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.     

Enforced Standards Versus Evolution by General Acceptance: A Comparative Study of E-Commerce Privacy Disclosure and Practice in the United States and the United Kingdom

We present data on privacy practices in e‐commerce under the European Union's formal regulatory regime prevailing in the United Kingdom and compare it with the data from a previous study of U.S. practices that evolved in the absence of government laws or enforcement. The codification by the E.U. law, and the enforcement by the U.K. government, improves neither the disclosure nor the practice of e‐commerce privacy relative to the United States. Regulation in the United Kingdom also appears to stifle development of a market for Web assurance services. Both U.S. and U.K. consumers continue to be vulnerable to a small number of e‐commerce Web sites that spam their customers, ignoring the latter's expressed or implied preferences. These results raise important questions about finding a balance between enforced standards and conventions in financial reporting. In the second half of the 20th century, financial reporting has been characterized by both a preference for legislated standards and a lack of faith in its evolution as a body of social conventions. Evidence on whether this faith in standards over conventions is justified remains to be marshaled.     

Meeting user information needs: The impact of major changes in FASB and GASB standards on financial reporting by colleges and universities

This longitudinal study reports the impact of changes in generally accepted accounting principles on financial statement disclosures for 100 public and private institutions of higher education. Disclosures from the period when all colleges and universities followed the same accounting standards are compared with disclosures in periods after major changes in accounting and reporting standards were made by the Financial Accounting Standards Board (FASB) for private institutions and by the Governmental Accounting Standards Board (GASB) for public institutions. We find that an importance-weighted disclosure index shows that user needs are better met using the new reporting standards for public but not private institutions. An expanded unweighted index, however, shows improvement for both public and private colleges and universities. Using this disclosure index, the improvement for universities reporting under GASB standards exceeded the improvement for those reporting under FASB standards.     

Mandatory Environmental Disclosures by Companies Complying with IASs/IFRSs: The Cases of France,Germany, and the UK

This study investigates whether the adoption of a single set of accounting standards, such as IASs/IFRSs, guarantees the harmonization of accounting practices within a country and across countries, or whether differences in reporting practices persist because of dissimilarities in reporting habits and institutional settings. To this end, we investigate whether the level of environmental disclosure under IFRSs is related to the size of the reporting firm, and the strength of legal and regulatory constraints on environmental disclosures in the country where the firm is domiciled. Results indicate (1) that environmental disclosures imposed by IFRSs increase with firm size, and (2) that firms domiciled in countries with constraining environmental disclosure regulations (i.e., France and the UK) report more on environmental issues than firms domiciled in countries with weakly constraining regulations (i.e., Germany). This suggests a strong impact of national regulations on IFRS reporting. Taken as a whole, our results support the view that IFRSs are not applied consistently across firms and across countries, notably because of persistence of reporting traditions and discrepancies in national legal requirements.     

Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings

We investigate (1) whether the variation in accounting standards across national boundaries relative to International Accounting Standards (IAS) has an impact on the ability of financial analysts to forecast non-U.S. firms' earnings accurately, and (2) whether analyst forecast accuracy changes after firms adopt IAS. IAS are a set of financial reporting policies that typically require increased disclosure and restrict management's choices of measurement methods relative to the accounting standards of our sample firms' countries of domicile. We develop indexes of differences in countries' accounting disclosure and measurement policies relative to IAS, and document that greater differences in accounting standards relative to IAS are significantly and positively associated with the absolute value of analyst earnings forecast errors. Further, we show that analyst forecast accuracy improves after firms adopt IAS. More specifically, after controlling for changes in the market value of equity, changes in analyst following, and changes in the number of news reports, we find that the convergence in firms' accounting policies brought about by adopting IAS is positively associated with the reduction in analyst forecast errors.     

The Impact of the Disclosure of Non‐GAAP Earnings in Australian Annual Reports on Non‐Sophisticated Users

The disclosure of non‐GAAP earnings in Australian annual reports has risen steadily in recent years. These non‐statutory earnings measures are generally disclosed in the unaudited section of the annual report and are not consistent with statutory profit as defined under generally accepted Australian accounting standards (GAAP). Recent research conducted in the United States (US) has provided evidence that non‐sophisticated investor decisions are influenced by the presence and prominence of non‐GAAP earnings information. Further evidence suggests that investor perception changed after non‐GAAP earnings disclosures became subject to regulation in that jurisdiction. Australia has high investor participation rates by international standards, including investors operating self‐managed superannuation funds, resulting in a significant number of active individual investors. This study employs an experimental design to investigate the impact on non‐sophisticated investors of the reporting of non‐GAAP earnings information in addition to GAAP earnings information in Australian annual reports. The results of this study show a positive association between the prominent disclosure of non‐GAAP earnings information and non‐sophisticated investor reliance on this information. These results provide important evidence to Australian regulators as these narrative disclosures are not subject to regulation, in contrast to the US where mandatory regulation has been in place since 2003.     

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.     

