Equity accounting adoption in regulated and unregulated settings: an empirical study

This article examines equity accounting adoption by Australian companies before and after standard AAS 14 (1984), the first standard on equity accounting in Australia. To bypass a legal constraint, AAS 14 and its successor ASRB 1016 (1989) required that equity accounting of associates appear in supplementary disclosures (third-column or footnote) and not in consolidated accounts. Before AAS 14, extensive voluntary adoption of equity accounting occurred in consolidated accounts. Equity accounting adopters from 1971 to 1989 were matched in their adoption years with companies that could have used equity accounting but did not. Throughout, equity accounting adopters' EPS tended to be declining and equity accounting adoption tended to increase reported earnings. After AAS 14, adopters showed equity accounting via a third column if it increased reported earnings but in footnote disclosures if it reduced reported earnings. Leverage is associated with adoption before but not after AAS 14, perhaps because the standards required equity accounting in supplementary disclosures which had no impact on borrowing constraints, while no such restriction on equity accounting existed before regulation. Pre-AAS14 adopters tended not to be audited by large audit firms. Adopters after AAS 14 had higher ratios of investments in associates to total tangible assets; before AAS 14 they did not. The results are consistent with equity accounting being adopted opportunistically; there is limited evidence to support contractual efficiency motives.     

The Impact and Implications of International Financial Reporting Standards in the United Kingdom: Evidence from the Alternative Investment Market

This paper investigates the implications of the adoption of International Financial Reporting Standards (IFRS) from the perspective of small and growing companies listed on the United Kingdom's (UK) Alternative Investment Market (AIM). We consider the cost–benefit issues of IFRS adoption and investigate its economic consequences. The results reveal that only a small number of comparatively larger AIM companies have voluntarily adopted IFRS for some anticipated economic objectives. The results also suggest that most of the mandatory adopters have done so for regulation compliance purposes and they would not have adopted IFRS if a choice was available to them. As the existing literature mainly covers the impact of IFRS adoption on large listed companies, the findings of this study will give better insights into extending IFRS to private companies. The findings show an association between the early adoption of IFRS and firm size and conclude that size matters in both the adoption and implications of IFRS. This study also contributes to the debate on the implications of the new IFRS‐based UK GAAP for SMEs‐FRS 102, which will replace the majority of existing UK accounting standards for small and medium enterprises (SMEs) with effect from 2015. Our findings have implications for managers, regulators, market participants, practitioners and other stakeholders.     

THE EFFECT OF SFAS 87 ON CORPORATE FUNDING OF DEFINED BENEFIT PENSION PLANS

Statement of Financia1 Accounting Standards No. 87 (SFAS 87) modifies the method of accounting for pensions by requiring companies sponsoring defined benefit pension plans to (1) recognize a balance sheet liability for unfunded pension benefits and (2) disclose their obligation for pension benefits based on expected future compensation levels (the projected benefit obligation). These requirements may affect users' perceptions of a company's financial position, especially if these plans are underfunded. This research examines whether the requirements of SFAS 87 result in increased funding of corporate pension plans to counteract possible adverse perceptions of users about these plans. The results indicate that early adopters (companies adopting SFAS 87 in 1985 and 1986) increased the funding of their defined benefit pension plans in response to SFAS 87 ; however, later adopters did not do so. These findings provide evidence that companies may alter economic policies when faced with significant changes in financial disclosure requirements. Further analysis suggests that the effect of SFAS 87 on the pension expense recognized by the sample companies provided impetus for early adoption of this pronouncement.     

IFRS Adoption and Stock Prices of Japanese Firms in Governance System Transition

This study examines firms' decision to voluntarily adopt IFRS in a setting where there are changes to the governance system in a traditionally code law country, as well as how the market responds to such decisions. We find the probability of voluntary IFRS adoption to be higher among firms that have a high proportion of foreign shareholders, undertake quality audits, have low levels of leverage, feature a nominating committee, and are included in the new market index. In addition, the stock prices of IFRS adopters tend to increase around the announcement date of IFRS adoption, compared to those of non-adopters. Finally, market reactions are smaller for firms that feature a nominating committee, and are included in the new market index—perhaps because IFRS adoption by these firms is less surprising to market participants, and because IFRS adoption is not expected to add large incremental value to these firms.     

