Accepted Accounting Principles Research Articles

Readability level of prescribed Accounting textbooks used in South African secondary schools

The results of a study that investigated the readability of three Accounting textbooks used in South African secondary schools are presented. In South African schools, textbooks remain the primary source of course content that drives the students’ learning of the subject matter. The study followed the traditions of the positivist paradigm. The Flesch reading ease score and Gunning fog index are readability measurement methods that are helpful in measuring the difficulty or challenging nature of text in the Accounting textbooks. Using them assists teachers of Accounting who have the responsibility to choose textbooks that would assist their students to make meaning of the subject matter. Three sections from each textbook were analysed: an introduction section on budgeting, analysis and interpretation section, and section on General Accepted Accounting Principles. These topics are very important in understanding the discipline of Accounting; their readability or accessibility by students play a crucial role in learning the subject of Accounting. The results showed that some textbooks are not readable, or are not straightforward and user friendly, and are thus difficult to understand and engage with. This points to these textbooks being challenging to some Accounting students, especially since to some English is their second language. The recommendations for future research are discussed. It is suggested that authors of Accounting textbooks must consider the readability of the textbooks.

Determinan Faktor-Faktor Capability sebagai Perspektif Fraud Diamond terhadap Kecurangan Laporan Keuangan

Financial statement fraud is defined as deliberately not following the accepted accounting principles when reporting financial information, which leads to significant omissions or distortions of the facts. The purpose of this study is to determine the effect of capability in detecting fraudulent financial statements. Fraudulent financial statements can occur when a company intentionally violates accounting principles or ignores applicable financial reporting standards. Fraud diamond is one of fraud risk factor, one of which is capability. Many frauds, especially some of the multibillion-dollar ones, would not have occurred without the right person with the right capabilities in place. In this study, capabilities as measured by CEO prestige power, CEO education, CEO experience, CEO horizon, CEO founder, CEO expert power, CEO age similarity, and CEO number executive. The type of data used in this study is secondary data in manufacturing companies listed on the Indonesia Stock Exchange in 2017-2021. Sampling method by purposive sampling, obtained as many as 114 companies as samples. The data analysis method used logistics regression. The results of this study show that CEO age similarity and CEO number executive has a positive impact on fraudulent financial statements, meanwhile the other variables have no impact of fraudulent financial statements. 

Improvised and Self-taught Bookkeeping: Evidence from a WWII Captive’s Diary


 This paper aims to contribute to the existing literature on the issue of the accounting utility not for business reasons but for non-accountants and from the point of view of everyday life financial needs and human survival. In addition, this paper aims to reveal conclusions from the application of accounting by an ordinary essentially illiterate person, including that self-taught accounting is connected to the principles of accounting and modern application experience.
 Applying a qualitative-determinative analysis of a handwritten bookkeeping Diary, revealed that several accepted accounting principles were applied, even instinctively, by the illiterate young person.
 The improvised bookkeeping suggests that basic accounting knowledge derives from the specific needs of the individual and is configured according to specific circumstances of time and place and to the ease of understanding basic accounting theory and skills. The choice to use accounting, and the sanctuary and therapeutic value of accounting as bulwark in the worst possible circumstances reveals another option of social dimension of accounting.
 The accounting application as a means of finding structure and guidance in an unknown world and within a tragic environment helped extremely to turn the young refugee’s disaster to a success story.
 The few pages from the hand-written diary of an ex WWII captive is the quite unique and interesting material this paper is constructed on and consist an undoubtable original documentation, but at the same time the scarcity of the few saved pages comprises the main research limitation.
 The elements considered by an “Illiterate” in the accounting field, most significant, as well as the way in which these principles were registered, should be considered in Accounting Education.
 
 EL Classifications: D030, D100, M490
 Key words: Accounting history, Bookkeeping, Accounting principles, Qualitative analysis

Community Service to Provide Assistance in Preparing Financial Reports, Taxation to All Muhammadiyah Schools in Gresik Regency

The purpose of this service program is to provide knowledge and skills to schools so that they are able to prepare financial reports according to generally accepted accounting principles and are able to report tax obligations in accordance with applicable regulations. This activity was attended by 140 Muhammadiyah schools throughout Gresik Regency. The results obtained are that the school has obtained a decree ratifying the permit for the establishment of Muhammadiyah Charity Business from the Muhammadiyah Central Executive, the school has registered NPWP as the center to fulfill tax obligations, and the school has started to build an accounting system to produce school financial reports in accordance with accepted accounting principles.