Evaluating the Effectiveness of Sustainability Disclosure: Findings from a Recent SASB Study

Early research into the relationship between corporate sustainability programs and financial performance suggests a positive relationship between strong sustainability performance and a lower cost of capital. As investors increasingly incorporate sustainability information into financial decisionmaking, the importance of high‐quality sustainability disclosure is growing. Just as investors have relied on financial disclosures based on generally accepted accounting principles (GAAP) to assess corporate risk, a market standard is needed to help companies disclose comparable sustainability information. To address this issue, the Sustainability Accounting Standards Board (SASB) conducted a recent analysis of the current state of sustainability disclosure in annual Securities and Exchange Commission (SEC) filings. The study reviewed the disclosures of over 700 U.S.‐and foreign‐domiciled companies, focusing on material sustainability topics as identified by SASB's industry‐specific accounting standards. The authors find large variations among different corporate sectors in the frequency and quality, as well as the focus, of their sustainability disclosures. Then, after examining in detail disclosures within the SASB Resource Transformation and Consumer Staples sectors, the authors suggest a number of possible drivers of this variation, including key sustainability and economic trends, while also presenting evidence of increasing investor interest in sustainability information. Although the authors' analysis was not intended to determine the extent to which the quality of sustainability disclosure affects investor returns, the findings provide a useful baseline for the as yet largely unexplored relationship between sustainability disclosure and corporate financial performance.     

Auditing standards,increased accounting disclosure,and information asymmetry: Evidence from an emerging market

The interest in accounting disclosure and audit quality by academics, practitioners, and regulators heightened following the various financial reporting scandals, and subsequent legislative and professional response to these scandals. An important question is whether the implementation of stricter auditing standards such as those mandated by the US Sarbanes-Oxley Act would improve the information environment of firms whose shares are publicly traded. In this paper, I investigate the link between information asymmetry, measured by bid-ask spread, and increased accounting disclosures following the adoption of new auditing standards in China—an environment in which disclosure hitherto was relatively low. I report the following primary results of the statistical analyses. First, information asymmetry cost is substantial in the Chinese order-driven emerging markets. Second, the firms in the sample experienced significant reductions in their bid-ask spreads subsequent to the adoption of the new auditing standards. Third, the reductions in the bid-ask spreads were abrupt and permanent. However, no significant result is found for firms in the control group with foreign ownership, whose financial statements were prepared in accordance with international accounting standards and were audited with international auditing standards. The results have implications for policy makers and regulators in general, and those in emerging markets in particular.     

Corporate Reporting Practices in Poland and Romania – An Ex-ante Study to the New Non-financial Reporting European Directive

The European Directive 2014/95/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups is applicable by European Union-based entities starting with the financial year commencing on 1 January 2017. Central and Eastern European (CEE) countries are reported to face difficulties when implementing new European or global accounting regulations and models. We investigate the quality of non-financial disclosures in Poland and Romania, the biggest CEE countries, prior to the European Directive’s adoption and explain the diffusion of this type of reporting through the lens of the institutional pressures. We find that prior regulation, local institutional characteristics, ownership, industry and auditors have an impact on the quality of disclosures. Poland experienced a higher extent of voluntary reporting, but Romania faced prior regulatory demands for non-financial reporting (NFR). We find that the overall disclosure score is higher for Romania, which provides support for the importance of regulations to strengthen the spread and quality of NFR. The research findings are relevant to practice and policy. This ex-ante evaluation of reporting practices and of their determinants is useful to understand how change occurs in practice and how companies react to regulatory and other institutional demands.     

Accounting Reforms in China: Cultural Constraints on Implementation and Development

There is considerable theory and evidence to suggest that culture is an important environmental variable influencing the development of accounting systems internationally. According to the Hofstede (1980) and Gray (1988) cultural models, China's accounting development and practice should be in the cluster that supports statutory control, uniform practices, a conservative measurement approach and secrecy in disclosure. A uniform and rigid system of financial reporting has been practised for decades in the People's Republic of China under the centrally controlled economy. The accounting reforms launched since the 1980s aim to establish a new framework for regulating financial reporting which is adaptable to China's recently emerged socialist market economy. The adoption of accounting standards in the later phases of the reforms marks a dramatic turning point in China's accounting history towards a more international Anglo-Saxon orientation in financial reporting. Based on an analysis of the authority for accounting systems, the accounting profession and accounting measurement and disclosure in China, it is argued that this development will be constrained by the influence of China's culture and its accounting subculture. While financial reporting will be governed by accounting standards, their development and enforcement will remain a governmental and legalistic function. Accountants will continue to rely heavily on detailed technical rules. This mixed orientation will constitute China's unique national identity in terms of its accounting and financial reporting system.     

International operations and voluntary disclosures by U.S.-based multinational corporations

This study uses analysts' ratings of firms' disclosures to examine how the differences between U.S. and foreign disclosure environments affects the voluntary disclosures of U.S.-based multinational corporations. We hypothesize that these different disclosure environments discourage U.S-based multinationals from releasing costly information to competitors. Examining how these differences impact U.S. MNCs' reporting may further our understanding of the relationship between voluntary disclosures and differences among countries' accounting standards. Furthermore, it may explain how convergence of mandated accounting standards might impact voluntary disclosures. Controlling for industry membership, firm size, profitability, earnings-return relations, and capital market activity, we find that U.S. firms with more extensive foreign operations tend to provide fewer voluntary disclosures. These results are most robust for informal and flexible disclosures, such as investor relations, where the findings indicate a negative relation between foreign operations and disclosure.     