The adoption of international accounting standards by small and closely held companies: evidence from Bahrain

This study examines the accounting practices and the degree of adoption of international accounting standards (IASs) by small and closely held companies in Bahrain. It finds that 86% (31) of the 36 companies responding to the questionnaire applied IASs and they considered IASs to be very relevant for them. All firms prepare balance sheets, and the majority prepares income statements and cash flow statements. They also duly audit these statements. The data collected also revealed that the quotient influence on whether or not a firm adopted IAS was exerted by their external auditors. External auditors exerted the greatest influence on getting firms to adopt IASs. Banks and company partners were the primary users of company financial statements; inventories, depreciation, disclosure on financial statements, and the presentation of current assets and liabilities. The main IASs followed by a majority of firms are those pertaining so. Some of the standards were considered totally irrelevant, contrary to the prevailing idea that adoption of IASs creates an information overload for small and closely held companies. The results of this study indicate that a majority of our respondents did not find that it was costly to adopt or interpret IASs. Those few firms that experienced some difficulties sought clarification from their external auditors. About 84% of those who adopted IASs strongly agreed that using IASs improves their organization's ability to financial assistance from the banking sector. Also, about 90% of the respondents fully agreed that IASs help to achieve the objectives and improve the effectiveness of financial reporting.     

Characteristics of UK firms related to timing of adoption of Statement of Standard Accounting Practice No. 20

This study examines whether the timing of adoption of the UK Statement of Standard Accounting Practice No. 20 ‘Foreign Currency Translation’ depended on firms’ financial characteristics. Consistent with US studies, we find that early adopters tended to be larger firms, and that variables, such as growth options, profitability, leverage and management payout, have strong predictive power. In general, the decision to adopt the Statement of Standard Accounting Practice No. 20 did not appear to adversely affect the profitability measures or dividend payout. Firms tended to adopt when the adverse economic consequences of the adoption were likely to be minimal. They also appeared to defer the adoption of the standard to influence their financial performance and, hence, to achieve certain corporate financial objectives.     

Why mentoring matters in a hypercompetitive world

Professional service firms (PSFs), like so many other companies, are juggling the modern challenges of global competition, increased regulation, and rapid employee turnover. In a people-oriented industry, attrition has special import. DeLong and Gabarro, of Harvard Business School, along with former Morgan Stanley and Ernst & Young executive Lees, argue that a PSF can gain a much-needed competitive edge by renewing its focus on mentoring. The authors' in-depth interviews with professionals from more than 30 PSFs have yielded four principles for firms to heed as they rediscover this lost art. First, mentoring is personal. Rather than relying on standardized programs, mentors must frequently--and fairly--provide authentic advice and nurturing. Partners at PSFs know how to use their ample people skills effectively with clients; the benefits of using them with junior colleagues are even greater. Second, not everyone is an A player. A small dose of attention given to a B player goes at least as far as a large one offered to an A player. Since B players constitute about 70% of PSF staff, that's time well spent. Third, choice assignments are in short supply, which limits the number of learning opportunities available for associates. Good alternatives include shadowing senior professionals on assignments and taking on research or other projects that are not client-related but that nonetheless build expertise. Finally, mentoring is a two-way street. Protégés should not only learn from their senior counterparts, but also be taught to attract mentors--and to co-mentor one another.     

The Diffusion of Tax Effect Accounting in Australia

This paper examines the impact of regulation and earnings management incentives on the evolution of tax effect accounting in Australia. Following the release of the first accounting standard on the issue the method spread roughly equally throughout the mining and industrial sectors. Amendments to the standard, which loosened the recognition criteria for tax loss carry forwards, led to a significant increase in the proportion of companies (particularly industrials) adopting income tax allocation. Subsequent amendments restricting such carry forwards were associated with a significant decline in the proportion of companies allocating tax (particularly miners). We also observe differential financial statement effects between mining and industrial companies and, within both sectors, differential financial statement effects across time. Consistent with the arguments of Leppinus (1977) and Gibson (1984) the adoption of tax effect accounting is, on average, earnings enhancing in the post-DS4 period. However, in the pre-DS4 period, adoption was just as likely to reduce income for industrial companies as it was to increase it. In contrast, adoption was almost uniformly earnings reducing for mining companies. Thus something other than an earnings management hypothesis is needed to explain the voluntary adoption decision of the early (pre-DS4) adopters. We conjecture on the alternatives.     

