Proportional consolidation versus the equity method: A risk measurement perspective on reporting interests in joint ventures

Under Canadian generally accepted accounting principles (GAAP), firms are required to proportionally consolidate joint venture investments, as opposed to the United States where the equity method is used. Using a sample of Canadian firms, this study investigates the relative information content of equity method and proportionally consolidated financial statement amounts for explaining market risk. This is possible for Canadian firms where detailed footnote disclosures permit the calculation of pro forma equity method amounts. The findings are surprising in that whereas proportionally consolidated financial statements are more risk relevant than equity method statements for explaining price volatility, equity method statements are more risk relevant than proportionally consolidated ones for explaining bond ratings. The findings suggest that different market participants use financial statement information differently. The study also finds that failure to disclose disaggregated joint venture accounting amounts, as is the case under US GAAP, masks information that could help market participants assess risk.     

PERFORMANCE REPORTING BY MALAYSIAN LOCAL AUTHORITIES: IDENTIFYING STAKEHOLDER NEEDS

The concept of public accountability promotes the need for a comprehensive set of performance‐related information to satisfy the information needs of a diverse stakeholder interest group. However, literature concerned with the scope of information to be disclosed, and in particular within the context of a developing country, is limited. This paper identifies the information set which stakeholders of Malaysian local authorities consider relevant in the monitoring and assessment of local authority performance. Stakeholders indicated strong interest in performance information that is not traditionally disclosed in the financial statements: non‐financial information particularly performance measurement of outputs, outcomes, efficiency and effectiveness. Disclosures in the Statement of Revenue and Expenditure and forward‐looking information are generally regarded as the most important disclosures. The results of the study also indicate differences amongst stakeholders as to the level of importance that they place on certain items especially items related to internal policies and governance and financial position of the local authorities. The findings will be of significance to policy makers interested in improving the performance reporting of Malaysian public sector entities, particularly local authorities.     

The Influence of Tax on IFRS Consolidated Statements: The Convergence of Germany and the UK

The literature on the links between tax and financial reporting suggests that the strength of those links varies over time and from one jurisdiction to another. The links in Germany were seen to be particularly strong, and those in the UK rather weak. Previous literature was largely set in the context of unconsolidated statements but authors have suggested that their findings were relevant for consolidated reporting. This paper examines the scope for tax influence on IFRS consolidated financial reporting in the two above countries. We find that the overall position for Germany and the UK is now similar, that is, that the potential for tax influence is much weaker in Germany than recorded in previous studies. We also find that, even for unconsolidated reporting under domestic accounting rules, the extreme positions recorded for the two countries in the 1990s have been modified.     

合并财务报表的价值相关性研究

本文研究了中国上市公司合并财务报表的价值相关性问题。论文采用市值模型,以2001—2007年的数据为研究对象,检验了合并财务报表是否比母公司个别财务报表更具价值相关性,以及基于主体理论编制的合并财务报表是否比基于母公司理论编制的合并财务报表更具价值相关性。检验结果发现,虽然合并财务报表并不在所有样本期间比母公司个别财务报表更具价值相关性,但合并财务报表可以深入地揭示企业在偿债能力、盈利能力等方面的风险,从而,合并财务报表是有用的。检验还发现,基于主体理论编制的合并财务报表比基于母公司理论编制的合并财务报表更具价值相关性。     

IDENTIFYING THE MODERATOR FACTORS OF FINANCIAL PERFORMANCE IN GREEK MUNICIPALITIES

The use of financial ratios is a widespread method for assessing the financial performance of private sector companies. However, the application of an analogous exercise in the public sector is a less straightforward one. In the later case it is a multifaceted task that involves judgments about the interplay of complex social, organizational and financial factors. In this paper we use accrual end of the year financial statements data of Greek Municipalities for the period 2002–2004 to compute nine commonly used performance assessment financial ratios. We find corroborative evidence that factors, which are exogenous to the municipalities’ control, such as their wealth and size, have statistically significant impact on ratio values. Thus, as financial ratios are significantly influenced by socio‐economic factors like municipal wealth and size, cross sectional comparisons on the basis of these ratios should be made with caution and performed for municipalities that exhibit similarities in terms of size and wealth.     

DEVELOPING A CONCEPTUAL FRAMEWORK FOR CENTRAL GOVERNMENT FINANCIAL REPORTING: INTERMEDIATE USERS AND INDIRECT CONTROL

This paper argues that the search for external users of public sector financial reports, and for decisions for which users might plausibly need information that could feasibly be provided in general purpose financial statements, has failed empirically and theoretically. The implications for the construction of a conceptual framework for public sector financial reporting are examined. It is suggested that'intermediate'users operating in an environment of'indirect control'might form an appropriate basis for a conceptual framework. Some tentative observations about such a framework are made and its application in accounting for central government agencies is explored.     