Innovation in Stock Exchanges: Driving ESG Disclosure and Performance

Stock exchanges are in a unique position to promote ESG transparency and leverage their institutional capacity to build more sustainable capital markets. To facilitate the quick uptake of material ESG disclosure and raise the quality and comparability of the data, the Athens Stock Exchange has created ESG guidelines for listed companies that will be published in the summer of 2019. One important feature of the guidelines is their degree of sectoral specificity and emphasis on materiality. The guidelines and supporting metrics they propose are based on reporting practices endorsed by international sustainability standards like the SASB's industry standards. This materiality‐oriented approach will help issuers focus on the sustainability value drivers inherent in their business, and so ensure that corporate ESG disclosures satisfy the demand of investors for comparable quantitative and accounting metrics that help companies communicate their commitment to long‐term value creation.     

The New Business of Government Budgeting: Reporting Non-Financial Performance Information in Victoria

Since the early 1990s the general and financial management of the Victorian public sector has been significantly transformed. This research examines and explains the content, nature and quality of non-financial disclosures, including those related to performance indicators, through a disclosure indicator analysis of reporting practices in recent government budget papers. It reports the results of its application to the last three years' budget papers. The findings highlight the problems in the reporting of non-financial performance indicators in the Victorian budget papers. These results indicate a significant gap between "official" expectations of the type of items required to be reported and actual budgetary reporting practices – some many years after regulation and major financial accountability reforms have taken place.     

The New Business of Government Budgeting: Reporting Non-Financial Performance Information in Victoria

Since the early 1990s the general and financial management of the Victorian public sector has been significantly transformed. This research examines and explains the content, nature and quality of non-financial disclosures, including those related to performance indicators, through a disclosure indicator analysis of reporting practices in recent government budget papers. It reports the results of its application to the last three years' budget papers. The findings highlight the problems in the reporting of non-financial performance indicators in the Victorian budget papers. These results indicate a significant gap between "official" expectations of the type of items required to be reported and actual budgetary reporting practices – some many years after regulation and major financial accountability reforms have taken place.     

IFRS adoption and analysts’ earnings forecasts: Australian evidence

We study 145 large listed Australian firms to explore the impact of international financial reporting standards (IFRS) adoption on the properties of analysts’ forecasts and the role of firm disclosure about IFRS impact. We find that analyst forecast accuracy improves, and there is no significant change in dispersion in the adoption year, suggesting that analysts coped effectively with transition to IFRS. However, we do not observe the expected relationship between firms’ IFRS impact disclosures in their financial statements issued at the end of the transition year with forecast error and dispersion in the adoption year. The results question the timeliness and usefulness of financial statement disclosure, even in a setting where disclosure was mandated by accounting standards (AASB 1047 and AASB 1) and firms had strong incentives to provide information to analysts.     

Exploring attitudes to financial reporting in the Australian not‐for‐profit sector

The current level of satisfaction among different stakeholders about the current approaches and practises of financial reporting of not‐for‐profit (NFP) entities is underexplored ( Christensen and Mohr, 2003 ; Lee, 2004 ; Gray et al., 2006 ; Parker, 2007 ). This paper uses content analysis to examine submissions to the 2008 Australian Senate Economics Standing Committee for its inquiry into the disclosure regimes of charities and NFP organisations, which aimed to explore attitudes about financial reporting in the NFP sector. Financial reporting is viewed as an important part of accountability, but the sector identifies deficiencies in the current regime in terms of consistency, efficiency and transparency. Respondents to this inquiry believed that a sector‐specific accounting standard was important. Financial reporting standards, regulations and legal structures should be uniform across the entire sector, but with some variation allowed for smaller NFPs. The cost of complying with standards was a significant issue for smaller NFPs.     

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.     

Accounting development in Pakistan

This paper examines the origins, growth, and the development of accounting practices and disclosures in Pakistan and the factors that influenced them. We trace the early days of accounting in the Indian subcontinent and discuss the British colonial influence. We examine the development of accounting in Pakistan through three eras: Independence through 1971, Post 1971-1984, and 1984 to present. We describe how the colonial past and later the international financial institutions such as the Asian Development Bank and the International Monetary Fund played key roles in shaping accounting and reporting practices of the country. Pakistan's adoption of International Financial Reporting Standards as national standards has not led to improvement in the quality of financial reporting. We argue that Pakistan, even though classified as a common law country in literature, exhibits most of the properties of code law countries. We conclude that lack of investor protection (e.g., minority rights protection, insider-trading protection), judicial inefficiencies, and weak enforcement mechanisms are more critical to explaining the state of financial reporting in Pakistan than are cultural factors. This insight has policy implications for developing countries that are making efforts to improve the quality of the financial reporting of their business entities.