Research Note: Form 990 Data Quality and Reliability

Familiarity, home bias and investors’ reactions to 20-F reconciliation gains and losses and perceptions of the quality of accounting principles

Book Reviews

The purpose of this article is to study the state of global convergence of financial reporting standards at the present stage, as well as to consider the key points of the process of unification of International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). To achieve this goal, the article considers the concepts of convergence, harmonization and standardization, presents an analysis of the intensity of use of these concepts, which are associated with the dynamic development of recent global accounting transformations and major trends in international convergence of financial reporting. The key stages of the process of unification of International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are considered. For decades, the European Union, the International Organization of Securities Commissions (IOSCO) and the Committee on International Accounting Standards have supported international efforts to harmonize US GAAP and IFRS. accounting and reporting standards used in different countries. We have determined that while both IFRS and GAAP aim to provide transparency, informational content and usability in financial statements, these standards use different approaches to achieve this. We indicated that at present IFRS is the dominant accounting and reporting system, in fact, only third world countries do not apply it. We have proven that in the process of achieving convergence, a single set of understandable and feasible international accounting standards must be developed, requiring high quality, transparent and comparable information in financial statements in order to ensure convergence of IFRS and GAAP. We analyzed the intensity of the use of the concepts of IFRS and GAAP, which are associated precisely with the convergence of these accounting systems using the Google Ngram Viewer (GNV) tool. We have proved that the Convergence of IFRS and GAAP also applies to Ukraine, since the convergence is bilateral, any change in IFRS will ultimately affect the Ukrainian accounting and reporting system.

Small/private business is an important sector of the economy of the United States; however, the needs of small business are often overlooked when accounting standards are established. This has led to concerns that small businesses are required to report financial information that is not needed by the users of their financial statements, and that they are precluded from reporting information that may be more useful. The purpose of this study was to determine whether loan decisions made using financial statements prepared on a modified basis of accounting affected decisions made by bank loan officers, the primary external users of small business financial statements. The study also examined whether different levels of external certified public accountants' (CPAs) association with the statements affected the decision and whether the interaction of the basis of accounting and the external CPAs' involvement affected the decision. Participants in the study, bank loan officers, received financial statements prepared in conformance with generally accepted accounting principles (GAAP) or financial statements prepared with departures from GAAP in four areas that have been criticized as not being applicable to small businesses. The statements were accompanied by either an audit, review, or compilation report. The study found no differences in the participants' decisions whether they received financial statements prepared in conformance with GAAP or modified GAAP basis financial statements. The results also indicate that the different levels of external CPAs' involvement with the statements did not affect the decision nor did the interaction of the two. The participants were also asked to indicate their need for additional information. The six items most requested are not normally included with financial statements. Only one participant who received the modified GAAP basis financial statements requested any of the GAAP basis information that was omitted.

Measuring the impact of international reporting standards on market performance of publicly traded companies

Measuring the Impact of International Financial Reporting Standards on Market Performance of Publicly Traded Companies

GAAP vs. IFRS Treatment of Leases and the Impact on Financial Ratios

<span>The purpose of this study was to apply social-psychological research methods to address an issue in the development of general accepted accounting principles (GAAP). Of concern to the Financial Accounting Standard Board (FASB) in the development of GAAP is the attitudes of its constituent groups with respect to the credibility of GAAP. Our main objective was to assess any differences in the credibility perception of GAAP, as indicated by the three main groups of FASB constituents: corporate preparers of financial statements (preparers), CPAs who audit financial reports to ensure their adherence to GAAP (auditors), and accountants who us financial reports to make lending and investment decisions (users). The results indicated that auditors perception of the credibility of GAAP along eight credibility dimensions was significantly different than that of preparers and users of financial reporting. These results are important to the standard setting process because they indicate a lack of consensus among the three main FASB constituent groups, and may indicate an elevation of auditor views over those of users and preparers. Some implications of these results and suggestions for future research are discussed.</span>

