Volatility and risk relevance of comprehensive income

Motivated by concerns that the volatility of comprehensive income leads to the perception of increased risk we investigate the volatility and risk relevance of comprehensive income relative to net income for a sample of non-financial firms over the period 2005–2010. We find that comprehensive income is more volatile than net income and that comprehensive income is associated with market-based measures of risk (volatility of stock returns and beta). However, the volatility of comprehensive income incremental to net income is not associated with market risk and is not priced. These results have important implications for the FASB in deciding whether to report comprehensive income in a single statement of performance.     

Tax treatment of dividends and capital gains and the dividend decision under dual income tax

The paper analyses efficiency aspects of a dual income tax system with a higher tax on capital gains than dividends. It argues that apart from the distortions to investments claimed in earlier literature, the system puts even more emphasis in creating incentives for entrepreneurs to participate in tax planning. The paper suggests that the owner of a closely held company can avoid all personal taxes on entrepreneurial income by two tax-planning strategies. The first is the avoidance of distributions, which would be taxed at the tax rate on labour income. These funds would instead be invested in the financial markets. The second strategy is a distribute and call-back policy, converting retained profits into new equity capital. Interestingly, the outcome is that investment in real capital is not distorted in the long-run equilibrium. Empirical evidence using microdata is also provided.      

A European view on the legitimacy of accounting procedures: Towards a deliberative-accountability framework for analysis

Accounting rules affect fundamental areas of social interaction encompassing groups that have diverse and conflicting interests regarding financial reporting. In the absence of a coherent social choice theory, concepts of legitimacy can be used to assess the acceptance of accounting standard-setting processes and their resulting norms. In this paper, we analyze the standard-setting process in Europe. Accounting rules in Europe are developed in a two-stage process involving both private standard-setting and public rule-making. From a structural perspective, the European Union (EU) is well positioned to develop legitimate accounting procedures. However, the original purpose and the ensuing legitimacy of its control mechanism are jeopardized when EU structures are used and sometimes abused for policy formation and the creation of EU-IFRS.     

The volatility of comprehensive income and its association with market risk

Financial statement preparers claim that the ‘excess’ volatility of comprehensive income (CI) confuses financial statement users. We examine the volatility and risk relevance of CI, relative to net income, for a sample of 92 New Zealand nonfinancial firms for the period 2003–2010. The results show that CI is more volatile than net income. However, the volatility of CI incremental to net income is not related to market risk. Furthermore, the incremental volatility of CI does not modify the pricing of net income. These results hold when asset revaluations are excluded from other CI.     

From the global income tax to the dual income tax: Recent tax reforms in the Nordic countries

The paper discusses the recent drive toward a system of dual income taxation (DIT) in the Nordic countries. The pure version of this system combines progressive taxation of labor and transfer incomes with a proportional tax on income from capital at a level equal to the corporate income tax rate. The paper considers the motives for the introduction of this new income tax system, ranging from abstract theoretical arguments to very pragmatic considerations. While the Nordic DIT system violates the principles of the conventional personal income tax, it is argued that it may in fact be more in line with the philosophy of a true Haig-Simons comprehensive income tax. It is also suggested that the DIT system may cause fewer distortions to resource allocation than the conventional income tax. On the debit side, the paper points out several practical problems of taxing income from small enterprises under the differentiated income tax.     

Financial reporting transformation: the experience of Turkey

From the viewpoint of a developing country which is in need of foreign capital and foreign investments to finance its economic growth, the need for high quality financial information has vital importance. The need for IFRS in Turkey was brought up by the same reasons as a developing country and as an emerging market. With the internationalization of capital markets and the increased volume of international investments, companies functioning in Turkey needed to provide high quality financial information to access financial resources. Furthermore, internationally accepted and reliable financial information is also needed for the overseas customers of the domestic companies. Another reason facilitating the need for IFRS is Turkey's candidation for European Union membership.This paper attempts to explain the development process of accounting standards around the world and its practical results in a developing country: Turkey. Within this context, brief information is given about the structure of International Accounting Standards Board (IASB), and adoption process of IFRS in Turkey. During this adoption process, Turkey encounters several complications such as complex structure of the international standards, potential knowledge shortfalls, and difficulties in application and enforcement issues. This paper explores these difficulties and shares the Turkish experience from a viewpoint of a regulator and an academician, and discusses the proper and consistent way implementing a “Principle Based” IFRS in Turkey.     

Subjectivity in fair-value estimates,audit quality,and informativeness of other comprehensive income

This study empirically examines whether difference in audit quality is reflected in the pricing of other comprehensive income (OCI). Specifically, we first investigate whether OCI measures of Big 4 clients are more value-relevant than those of non-Big 4 clients. Considering different degrees of subjective management judgment involved in the OCI reporting process, we then explore whether the differential valuation effect of OCI between Big 4 and non-Big 4 clients is more pronounced for more subjective OCI components (e.g., minimum pension liability and foreign currency-translation adjustment) than a less subjective component (e.g., marketable securities adjustment). We predict that the aggregate OCI of a Big 4 client is more value-relevant than that of a non-Big 4 client. We also hypothesize that the differential valuation effect between Big 4 and non-Big 4 clients can be attributed to the amount of subjective assumption and judgment required in estimating OCI. Consistent with our predictions, we find that aggregate OCI audited by a Big 4 auditor has incremental information content over earnings, compared to OCI audited by a non-Big 4 auditor. More interestingly, our results also show that the differential valuation effect between Big 4 and non-Big 4 clients is stronger for OCI components of a more subjective nature. Our results are robust even after controlling for self-selection bias, the potential effect of the financial crisis, and other related effects.     