Euro Membership as a Real Option Trigger: An Empirical Study of EU15 Manufacturing Firms

This article summarizes the authors' study of manufacturing firms in the 15 countries that made up the EU prior to its 2004 expansion. The study's main finding is that the introduction of the Euro has made companies based in one of the 12 countries that opted to adopt the Euro more inclined than firms based in one of the three non‐adopters (the U.K., Sweden, and Denmark) to exercise various forms of real options such as establishing alliances or partnerships, entering new markets, switching suppliers, or otherwise expanding within the Euro‐area. The study also shows that smaller, more profitable but financially constrained companies are particularly likely to exercise such real options triggered by the introduction of the Euro.     

What Drives TBL Reporting: Good Governance or Threat to Legitimacy?

This paper provides two complementary explanations for the adoption of triple bottom line (TBL) reporting by Australian companies. The first explanation is that companies adopt TBL reporting to legitimise their relationship with society because of adverse publicity from the media. The second explanation is that TBL reporting is adopted because of the company's desire to achieve high‐quality reporting and transparency inferred by strong corporate governance. Companies with TBL reporting had significantly more adverse media coverage before implementing TBL reporting than non‐TBL companies. TBL reporting is also significantly and positively related to the existence of an environmental or sustainable development committee and the frequency of meetings of the audit committee.     

Adoption of the International Financial Reporting Standards by Greek non-listed companies: The role of coercive and hegemonic pressures

In this paper, we examine the motivations for preparers in Greek non-listed companies to adopt International Financial Reporting Standards (IFRS). Previous literature has focused on listed companies and assessed the effect of IFRS on market efficiency to justify its adoption. Using data from a cross-sectional survey and from interviews with senior managers, our analysis indicates that the motivations to adopt IFRS in Greece are not primarily related to the technical competence of the standards. We draw insights from literature on institutional theory and hegemony based on the Selections from the Prison Notebooks of Gramsci, and show that the decision to comply with IFRS can also be motivated by coercive and hegemonic pressures, which are exerted by powerful institutional constituents as they interact with organisations’ strategic interests at the international and national level. The adoption of IFRS is driven predominantly by the pressures exerted by parent companies on their subsidiaries and by the legal requirements of the state, but also through borrowing and debt-contracting requirements as enforced by civil society actors, such as financial institutions. This mobilisation of power plays a pivotal role in supporting the establishment of IFRS among non-listed companies.     

INTERIM REPORTING PRACTICES BY COMPANIES IN BAHRAIN: PREPARATION OF INTERIM ACCOUNTS AND EARLY ADOPTION OF IAS 34

This study examines the preparation of interim accounts and adoption of International Accounting Standard 34 (IAS 34) by companies in Bahrain. Data was gathered through questionnaires returned from 31 companies listed on the Bahrain Stock Exchange (BSE). It was found that although 87.6% of the sample did prepare interim reports, only 65.5% have adopted IAS 34. Four hypotheses were tested to determine the factors influencing the early adoption of IAS 34. A discriminant analysis model was employed and three variables namely, size, profitability and leverage were found significant as the most discriminating variables between the early adopters and non-adopters. The predictive power of the model was found to be more than 80%. Companies prepare interim reports for a variety of purposes including management control and listing requirements.     

保险公司操作风险及其防范

保险公司作为市场经营主体,在提供保险保障和其他金融服务的过程中,不可避免地面临各种各样的风险,包括所有市场经营主体都会面临的一般风险和基于保险经营的特有属性而面临的特有风险,重视包括操作风险在内的保险公司全面风险管理已形成业内共识。     

Voluntary adoption of clawback provisions,corporate governance,and interlock effects

We examine the relationship between a company’s governance structure and the early adoption of management compensation clawbacks. We construct an index of whether governance tends toward relative management entrenchment versus monitoring and find that ostensible management entrenchment makes a clawback provision less likely. Furthermore, we examine whether social networks by the compensation committee with other adopters (interlocks) affects the likelihood of adoption, potentially by providing information from other decision-makers evaluating adoption. We find that interlocks by directors on the compensation committee with other companies with clawbacks increase the probability of a clawback. In addition, not all clawbacks are the same. We find that companies with clawbacks that are patterned after SOX are most common and are associated with monitoring-oriented governance and interlocks. Dodd Frank did not yet exist, but we find that clawback policies that would be compliant with Dodd Frank or are otherwise innovative are not associated with our measure of governance.     