A case against the consolidation of foreign subsidiaries’ and a United States parent’s financial statements

Generally accepted accounting principles in the United States usually require that companies which own more than 50% of the voting stock of foreign corporations prepare consolidated financial statements. The foreign financial statements must be recast into US GAAP and the foreign currency financial statements must be translated into US dollars. Alternative methods of translating foreign currency have major impacts on consolidated financial statements and on the behavior of management. Further, foreign subsidiary financial statements which are recast into US GAAP are less useful than the originals, and US users cannot analyze them without reference to the foreign environment. The interests of financial statement users are better served by alternative presentations of foreign currency denominated accounts rather than by consolidation.     

合并报表与母公司报表的有用性:理论分析与经验检验

本文从我国要求母公司同时编制和提供合并报表和母公司报表这一制度安排出发,检验了合并报表和母公司报表的有用性。研究得出,按照现行会计制度编制的合并报表在预测集团经营成果和现金流量方面并没有显著优于母公司报表。在分析上市公司的综合财务状况和偿债能力方面,母公司报表可以提供显著的增量信息。     

The role of generally accepted reporting methods in the public sector: An empirical test

This study explores the role of standard or generally accepted accounting and reporting methods in the public sector. It differs from prior studies that address public sector accounting issues in that it considers more directly how the political process influences decisions to report financial information. The primary contention is that adopting standard reporting methods reduces costs to public officials that arise from factors that characterize political markets. Empirical evidence based on data from the state governments is consistent with this contention, but theoretical and methodological problems restrict our ability to ascertain which specific factors are relevant.     

Avances en la cantidad de la información financiera del sector público en México a raíz de la LGCG

We evaluate the quantity, quality and harmonization of the financial information published by the states, the Federal District and the federal government during the period 2008 to 2012, following the approval of the General Law on Government Accounting (LGCG). First, the requirements identified by the CONAC and subsequently the International Accounting Standards Public Sector 1 (IPSAS) are used to assess the publication of the financial statements. Second, we presente the rate of compliance with the publication of accounts pointing IPSAS 1, 2 and 17. Finally, the harmonization of financial statements is studied by the Herfindahl-Hirschman index to determine whether the financial statements are comparable between them. The results indicate that the public sector has increased the quantity, quality and harmonization of the financial information published.     

Defining the Reporting Entity in the Not‐for‐profit Public Sector: Implementation Issues Associated with the Control Test

This paper reports the main findings of a research project carried out on behalf of the Australian Accounting Standards Board (AASB) and the New Zealand Financial Reporting Standards Board. The purpose of the research is to inform standard setters about implementation issues that had been encountered in the not‐for‐profit (NFP) public sector when applying the control concept in AASB 127, Consolidated and Separate Financial Statements. The intention is to use the findings to inform proposed implementation guidance for AASB 10, Consolidated Financial Statements. Data were collected via a literature review and meetings with various NFP public sector constituents. Identified issues were either conceptual in nature (for example, who are the relevant users of NFP public sector general purpose financial statements and what are their needs?) or related to implementation concerns (for example, is the power exerted by one NFP public sector entity over another of an ‘ownership’ or a ‘regulatory’ form?). The findings give rise to several suggested actions that standard setters could take in providing useful guidance to NFP public sector constituents.     

IPSAS and local government consolidated financial statements—proposal for a territorial consolidation method

This paper presents a new consolidation method to improve local government accountability. After a brief review of consolidated financial statements in the public sector, the International Public Sector Accounting Standards approach to consolidation is described. The authors explain why this approach does not adequately consider the distinctive features of local governments. A case study is presented to illustrate the principles underlying the new method.     

NON-PROFIT PERFORMANCE INDICATORS IN THE PUBLIC SECTOR

This paper examines the scope for validly using non-profit performance indicators in the public sector and identifies several decision-relevant roles for such indicators in the process of policy optimisation. It argues that many of the desirable qualitative characteristics of financial accounting data identified in the FASB's conceptual framework project are both relevant, and in need of strengthening, when the profit concept is extended to a more general performance concept which also includes benefits to consumers of the output of the public sector. The need for such strengthening is examined in both nationalised industries and the non-trading public sector.     

The Evolution of Consolidated Financial Reporting in Australia

This paper reviews the history of financial reporting by corporate groups in Australia, and in particular, the States of New South Wales and Victoria. Changes in Statutory and Stock Exchange rules governing consolidated reporting are described and the financial reporting practices of Australian holding companies between 1930 and 1962 are surveyed. The evidence indicates that (a) while the practice was not widespread, some Australian holding companies supplemented their financial statements with consolidated financial statements prior to the incorporation of such a requirement in either legislation or Stock Exchange listing requirements; (b) the influence of Stock Exchanges on the evolution of this practice is somewhat less than that previously attributed to it; and (c) the rapid spread of this form of reporting in an essentially unregulated environment (N.S. W.) coincided with the development of a market for public debt securities.     