Audit Materiality and Audit Effort: Evidence From Materiality Benchmarks

The Financial Reporting Council is the first auditing standard-setting body to require audit materiality threshold disclosure. Audit materiality thresholds are a function of auditor benchmark choices and percentage rates chosen for the benchmarks. This study investigates the association between audit effort and audit materiality thresholds, auditor benchmark choices and auditors’ use of benchmarks computed based on non-Generally Accepted Accounting Principles (non-GAAP) measures. The study uses expanded audit reports of 328 FTSE-350 companies with 2015 year-ends. The research finds a negative association between audit effort (proxied by audit fees) and audit materiality thresholds. The analysis provides new evidence on the association between audit effort and auditor benchmark choices. First, it reveals that audit effort is negatively associated with asset rather than other (profit/adjusted profit/revenue) benchmark choices. Second, it finds that audit effort is positively associated with non-GAAP benchmarks, indicating that auditors spend more time on their audits when there are unusual events.

Non-GAAP measure disclosure and insider trading incentives in high-tech IPO firms

PurposeThis paper aims to investigate whether the non-generally accepted accounting principles (GAAP) performance measures (NGMs) disclosure by high-tech initial public offering (IPO) firms signal firms’ efforts to maintain relatively high stock price levels before the expiration of the lock-up period to benefit insider selling.Design/methodology/approachThe authors perform ordinary least squares and logit regressions using financial statement data and hand collected data on NGM disclosures for high-tech firms during the IPO process.FindingsThe authors find that the top executives of high-tech IPO firms with NGM disclosures are significantly more likely to sell and sell significantly more insider shares at the lock-up expiration than those of high-tech IPO firms without NGM disclosures. At the same time, while high-tech NGM firms have stock returns similar to their counterparts without NGMs for the period before the lock-up expiration, their stock returns are substantially lower after insider selling following the lock-up expiration.Practical implicationsBy documenting the negative association between NGM disclosures and post-lockup expiration stock performance, the study highlights managerial deliberate optimism about the firm’s prospects which may not materialize. Hence, investors should take the NGM disclosures with a grain of salt.Originality/valueThis paper fills a notable void in the non-GAAP reporting literature by documenting a statistically and economically significant positive association between managerial equity trading incentives and NGM disclosures by high-tech IPO firms.

PENERAPAN ISAK 35 PADA MASJID BAITUL HIDAYAH PUGER JEMBER

The purpose of this study was to determine the suitability of financial statements according to ISAK No. 35 and how the accounting record in the financial statements of Baitul Hidayah Puger Mosque with generally accepted accounting principles. The research was conducted at the Baitul Hidayah Puger Mosque using data collection techniques with interviews and documentation. The data analysis technique in this research was a qualitative descriptive analysis where the data was compiled and described based on the result of data collection on financial statements, then was compared with relevant theories to the problem, which could then be drawn a conclusion. Based on the result of the study, it could be concluded that the basis of recording applied at the Baitul Hidayah Puger Mosque was incomplete and not sequential according to applicable standards. The financial statements that made a report, a report on changes in net assets, a cash flow statements and notes on financial statements. Implementation of ISAK No. 35 Baitul Hidayah Puger Mosque was not in accordance with generally accepted accounting principles. The financial reporting of the Baitul Hidayah Mosque in Puger was not in accepted accounting principles.

Understanding Social Accounting Based on Evidence

This study aims to discuss the use of social accounting, supported by practice theory, and its contribution to social accounting theory. It is possible for stakeholder accounting to be carried out by various companies. It has been analyzed by multiple case studies, and the results will enable us to help the general public understand the social values that companies generate for society and the resulting impact on stakeholder, and therefore social well-being. The results of the analyses will provide companies with feedback on their social impact, which will help them to become more efficient. This study defines a framework that might guide the social value and nonfinancial information of organizations. Social accounting is seen as an accounting system based on accepted accounting principles, seeking to emphasize the notion of corporate accountability. From the analysis of more than 90 cases, we conclude that there is a possibility of systematically introducing stakeholder accounting or recalled socioemotional accounting (SĒA) into all organizations.