Diffusion with distinction: The diffusion of household durables in the UK

Futures researchers have long been interested in studies that investigate the diffusion of innovations among consumers. Often this is simply as a basis for extrapolating future trends in access to technologies. But also this literature has been particularly useful in providing frameworks for understanding the processes by which new commodities come into circulation and spread across populations of adopters. In this paper we seek to deepen the analysis. We argue that many studies have oversimplified the issues by treating populations of potential adopters as being homogeneous. This, we believe, is inadequate for understanding the diffusion of products in consumer markets. Drawing on debates from cultural studies and the sociology of consumption, as well as emerging theories from evolutionary economics, and analysing household survey data, we show that there are discernible social groups that adopt products at different rates. These differential rates of adoption are attributable to the existence of groups with different tastes, and not simply a question of different income groups.     

The effect of heterogeneous risk on the early adoption of Internet banking technologies

Financial service providers have increasingly offered customers new remote access to such services, with Internet banking being the latest example. While Internet banking has been available for years, the early adoption by customers of this technology was disappointing to most. This paper examines the demand for remote access to banking accounts by consumers and finds that when the technology is new, the traditional risk return models including variables allowing for heterogeneous risk add power in modeling the adoption decision. Perceived risks in Internet banking are seen to be responsible for some of the hesitation to adopt. Ironically, older consumers are found to be less likely to adopt Internet banking regardless of their risk tolerances. However, younger consumers are found to be early adopters only when they have relatively high levels of risk tolerance.     

Product market effects of IFRS adoption

Prior literature finds that International Financial Reporting Standards (IFRS) adopters enjoy lower financing costs subsequent to IFRS adoption. We predict and find that mandatory IFRS adopters exploit lower financing costs to increase market share vis-à-vis non-adopters. This effect is robust across several different model specifications in a sample capturing the universe of public and private firms in the EU, in a matched sample of public and private firms, and in a public firm sample comparing mandatory and voluntary IFRS adopters. We further find that IFRS is associated with an increase (decrease) in industry sales concentration (competition), consistent with large public firms increasing market share. In supplemental analyses, we find that mandatory adopters issue more equity and debt after IFRS adoption and that larger market share gains accrue to those mandatory IFRS adopters that issue more equity and debt after IFRS adoption. Overall, we provide evidence of unintended product market consequences of IFRS adoption.     

Understanding accounting discretion in China: An analysis of fair value reporting for investment property

This study sheds light on the discretionary accounting practices in China, the largest emerging market in the world. In particular, we focus on whether Chinese firms use discretion in investment property fair values to manage reported performance. We examine whether firms’ ex ante needs for accounting discretion affect their decisions to adopt fair value reporting for investment property and the ex post performance management by these fair value adopters. Our findings show that the voluntary adoption of fair value reporting for investment property in China remains low. However, the fair value option for investment property is significantly more likely to be chosen by firms with greater needs for accounting discretion. Consistent with the conjecture that firms choose the fair value model to manipulate reported earnings, we show that fair value adopters use the unrealized gains and losses associated with investment properties to smooth earnings and that these firms are also more likely to meet or beat earnings benchmarks after adoption. Overall, our findings indicate that the use of fair value reporting for investment property in the emerging Chinese market is driven by managerial opportunism.     

Enterprise resource planning systems: comparing firm performance of adopters and nonadopters

The current study examined the longitudinal impact of ERP adoption on firm performance by matching 63 firms identified by Hayes et al. [J. Inf. Syst. 15 (2001) 3] with peer firms that had not adopted ERP systems. Results indicate that return on assets (ROA), return on investment (ROI), and asset turnover (ATO) were significantly better over a 3-year period for adopters, as compared to nonadopters. Interestingly, our results are consistent with Poston and Grabski [Int. J. Account. Inf. Syst. 2 (2001) 271] who reported no pre- to post-adoption improvement in financial performance for ERP firms. Rather, significant differences arise in the current study because the financial performance of nonadopters decreased over time while it held steady for adopters. We also report a significant interaction between firm size and financial health for ERP adopters with respect to ROA, ROI, and return on sales (ROS). Specifically, we found a positive (negative) relationship between financial health and performance for small (large) firms. Study findings shed new light on the productivity paradox associated with ERP systems and suggest that ERP adoption helps firms gain a competitive advantage over nonadopters.