Alcoa: Toward understanding minority interest

In this case students explore the financial statements of Alcoa as an example of a consolidated company with minority interest in order to understand minority interest and the differences among the concepts of accounting for consolidated enterprises: economic-unit, parent-company, and proportionate concepts. Unlike other Fortune 500 companies, Alcoa presents sufficient footnote disclosures to approximate financial statements based on each theoretical concept. Although Alcoa, and most public companies, primarily follow a mix of parent-company-concept and economic-unit-concept, students need to understand all three concepts discussed in FASB Discussion Memorandum Consolidation Policy and Procedures (FASB, 1995) because accounting for consolidated enterprises is changing in the 1990s and will surely continue to evolve during their professional careers. By transforming Alcoa's financial statements to be consistent with each accounting concept and evaluating the usefulness of these statements, students expand their understanding of minority interest and consolidated financial statements from a user's perspective and gain insight into accounting theory.     

Functional fixation: Experimental evidence on the presentation of financial information through different digital formats

This study examines whether, in the presentation of financial information, digital formats address the concern over users’ functional fixation. The accounting literature indicates that the presentation of financial information either within the financial statements or in the notes to the financial statements often creates functional fixation where users of financial statements fail to adjust for differences in accounting policy. This leads users to judge what would otherwise be identical financial situations as being different due to the different accounting policies and methods adopted. It has been suggested that the use of digital formats in presenting financial reports may overcome functional fixation. Using an experimental design involving accountants in public practice, the results indicate that the use of digital formats to present financial reports does not fully overcome the issue of functional fixation in the processing of financial information. Although the participants were able to identify and extract relevant information, irrespective of whether or not the information was presented within the financial statements or in the notes to the accounts, the evidence indicates that functional fixation remained when the participants made final decisions based on available information. This suggests that functional fixation may not be caused by access to or extraction of information but by the level of perceived significance based on where the information is reported in the financial statements. In general, the results indicate that current technology may not be able to fully reduce functional fixation in the evaluation of financial information prepared in accordance with different accounting policies and methods.     

企业集团财务信息的充分披露

信息需求者在需要关于企业集团整体财务信息的同时,也同样需要多样化的其他方面的财务信息,以满足决策的需要。本文认为,企业集团财务信息需求的多样化表现在许多方面,其中以对特殊行业子公司财务信息和母公司本身财务信息方面的需要表现得最为突出。本文对特殊行业子公司纳入合并范围带来的问题进行了分析,并指出应当披露企业集团中特殊行业子公司的财务信息;同时,本文对母公司财务报表披露的必要性和披露方式进行了分析讨论。     

论企业财务报告的性质及其信息的基本特征

本文研究主体(企业)财务报告的性质与特征,本研究必须区别财务报表和其他财务报告(含财务报表附注),中心和核心信息是由财务报表提供的,而外围和补充信息则由其他财务报告提供。上述财务报告的两部分的性质与特征有一些差别。财务报表是以过去的交易和事项为基础,是以有力的客观而可稽核的证据来支撑,它必须遵照会计准则并经过注册会计师的审计。所有涉及编制财务报表的会计程序都是确认与计量的运用,财务报表的内容仅限于财务报表要素,因此财务报表表述实际的事实。在很大程度上,提供一家企业经济活动,确切描绘的图像。相反,其他财务报告是以报告日为基础,而不是以交易和事项为基础,它运用估计、判断和模型,在很大程度上捕捉不确定性,这些不确定性可能提供财务和其他经济信息有助于使用者作出决策。总之,这两个部分都是完全必需的。但是在财务报告中,报表是中心,其他财务报告则是补充。     

Harmonisation of Government Finance Statistics and Generally Accepted Accounting Principles

Harmonisation between the Australian accounting standards applicable to the public sector and Government Finance Statistics is the highest priority for Australian public-sector reporting. The objective of harmonisation is to achieve a standard for a single set of government reports which are auditable, comparable between jurisdictions, and in which the outcome statements are directly comparable with the relevant budget statements. The result will be an improvement in the quality, clarity and transparency of government financial statements, and will remove the source of confusion as to which set of financial reports presents a more reliable portrayal of financial results.     

The Role of Holding Company Financial Information in the Insurer-Rating Process: Evidence From the Property-Liability Industry

We examine data for the year ended December 31, 1997 for 80 publicly traded property‐liability insurers that have Best financial strength ratings of their consolidated insurance‐operating subsidiaries. These firms employ a holding company structure, in which a parent owns the stock of multiple insurance‐operating subsidiaries. The operating subsidiaries prepare a consolidated annual report using the Statutory Accounting Principles (SAP), and an analogous set of financial statements based on the Generally Accepted Accounting Principles (GAAP) is released by the parent. We find that the financial characteristics important in determining ratings at the individual firm level—capitalization, liquidity, profitability, and size—are also important at the group level. Further, financial ratios from holding company statements are incrementally useful in the ratings' process, after group‐level ratios have been taken into account. Robustness tests based on a subsample of holding companies with minimal investment outside of the property‐liability industry reinforce our conclusion that parent company statements influence consolidated group ratings. However, our data do not allow us to separate the relative contribution of the GAAP model and underlying transactions to the ratings decision.