Profit Management and Islamic Business Ethics

Financial reports are important elements in economics, so that a rule is formed in the financial reporting process called General Accepted Accounting Principles (GAAP). The aim is to unify financial reporting and financial reporting for each business entity in a country to facilitate the auditing process for fairness in reporting. This study will discuss earnings management in terms of Islamic ethics. The research method uses the literature review method concerning Islam's references and matters relating to profit management and Islamic business ethics. In this study, it can be seen that the behavior of a manager towards profit management by manipulating profit figures on paper is not following what is instructed by Islamic teachings and the basic laws of various types of muamalah are permissible until arguments are found that prohibit them.

Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions

AbstractWe survey the use of financial performance measures in determining executive pay among significant Australian financial institutions. We document evidence of the pervasiveness with which externally disclosed non‐GAAP (non‐Generally Accepted Accounting Principles) financial measures are also used internally to determine variable remuneration, with the apparent popularity of cash profit after tax in short‐term incentives plans. Our evidence also highlights the increasing use of peer group‐adjusted measures (e.g., relative cash earnings per share and return on equity ranking against a peer group) in determining longer‐run incentives, despite the fact that members of the peer group do not measure financial performance in a directly comparable manner. Detailed analysis of the four major trading banks (Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac) reveals differences in the way non‐GAAP earnings measures are calculated across the major banks, as well as some variation over time in the way individual banks measure performance. We also document evidence of non‐GAAP earnings restatements, with around 25% of non‐GAAP results subsequently being restated. These restatements are more likely to result in a downward revision of the initially reported non‐GAAP result than an upward revision. We therefore conclude that existing measures of financial performance used to determine senior executive compensation are not as ‘objective’, as might be assumed.

The Value Relevance of Non-GAAP Earnings: The Case of EPRA Earnings for European Real Estate Investment Trusts (REITS)

The vast majority of European Real Estate Investment Trusts (REIT) choose, under IAS 40, to report fair value of investment properties on the balance sheet and therefore recognize changes in fair value in a gain or loss in the income statement. Under European Public Real Estate Association (EPRA) guidelines, most REITs report a non-Generally Accepted Accounting Principles (GAAP) measure of recurring performance — EPRA earnings — in addition to International Financial Reporting Standards (IFRS) financial statements. EPRA proposed these adjustments to IFRS earnings to neutralize transitory items such as changes in fair value, calculate core operating results more accurately, and indicate the extent to which earnings can support dividend payments. Based on studies suggesting that earnings without the transitory items are more useful for investors, we assume that EPRA earnings are more value relevant than IFRS earnings. Using a sample of 680 company-years over the period 2011–2017, we find that market value capitalizes EPRA earnings more than twice as much as IFRS earnings. We also find that changes in fair value of investment properties provide additional information for the valuation of REITs, supporting the idea that the dis-aggregation of the net income into recurring earnings and transitory items can be useful to investors. Finally, our results show that EPRA earnings are not always more value relevant than other non-GAAP indicators sometimes used by REITs to measure their recurring performance, such as Funds from Operations. Moreover, a complementary analysis suggests that the choice of EPRA earnings to communicate recurring performance is independent of the economic characteristics of REITs and is mainly made by EPRA member companies.

The many faces of earnings before interest, tax, depreciation and amortisation (EBITDA): Assessing the decision usefulness of EBITDA disclosure by Johannesburg Stock Exchange-listed companies

