Countries show much less appreciation for that standard with respect to Anglo − Nordic Countries. Relevant consequences for European public policy issues and for accounting studies on differential reporting arise from this result, concerning respectively the role of European accounting system and the acceptance of “user primacy” principle.     

THE ENVIRONMENTAL REPORTING EXPECTATIONS GAP: AUSTRALIAN EVIDENCE

Recent research of corporate reporting practices has suggested that corporate environmental reporting within Australia, and a number of other countries, is typically deficient and not of a standard to satisfy the information needs of various classes of report readers. This paper explores whether a potential information demand/supply imbalance is due to differing perceptions between report users and report preparers as to the relative importance of various items of environmental performance information to the users’ decision making processes. The paper explores whether an environmental reporting ‘expectations gap’ exists within Australia. The study, sponsored by the Institute of Chartered Accountants in Australia, surveyed the attitudes of senior executives within 462 of the largest companies within Australia (the preparers group), as well as the attitudes of 474 individuals from various categories of annual report users. In comparing the responses, significant differences between the views of users and the preparers were found to exist in relation to various issues associated with corporate environmental performance reporting. The evidence is consistent with the existence of an environmental reporting expectations gap within Australia.     

Disclosure Overload? An Empirical Analysis of International Financial Reporting Standards Disclosure Requirements

Despite the positive effects of the adoption of International Financial Reporting Standards (IFRS) noted in the literature, standard setters have issued reports suggesting that the required disclosures in IFRS have become too burdensome and should be reduced. We examine this disclosure overload problem by testing whether the disclosure reduction recommendations of the Excess Baggage Report issued by professional accounting bodies from Scotland and New Zealand in 2011 are associated with companies’ disclosure incentives and are value relevant for a sample of 196 Australian listed companies. The Excess Baggage Report classifies current IFRS disclosure requirement items into three categories: Retain; Delete; and Disclose if Material. We find that Retain items are disclosed the most, followed by those classified as Disclose if Material, and then by Delete items. Only Retain items are significantly associated with companies’ disclosure incentives. We also find that these disclosure categories are value relevant, especially for below-median profitability firms. Our findings may provide input to the IASB’s ongoing Disclosure Initiatives project.     

The real effects of a new accounting standard: the case of IFRS 15 Revenue from Contracts with Customers

International Financial Reporting Standard 15 (IFRS 15) Revenue from Contracts with Customers has significantly changed the philosophy of revenue recognition, not only to provide a fairer representation of corporate revenues, but also to inhibit the use of revenues for ‘earnings management’ purposes. We provide a framework to analyse the various effects of new and amended accounting standards. Changes in how companies recognise, measure, present and disclose their revenues (accounting effects) can affect how companies and their transactions are understood, both internally and externally (information effects), can change security prices (capital market effects) and can change how companies operate, and their costs and cash flows (real effects). We provide empirical evidence, based on a review of corporate annual reports, comment letters and interviews, on the effects of IFRS 15. We find evidence of accounting, information and, to a lesser extent, real effects, although, outside a few industries, IFRS 15 has had relatively little impact on the recognition and measurement of revenue.     

Implementing IFRS: A Case Study of the Czech Republic

This empirical paper presents a study of the implementation process for International Financial Reporting Standards (IFRS) in one of the accession countries, the Czech Republic. Based upon a review of the legislation, institutional framework and context, and drawing upon recent interviews with Czech companies required to prepare IFRS accounts, auditors and institutional players in the Czech Republic, the paper highlights some of the key issues that are arising with the move to the implementation of IFRS reporting for listed group companies and other enterprises in the Czech Republic.

The paper considers the issues that arise when implementing new accounting regulations, some of which are not new and have been well covered in the literature, but others of which are particular to the implementation of IFRS reporting. The method of implementation, the scope of IFRS, particular issues with local accounting practice and IFRS, the issue of enforcement of compliance with IFRS and its relationship with audit, the link between IFRS reporting and taxation and the provision of education and training are all considered. There is also a review of the state of preparedness of local group listed entities with respect to the implementation of IFRS reporting.

There are many potentially rich areas for accounting research where the work could also inform the practice of IFRS accounting. The paper provides a contribution by highlighting how one country has moved to implement the requirement for group listed enterprises to prepare IFRS accounts and the issues that then arise for legislators, preparers and users.     

The positive externalities of IFRS R&D capitalization: enhanced voluntary disclosure

Studies comparing IFRS with U.S. GAAP generally focus on differences in the attributes and consequences of the recognized financial items. We, in contrast, focus on voluntary disclosure resulting from arguably the most significant difference between IFRS and GAAP: the capitalization of development costs—the “D” of R&D—required by IFRS but prohibited by GAAP. Using a sample of Israeli high-technology and science-based firms, some using IFRS and others U.S. GAAP, we document a significant externality of IFRS development cost capitalization in the form of extensive voluntary disclosure of forward?looking information on product pipeline development and its expected consequences. We show that this disclosure is value-relevant over and above the mandated financial information, including the capitalized R&D asset. We also show that the capitalized development costs (an asset) is highly significant in relation to stock prices, and enhances the relevance of the voluntary disclosures.     