The influence of other comprehensive income on discretionary expenditures

Other comprehensive income items (OCI) increase and decrease book value and therefore indicate more or less firm value. It follows that OCI items, albeit transitory, may contribute to a wealth effect that influences expenditure decisions. In support, our regression results indicate an association between current year OCI and future discretionary financing, investing, and operating expenditures. However, we also find that OCI‐influenced expenditures are not associated with future profitability, suggesting such expenditures are not value creating. In further tests, we find that future discretionary expenditures are associated with both positive OCI and negative OCI for higher leveraged firms but only associated with positive OCI for lower leveraged firms. These results suggest that, for highly leveraged firms, positive OCI loosens debt constraints on future expenditures while negative OCI tightens debt constraints on future expenditures. For firms without debt constraints the results are suggestive of possible wealth transfers from debtholders to shareholders.     

On the empirical relationship between market value and residual income in the U.K.

This paper examines the empirical cross-sectional relationship between residual income and market value for U.K. firms. It does so because of recent claims that RI is a better measure for use by firms in internal planning and control activities than, say earnings. If such is the case then, presumably, we would expect that RI has a stronger association with market value than, for example, earnings. We conclude that the relationship between RI and market value is by no means perfect. Nonetheless, RI has a stronger association with market value, in conjunction with RD expenditures and opening and closing book value, than does earnings in conjunction with RD expenditures and closing book value. As a consequence, the capital charge element of RI does appear to add explanatory power to equations involving merely earnings, RD expenditures and closing book value. Our view, therefore, would be that the evidence presented in the paper provides some support for advocates of the use of RI for planning and control.     

Does reporting position affect the pricing of the volatility of comprehensive income?

The FASB changed the reporting policy for comprehensive income (CI) by issuing ASU No. 2011-05, which requires CI be reported in performance statements (i.e., either a single income statement with net income or a separate statement of CI following the income statement) rather than the previously allowed equity statements. We examine whether the change in reporting position of CI led to higher market pricing of CI volatility incremental to NI volatility (“incremental CI volatility”), as measured by the price-earnings relationship. We find that the market pricing of incremental CI volatility increased from the pre- to the post-ASU period for non-financial firms forced to change the reporting position of CI from equity to performance statements. The increase is more prominent for firms that switched to the income statement than for firms that switched to a separate statement of CI. Further, we find that the increased market pricing of incremental CI volatility translates into lower valuation weights on other comprehensive income.     

Capital and income financialization: Accounting for the 2008 financial crisis

Financialization is recognised as a key feature of the 2008 financial crisis. We argue that a lesson is the need for an accounting framework which focuses upon financialization allowing it to be monitored and controlled by stakeholders. We argue that financialization has been permitted through the failure of accounting to distinguish distributable income from capital gains/transfers and to distinguish productive from speculative capital. We introduce an accounting presentation (4S accounting) which effectively makes these distinctions. We use a stylized example to illustrate how it should be applied to the financial reporting of banks.     

Compliance costs for personal income tax in a transition country: the case of Slovenia

The evaluation of taxpayers' compliance costs has grown in significance within tax system research over the last 15 years. In 2001, two surveys of VAT and personal income taxpayers were conducted in Slovenia to evaluate compliance costs for the 2000 fiscal year. This paper presents the results of research into compliance costs for personal income tax in Slovenia. The results show that compliance costs for personal income tax are relatively low, primarily because most taxpayers consider filing their tax declaration to be a simple procedure, which means that consultancy costs are low.     

Articulation,Profit or Loss and OCI in the IASB Conceptual Framework: Different Shades of Clean (or Dirty) Surplus

Abstract

The 2015 International Accounting Standards Board (IASB) Conceptual Framework Exposure Draft (2015 IASB CF ED) proposes a mixed valuation and transactions approach to income determination. Nevertheless, it does not clearly choose between single or dual concepts of profit, which renders the 2015 IASB CF ED’s financial accounting model somewhat incoherent. The 2015 IASB CF ED proposes a rebuttable presumption that profit or loss should be all-inclusive. Only the IASB can rebut this presumption, but the 2015 IASB CF ED provides no clear conceptual basis on which to rebut this presumption. In spite of considering dual measurement, the IASB believes that it is neither possible, nor necessary, to distinguish between profit or loss and other comprehensive income (OCI) on a conceptual basis. This paper suggests that the 2015 IASB CF ED’s approach to measurement can be improved by introducing a deprival value measurement rule in cases where fair value and historical cost are not appropriate. Furthermore, it argues that under dual measurement it is both necessary and possible to make a conceptual distinction between the realised items of income and expense in profit or loss and those recognised by accretion in OCI.     

