The Value Relevance of Accounting Income Reported by DAX-30 German Companies

International Financial Reporting Standards (IFRS) are required for consolidated financial statements of all European Union (EU) publicly traded companies starting from the December 2005 fiscal year end [Regulation (EC)]; and endorsed by the International Organization of Securities Commission (IOSCO) for its member countries beginning in 2000. We examine the challenges and benefits, including value relevance, of the adoption of IFRS by DAX‐30 companies, the German premium stock market. Based on a survey sent to DAX‐30 company executives, we find most companies agreeing that implementing IFRS should improve the comparability of financial statements. The complex nature, high cost of adopting and lack of guidance for implementing IFRS, as well as increased volatility of earnings after adopting IFRS, are listed among the most important challenges of conversion to IFRS. We use regression to measure another benefit: the value relevance of book values of earnings and equity in explaining market values of DAX‐30 companies during the period 1995–2004. Using 265 observations, we find that adopting IFRS or US Generally Accepted Accounting Principles or cross‐listing on the New York Stock Exchange significantly increases the value relevance of earnings relative to market prices.     

Nationality and differences in auditor risk assessment: A research note with experimental evidence

This study examines whether auditors from different countries come to different conclusions when they perform analytical procedures to assess the risk of misstatement in accounts. During a laboratory experiment, auditors who worked for the same firm in the United Kingdom, France, and the United States performed analytical procedures on identical case materials. Although auditors from all three countries came to similar conclusions about the overall risk of misstatement, they attributed risk differently across the individual financial statement accounts they evaluated.     

Developing countries converging with developed-country accounting standards: Evidence from South Africa and Mexico

I examine the usefulness (relevance and timeliness) of earnings announcements in two emerging markets, the Johannesburg Stock Exchange (JSE) and the Bolsa Mexicana de Valores Stock Exchange (BMV). A weighted least-squares regression is used to test the association of book values of earnings and equity with firm market value. I find that, on JSE and BMV, earnings and/or book value of equity are value relevant in explaining stock prices. I also find that this association is greater in 2000 as compared to 1998 on the BMV. Regarding timeliness, I find that earnings announcements are accompanied by unusually different returns on JSE, but not on BMV. Market infrastructure, specifically insider-trading rules, may explain BMV results. I suggest that accounting and market infrastructure interact and that such interaction is valuable input to the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) in their deliberations regarding one set of accounting regulations for all countries.     

The effect of revised IAS 14 on segment reporting by IAS companies

International Accounting Standard (IAS) 14 on segment reporting was revised in 1997. IAS 14R substantially changed segment reporting requirements in response to numerous criticisms of the original standard. The objective of this study is to determine how IAS 14R affected the segment disclosure practices of companies claiming to comply with IAS.

This paper examines the following questions: (1) What items of information are disclosed under IAS 14 and IAS 14R? Was there a gain or a loss of information disclosed for business and geographic segments with the implementation of IAS 14R? (2) Has the number of business and geographic segments reported by companies changed with the implementation of IAS 14R? (3) Are companies disclosing the items required by IAS 14R? (4) Are companies' segment reporting practices related to size, country of domicile, industry, international listing status, and having a then-Big Five auditor?

We find that the impact of IAS 14R is mixed. Companies are responding to IAS 14R, but not wholly embracing it. Our findings suggest that companies audited by a Big Five (now Big Four) firm and, to a lesser extent, companies that are larger, listed on multiple stock exchanges, and from Switzerland have greater compliance with IAS 14R than other companies in our study.