Does the adoption of IFRS affect corporate social disclosure in annual reports?

In this exploratory study we investigate the impact of the implementation of IFRS on corporate social disclosures (CSD) within the context of stakeholder theory. We measure the level of CSD in annual reports using a disclosure instrument based on the United Nations Conference on Trade and Development report “Guidance on Corporate Responsibility Indicators in Annual Reports”. We find that IFRS adoption had a differential effect on CSD based on a firm's institutional setting i.e., the stakeholder–management relationship prevalent in their institutional environment. Firms in the stakeholder countries did not have a significant change in the level of CSD following the mandatory adoption of IFRS while firms from the shareholder countries experienced a significant increase over the same period resulting in shareholder countries providing an overall higher level of CSD after IFRS adoption than stakeholder countries. These findings suggest that firms' reactions to the requirements of IFRS and the stakeholder pressure to provide additional CSD are influenced by institutional environment. Further, our results provide support for the use of stakeholder theory to predict the level of CSD.     

Insights on CFOs’ Perceptions about Impairment Testing Under IAS 36

We survey CFOs of Italian listed companies and examine their views on the complexities involved in implementing IAS 36 requirements and the perceived usefulness of national guidelines aiming at assisting preparers in this respect. We find that IAS 36 is perceived as an atypical standard among IFRS, it demands subjective interpretation, its requirements can be made adaptable to managerial needs and do not limit creative accounting. Further, respondents do not see a strong link between IAS 36 disclosure requirements and market variables, except for stock returns. Moreover, the impairment testing process became more difficult during the recent financial crisis and guidelines issued by the Italian authorities do not appear to assist in implementing the recoverable amount estimation process or compliance with mandatory disclosure. The respondents explicitly call for a revision in IAS 36 and/or issuance of separate guidance. These findings inter alia respond directly to the IASB’s current quest on financial statements preparers’ concerns about the application of the IAS 36 requirements.     

Introducing More IFRS Principles of Disclosure – Will the Poor Disclosers Improve?

Abstract

The current paper was prepared for the International Accounting Standards Board (IASB) Research Forum 2017 and evaluates the effects of introducing more principles of disclosure as part of the IASB Disclosure Initiative. We perform a literature review of academic research on how entities have complied with disclosure requirements in the past. The review shows high levels of non-compliance and high volatility across entities, including poor disclosers being far below the average. We find no clear pattern of higher compliance for International Financial Reporting Standards (IFRS) with more reliance on disclosure principles as compared to specific requirements (i.e. IFRS 7, IFRS 8), but note the methodological problem of measuring compliance with disclosure principles. Academic research suggests that the degree of compliance depends on entities’ incentives for providing or withholding information in combination with local conditions for primary users, auditors and regulators. Based on our review, we argue that increased reliance on entities to act in ‘good faith’ when complying with disclosure requirements, in capital-market contexts where entities may be in high-incentive situations and have low costs of non-compliance, is potentially risky in terms of how well the Standards protect primary users from poor disclosers. More emphasis is needed on ensuring that the disclosure requirements are enforceable and auditable in order to secure a certain minimum level of disclosure.     

IPSAS or IFRS as the Framework for Public Sector Financial Reporting? New Zealand Preparers’ Perspectives

The last 30 years have seen public sector accounting in many countries undergo considerable change. More recently, some governments adopted accrual accounting and International Public Sector Accounting Standards (IPSAS), some adopted modified International Financial Reporting Standards (IFRS) while others continued with cash‐based accounting. New Zealand (NZ) has, for more than two decades, followed a sector neutral approach to financial reporting and standard setting where the same accounting standards were applied to all entities in all sectors: for‐profit, not‐for‐profit and the public sector. This period included the adoption of IFRS by for‐profit entities with minor modifications for the public sector. The suitability of IFRS for the public sector has been questioned and, recently, standard setters in NZ decided to adopt a sector‐specific standard‐setting approach with multiple tiers for each sector. The for‐profit sector will continue to follow IFRS but reporting standards for the public sector will be based on IPSAS. In this period of change we sought the views of preparers of public sector financial reports regarding the users of such reports and their preferences for the public sector reporting framework. We also sought the views of the preparers regarding the usefulness of each financial statement for users, and whether the benefits of reporting by their organisations exceeds the costs. The findings indicate support for maintaining IFRS as a basis for reporting in the NZ public sector. However, IPSAS modified to NZ conditions is also perceived as an acceptable option by respondents in this study. The income statement is, in the opinion of the respondents in this study, the most useful statement while cash flows appear to hold little value. A high proportion of respondents believe that the benefits of reporting exceed the costs, which contradicts the view that such reports are mainly compliance documents that provide little value. This finding contributes to the continuing debate on costs versus benefits on the recent introduction of IPSAS as the reporting framework for the public sector and the perceived appropriateness of IPSAS in public sector reporting.     

