Jaraf Editorial, Volume 7 (2) December 2012

Abstract

Welcome to this edition of the Journal of Applied Research in Accounting and Finance. Now in its eighth year, JARAF continues to encourage and promote applied research that has practical applications in the contemporary teaching and practice of accounting and corporate finance. In this issue, we examine topics related to M&A activity and corporate governance, financial reporting under IAS and legal aspect of fundraising.In our first article, Brett Cotten, Douglas Schneider and Mark McCarthy examine the new lease accounting standard proposed by The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB). The proposed standard requires lessees to record operating leases as debt. The authors examine whether the debt impact of operating leases is reflected in bond ratings by comparing firms’ actual credit ratings with synthetic ratings calculated using actual and adjusted financial statement data. Their findings suggest that the debt impact of operating leases is important to ratings agencies and that ratings may become more accurate under the proposed standard. Next, George Athanassakos looks at the value premium of a sample of Canadian non-interlisted stocks for the period May 1, 1985–April 30, 2009 and investigates whether an additional screening step for undervalued, valued and growth stocks can be employed to predict future stock returns. The author documents a consistently strong value premium over the period and constructed a composite score indicator (SCORE), enabling them to separate the winning stock from the losing stocks. He details numerous strategies that would have beaten the P/E portfolio over that period. This article would be of interest to investors and also researchers looking to apply such findings in sample US and global stocks. Finally, Mark Hughes and Simon Hoy criticise the International Accounting Standards Board’s (IASB) response to the call to improve the quality of accounting rules relating to investments in other entities. The paper argues that the IASB’s response has led to an increase in opportunities for entities to engage in off-balance sheet financing through the use of potential voting rights and supermajorities. They find that the entities that use supermajorities characteristically do not have consolidated majority-held investees, are larger, have less favourable leverage and better efficiency ratios. Using a case study, the paper demonstrates the impact of this off-balance sheet financing on the general-purpose financial reports of investing companies.