综合收益列报、估值判断和盈余管理识别的实验研究——基于评估师认知视角

估值判断会因综合收益列报模式的不同而有差异,因此利用实验设计检验了列报模式对评估师估值判断的影响,及其识别盈余管理的能力。调查和分析表明不同的综合收益列报模式对评估判断的影响不存在显著差异,符合中国评估行业现状;评估师能够识别盈余管理,但综合收益和它的组成部分的详细披露并没有显著增强公司盈余管理的透明度。     

Free market environmentalism and the neoliberal project: The case of the Climate Disclosure Standards Board

In the absence of good social, political, economic and environmental policy, the ecological status of the planet continues to deteriorate. In this paper, we argue that environmental decline has provided scope for new forms of policy-making, yet these emergent policies and policy-making bodies remain poorly understood. Drawing on the work of political geographers and political economists this paper explores the impact of neoliberalism on the development of global environmental regulation. We argue that climate disclosure practices and regulation have provided an opportunity to reinforce the ideological landscape of neoliberalism. In order to anchor this argument, we show that the origins of carbon regulation have emerged almost exclusively from within non-elected coalitions of multinationals operating through private, not-for-profit entities. These organisations continue to shape community expectations and influence government of climate change abatement strategies. To explore the impact neoliberalism has had on the environment, we examine the Climate Disclosure Standards Board (CDSB), its role, and its global impact on the regulation of reporting firms.     

The intoxicating brew of black liquor and son of black liquor: Deciphering the tax planning,research, policy and financial statement implications of tax credits via financial reporting income tax disclosures

In 2007, a change in the law regarding the alternative fuel mixture credit opened the door for paper mills to qualify a byproduct of paper manufacturing, black liquor, as a fuel eligible for the credit. The credit is a refundable credit of $0.50 per gallon. Paper mills can produce hundreds of millions of gallons of black liquor per year and qualified for the credit in 2009. In addition, in 2010 the IRS determined that these firms qualified for the cellulosic biofuels producer credit. Paper mill companies could amend their 2009 tax returns and swap their alternative fuel mixture credits for cellulosic biofuels producer credits worth $1.01 per gallon. The catch was that the alternative fuels mixture credit was refundable; the cellulosic biofuels producer credit was nonrefundable.     

优化我国劳务所得课税 促进居民收入分配公平

目前,我国对劳务所得的课税项目分散、同类所得税负不同、税负普遍较重,已构成我国收入分配差距过大的诱因之一。基于此,本文借鉴西方发达国家对劳务课税的先进经验,从课税范围、费用扣除标准和税率设计等方面提出了完善我国劳务所得税制设计的政策建议。     

Inside the Black Box of IASB Standard Setting: Evidence from Board Meeting Audio Playbacks on the Amendment of IAS 19 (2011)

We provide evidence on the little researched internal sphere of private IASB standard setting, more specifically, on the dynamic of board discussions and the respective impact of exogenous input such as comment letters, the array of arguments evoked in IASB debates, individual board member contribution and board-staff relations. We conduct a content analysis of audio recordings of 14 IASB meetings on the amendment of IAS 19 Employee Benefits (2011) between November 2008 and February 2010. Our main findings comprise the argument-based handling of comment letters not being conditioned by the political or economic importance of the senders, the gatekeeper role of staff members in channelling exogenous input and their equal role in board discussions and the dominant reference to conceptual arguments there. We also point to the heterogeneous involvement of board members, their different attribution to key issues and to further observations regarding the meeting governance, board’s discussion culture and etiquette. Our paper adds to the literature on private IASB standard setting, pension accounting and group decision making.

Data: All data are available from the public sources identified in this paper     

Accounting for financial instruments: An analysis of the determinants of disclosure in the Portuguese stock exchange

This paper studies the determinants of disclosure level in the accounting for financial instruments of Portuguese listed companies. An index of disclosure based on IAS 32 and IAS 39 requirements is computed for each company. The analysis includes variables that capture intrinsic features of Portuguese companies and institutional regulatory context, such as capital structure and characteristics of the corporate governance structure, within contingency theory. We could not find any significant influence of corporate governance structure or of financing structure. We conclude that the disclosure degree is significantly related to size, type of auditor, listing status and economic sector. This research reveals areas for improvement of Portuguese companies' reporting practices and suggests areas for intervention of the Portuguese capital markets regulator in the context of mandatory IAS after 2005.     

税率调整:强化我国个人所得税收入分配调节效应的选择

个人所得税在调节收入分配上具有其他税种无法相比的优势。在我国,其收入分配调节功能却未充分发挥,甚至在一些年份出现逆调节现象。本文通过分析我国个人所得税收入分配逆调节效应的原因,认为:课税模式、费用扣除标准和税率都对个人所得税收入分配调节作用产生影响。但通过对这三者的分析,认为个人所得税税率的调整才是强化个税收入分配调节功能的重心。