IFRS within the Multi‐GAAP Canadian Reality: A Teaching and Learning Imperative for Intermediate Financial Accounting

Intermediate accounting instructors need to be engaged in the specific complexities and challenges of the new international financial reporting standards (IFRS) reality within the Canadian multi‐GAAP environment. Intermediate accounting courses are directly affected because they represent substantive coverage of the corporate reporting environment. In this article I make the case that these courses should primarily reflect IFRS standards in order to entrench IFRS competencies in students who wish to pursue a professional designation, to prepare students for the global environment, and to concentrate IFRS expertise issues in a robust instructor group. The competency maps of each of the three Canadian professional accounting bodies clearly reflect IFRS. Students can analyze the implications of major areas of policy differences between IFRS and private enterprise GAAP (PEGAAP) through specific targeted course coverage, but also through active learning elements, particularly research elements. This commentary reflects some of the active debate occurring regarding postsecondary curriculum as Canada adapts to IFRS and PEGAAP, and encourages action.     

Perceived costs and benefits of IFRS adoption in Saudi Arabia: An exploratory study

In response to a current lack of research in the Middle East, this study aims to critically evaluate the perceived costs and benefits associated with the adoption of International Financial Reporting Standards (IFRS) in Saudi Arabia, the world's leading oil and natural gas exporter. Using documentary analysis and interviews with stakeholders (account preparers from listed companies in Saudi Arabia, auditors from Big 4 and local accountancy firms, and university academics), the study contributes to the literature by concluding that the benefits of IFRS adoption in Saudi Arabia outweigh the costs. Importantly, a lack of qualified accountants, significant dependence on Big 4 accounting firms, inadequate coverage of IFRS in university education, and a lack of research are identified as major obstacles to the effective implementation of IFRS. The findings offer a possible policy agenda for local and international policy makers.     

An Examination of Comment Letters Filed in the U.S. Financial Accounting Standard-Setting Process by Institutional Interest Groups

With the advent of some form of IASC-type harmonized accounting standards likely, it has been suggested that they are likely to be based to a large extent on U.S. accounting standards promulgated by the FASB. This study of the content of comments filed on twenty controversial FASB accounting standards by four institutions in the United States is timely. Those comments are assumed to represent the views of financial-statement users, attestors and preparers: FEI, IMA, AIMR, and AICPA. The adopted standards' requirements are also examined in the context of these comments to provide insights about accounting characteristics on which the FASB has aligned with different interest groups. These characteristics include uniformity in accounting methods, disclosure, volatility in financial reporting, and conservatism. The results indicate that AIMR, in representing users, is the most constant in its positions. The two preparer organizations (FEI and IMA) took user-oriented positions on some issues, but showed a strong tendency to oppose costly disclosures and requirements associated with volatility. Comments from the AICPA were diverse but the study revealed an overall bias toward user views. Overall, the FASB aligned most closely with users and the AICPA. FASB tended to adopt standards that led to greater uniformity but compromised on costly disclosures and requirements associated with volatility and conservatism.     

Perceptions and characteristics of financial statement users in developing countries: Evidence from Iran

We examine the perceptions and characteristics of users of corporate financial statements in Iran. We provide evidence based on a survey of seven different user-groups. Our results suggest that annual reports are regularly used as a basis for making investment and other economic decisions. As in many developing countries, users depend more heavily on information obtained from the published annual reports than on advice from stockbrokers and acquaintances or on tips and rumors. While respondents differed in their rating of the importance of different sections of the annual report, the overall results showed that they ranked the income statement, the auditors’ report, and the balance sheet as the three most important parts of the annual report (in that order). There is a weak level of consensus among bank loan officers, tax officers, and auditor groups about the importance of several information items. Most users believe that a delay in publishing annual reports, lack of reliability of the information, and lack of adequate disclosure are the main concerns with corporate financial reports in Iran. The evidence on Iran is relevant to other developing countries in the Middle East and beyond.     

The presentation of financial information at corporate Web sites

The advent of the World Wide Web has provided a new avenue for companies to communicate with current and potential investors. Our study investigates corporate Web site financial disclosure practices. We evaluate and compare the Web site disclosure levels of 17 industries, and summarize the frequencies with which a variety of financial disclosure items are found. Our examination identifies several practices that raise potential concerns for the accounting profession. In particular, we investigate annual report excerpts tailored for Internet users and identify information found at Web sites that may increase disclosure risk. We also discuss issues associated with locating and using Web site data.     

Analyst Coverage,Market Liquidity and Disclosure Quality: A Study of Fair-value Disclosures by European Real Estate Companies Under IAS 40 and IFRS 13

Disclosures in notes have been criticized by practitioners for being unwieldy and contributing little to the quality of the financial information. This study presents evidence on the association between disclosure quality, analyst following and liquidity in the real estate sector. More specifically, we study the disclosure of the methods and significant assumptions applied in determining fair values of investment properties under IAS 40 and IFRS 13. We find that disclosure quality is significantly higher under IFRS 13. Furthermore, we show that the quality is associated with analyst following and bid-ask spreads. However, the improved disclosures following the adoption of IFRS 13 are not associated with any significant positive economic consequences. This result indicates that the revised disclosure requirements in IFRS 13 did not solve any market imperfections.