PurposeTesting a total of five hypotheses, the paper contributes to overall comparison of the two regimes, as it scrutinises whether these improvements have helped regulate this sector. Although it appears that, for the first time, International Financial Reporting Standards (IFRS) had a more timely effect than US Generally Accepted Accounting Principles (GAAP), multiple parameters must be taken into consideration. The banking system has additional rules that may affect financial statements, such as the Basel Accord which sets many policies closely related to the IFRS, such as deferred tax credits. In this way, this paper aim to enrich the results of these decisions, and illuminate aspects of amendments to IFRS and US GAAP in light of the crisis. Focussing on the financial sector, the author sought to critically evaluate their reactions, and to question some of their fundamental rules in practice. This is vital for accounting researchers and analysts, allowing for the first time to compare IFRS performance between Europe and the US, and make better investment evaluations.Design/methodology/approachThe study sought to detect whether IFRS and US GAAP protected firms from abnormal sales arising from the outbreak of the crisis, whether the reclassification option under IFRS was an answer to the crisis, and whether IFRS and US GAAP succeeded in regulating shadow banking through their amendments. Therefore, it processes five hypotheses. In order to detect the effects of the crisis on accounting regimes, the analysis focused only on companies from the financial sector composed of the banking industry, insurance companies and shadow banking. The author included firms from Australia, Germany, Greece, the UK and the US, and collected information on 679 financial institutions for the period 2009–2013. The author settled on these time frames because the author aimed to capture IFRS performance surrounding the crisis effects in 2008 and the amendments that followed. In this way, the author applied quantitative methods using only numerical data over a given period.FindingsThe results suggest that the reclassification option was successful, helping firms to perform better amid the crisis, indicating that the manipulation of the crisis was appropriate. It seems therefore that US GAAP should have activated this option for US firms. However, the US may not have hurried to act because its banking sector seemed to recover more quickly than in Australia and Europe. Either way, both regimes need to consider speculative market cases that might have appeared during the crisis, as the author have detected cases of abnormal returns. Finally, concerning regulation of the shadow banking sector, the results seem to be encouraging only with regard to the latest improvements and only for all countries examined.Originality/valueThe project contributes to debate on the reactions of both IFRS and US GAAP during and after the economic crisis. For this, it addresses several questions to investigate the performance of the financial sector under both regimes, identifying possible additional effects and considerations. More specifically, it answers if the fair value orientation actually contributes to the financial crisis through contagion effects, while it addresses additional questions. Have these two global accounting regimes succeeded in overcoming the consequences of the crisis? Have amendments and the introduction of new standards to IFRS and US GAAP achieved regulation of shadow banking? Which of the two has performed better? As aforementioned, the analysis focused only on companies from the financial sector composed of the banking industry, insurance companies and shadow banking firms from Australia, Germany, Greece, the UK and the US, for the period 2009–2013.

It must be recognized that we are considering tax accounting to be followed in financial statements prepared in accordance with generally accepted accounting principles (GAAP). Financial statements prepared in accordance with tax law and regulation, or fiscal financial statements, may or may not be in accordance with GAAP. Their primary purpose is to be used as a basis for determination of tax liability or compliance, not a fair presentation of financial position or results of operations. Only when the difference between GAAP and tax rules are not material should tax basis statements be considered to be in accordance with GAAP. Tax Payable (Liability) Method is widely used in Indonesia since it is one of the methods of tax accounting that In line with Indonesian Accounting Standard. (SAK). However this method did not consider the future effects of timing differences between net income accounting based calculation versus net income tax based calculation. Another Liability Method, which is part of deferred tax accounting, was the right method if we want to consider any future tax effect exist because of timing differences.

Purpose – This paper aims to investigate the impact of the filing of Form 20-F to the Securities and Exchange Commission (SEC) on short-term trading volume and return by those foreign firms which list their securities in the US Stock Exchanges. Design/methodology/approach – The authors collected 402 American depository receipt (ADR) firms from 38 different countries that listed their securities in the US Stock Exchanges over a 10-year period of 2000-2009. A regression model was used to examine such impact, including the post year 2007 SEC elimination of reconciliation. Findings – This paper found significant abnormal trading volumes and abnormal returns one day, two days and three days following the 20-F report for the sample firms whose financial statements were prepared under both home-country accounting principles and US generally accepted accounting principles (GAAP). Firms originally using international financial reporting standards (IFRS) do not present abnormal return and abnormal trading volume. This indicates that US investors view IFRS to be as high-quality as US GAAP. Research limitations/implications – The findings might be limited to this period and might not draw statistical inference for the future period. This evidence offers support for the SEC’s elimination of the reconciliation requirement to US GAAP. Practical implications – This study was carried out with the aim to investigate whether the release of Form 20-F by ADR firms offers any additional information useful to investors incorporating both abnormal return and trading volume, which is thought to be more sensitive. Originality/value – This paper investigates the short-term return and volume reactions caused by the earnings and equity reconciliation from home-country accounting standards or IFRS to US GAAP for foreign cross-listed firms in the USA.

The world's capital markets stand to benefit significantly from widespread acceptance and use of global accounting standards that are high quality, comprehensive and rigorously applied. The US Securities and Exchange Commission (SEC) announced in April 2007 a series of actions it intends to take relating to the acceptance of International Financial Reporting Standards (IFRS). To implement this, the SEC proposed in July 2007 amendments to Form 20-F and conforming changes to SEC Regulation S-X to accept financial statements prepared in accordance with IFRS without reconciliation to US Generally Accepted Accounting Principles (GAAP) when contained in the filings of foreign private issuers with the SEC. This paper analyses the forces driving convergence between US GAAP and IFRS and discusses the most recent activities by the SEC in relation to IFRS and international cooperation, including the SEC vote as of 15 November 2007, to allow foreign private issuers to prepare their financial statements using IFRS as issued by the IASB without reconciling to US GAAP.

PurposeThis study aims to determine whether financial statement users suffered a significant loss of information when, in November 2007, the SEC dropped the requirement for foreign private issuers using International Financial Reporting Standards (“IFRS firms”) to reconcile their financial statements to US generally accepted accounting principles (GAAP).Design/methodology/approachThe study investigates whether analyst forecast errors and forecast dispersion increased for IFRS firms to a greater extent than for US GAAP firms after the Securities and Exchange Commission (SEC) dropped the reconciliation requirement. Using a treatment group comprised of IFRS firms and a matched sample of US GAAP firms, this study uses regression analyses to compare forecast errors and dispersion for the last fiscal year the reconciliation was available and the first fiscal year during which the reconciliation was unavailable to analysts.FindingsThe study finds evidence that forecast errors for IFRS firms exhibited no systematic change after the reconciliation was no longer available for analysts covering those firms. Thus, it does not appear that dropping the reconciliation requirement was associated with a change in forecast accuracy. However, the study does find evidence of increased dispersion in the IFRS firms’ forecasts relative to their US GAAP counterparts after the reconciliation requirement was dropped.Practical implicationsThese findings have implications for evaluating the Securities and Exchange Commission’s 2007 decision to eliminate the reconciliation for IFRS firms. Specifically, the Securities and Exchange Commission’s decision does not appear to have significantly altered analysts’ information environments.Originality/valueThis paper contributes to the understanding of how a group of sophisticated financial statement users adapt to different sets of accounting standards.

SYNOPSIS The objective of our study is to test whether the adoption of International Financial Reporting Standards (IFRS) in the United States (U.S.) is perceived positively by American Depository Receipt (ADR) firms' equity market participants. We conduct our tests by studying market reactions to the Securities and Exchange Commission's (SEC) IFRS-related press releases, between 2007 and 2011, regarding potential adoption of IFRS in the U.S. Using a sample of ADR firms and multivariate regression analyses, we test the 3-day cumulative abnormal returns (CAR) of investors of ADR firms in response to SEC announcements on potential IFRS adoption. We find a significant and positive market reaction to the SEC's announcements related to the potential adoption of IFRS in the U.S. for ADR firms reporting their financial statements using IFRS, especially in the industry where IFRS is the globally predominant accounting standard. Conversely, we find a significantly negative market reaction to SEC-related announcements of potential adoption of IFRS in the U.S. for ADR firms currently reporting their financial statements using U.S. generally accepted accounting principles (GAAP). We conclude that the SEC's adoption of IFRS may benefit global and U.S. equity market participants relative to Local GAAP reporting (reporting using domestic GAAP that is not IFRS or U.S. GAAP) by providing a common basis for investors, issuers, and others to evaluate investment opportunities.

Accounting and auditing personnel of the U.S. Department of Defense constantly receive suggestions from accountants, from its contractors and their trade association representatives and from procurement personnel within the Department that its contracts should only place an obligation on its contractors to maintain an accounting system in accordance with generally accepted accounting principles and practices. The purpose of this article is to consider these suggestions and to indicate the accounting and auditing problems facing the Department of Defense in connection with its procurement contracts. Cost-type contracts require most contract costs be readily ascertainable. Generally accepted accounting principles provide standards for the evaluation of the financial position of an enterprise and for the measurement of income and expense over a given period of time. Fixed price contracts may also incorporate an incentive feature. Under this type of contract a unit target price is agreed upon during the initial negotiations with the contractor. The usual annual audit by independent auditors is directed toward the determination of the reliability of management's representations contained in the client's financial statements. The major audit effort is placed on balance sheet items with somewhat less emphasis on income and expense accounts.