Orientation: The voluntary disclosure of non-Generally Accepted Accounting Principles (non-GAAP) earnings may lack decision-usefulness if not faithfully represented or comparable. Commonly accepted as being well defined, earnings before interest, tax, depreciation and amortisation (EBITDA) may be misleading if labelled, defined and calculated inconsistently. Research purpose: To assess the decision-usefulness of EBITDA disclosure by Johannesburg Stock Exchange (JSE)-listed companies. Motivation for the study: Prior research on voluntary disclosure largely excluded EBITDA from its focus, accepting it as standardised. Research approach/design and method: A quantitative content analysis was used to analyse the EBITDA disclosure in 220 Stock Exchange News Service (SENS) reports in which JSE-listed companies reported their annual results for the period 2014–2016. Main findings: Companies inconsistently labelled, defined and calculated EBITDA. Twenty-four per cent of the SENS reports labelled and defined EBITDA as earnings before interest, tax, depreciation and amortisation, but calculated it by adjusting for other items as well. Companies’ definitions of EBITDA also differed widely, with 27 different definitions identified in 52 SENS reports that disclosed an unmodified EBITDA label. Practical/managerial implications: Existing JSE reporting requirements appear lacking in ensuring that companies disclose EBITDA that is faithfully represented and comparable. The identified diversity of definitions has implications where EBITDA is used for valuation and contracting purposes. Contribution/value-add: The study contributes to the voluntary disclosure literature by focussing on a non-GAAP earnings measure that has largely been ignored by prior research, namely EBITDA. Empirical evidence is presented on the diversity that exists in EBITDA disclosure by JSE-listed companies.

SEC Comment Letters on Firms' Use of Non-GAAP Measures: The Determinants and Firms' Responses

SYNOPSISThis paper explores Securities and Exchange Commission comment letters that address firms' use of non-Generally Accepted Accounting Principles (GAAP) measures in 10-Ks, 10-Qs, and earnings releases. We investigate the determinants of firms' receiving non-GAAP comments and the revisions to non-GAAP reporting undertaken by these recipients. Firms that experience poor GAAP performance and emphasize non-GAAP measures are more likely to receive non-GAAP comments. Recipients of non-GAAP comments are more likely than other reviewed firms to abandon non-GAAP measures in future filings. When recipients of non-GAAP comments continue to report non-GAAP measures, they provide more justifications for the use and reduce the prominence of these measures. However, higher non-GAAP earnings and GAAP earnings differentials do not appear to attract non-GAAP comments. In addition, the amount of non-GAAP exclusions does not decrease after the receipt of non-GAAP comments. Overall, our findings suggest that non-GAAP comments are effective in deemphasizing non-GAAP measures.JEL Classifications: M41, M48.

SEC Comment Letters on Firms’ Use of Non-GAAP Measures: The Determinants and Firms’ Responses

This paper explores Securities and Exchange Commission comment letters that address firms’ use of non-Generally Accepted Accounting Principles (GAAP) measures in 10-Ks, 10-Qs, and earnings releases. We investigate the determinants of firms’ receiving non-GAAP comments and the revisions to non-GAAP reporting undertaken by these recipients. Firms that experience poor GAAP performance and emphasize non-GAAP measures are more likely to receive non-GAAP comments. Recipients of non-GAAP comments are more likely than other reviewed firms to abandon non-GAAP measures in future filings. When recipients of non-GAAP comments continue to report non-GAAP measures, they provide more justifications for the use and reduce the prominence of these measures. However, higher non-GAAP earnings and GAAP earnings differentials do not appear to attract non-GAAP comments. In addition, the amount of non-GAAP exclusions does not decrease after the receipt of non-GAAP comments. Overall, our findings suggest that non-GAAP comments are effective in deemphasizing non-GAAP measures.

Issues with Public Disclosure of Non-GAAP Financial Metrics

The use of non-Generally Accepted Accounting Principles (non-GAAP) metrics by firms has increased dramatically in recent years. However, the regulatory structure for ensuring these metrics do not cross the line from appropriate discretion by managers to misleading investors has not kept pace. The last major pronouncement from the SEC addressing the disclosure of non- GAAP metrics was several years ago and has only been supplemented with unofficial clarifications to deal with highly technical aspects of securities laws. This paper examines the widespread usage of non-GAAP metrics and why the current lack of regulation with regards to disclosure of these data in unofficial settings, such as social media, is a problem that regulators need to address for protection of the investing public.

The Effect Of Non-Performing Financing (NPF) On Earnings Management Practices In Islamic And Conventional Bank

This study aims to examine the effect of Non-Performing Financing (NPF) to Earnings Management Practices in Islamic Bank and Conventional Bank. Earnings management procedures are still regarded legal when they do not conflict with General Accepted Accounting Principles (GAAP), but when viewed from an Islamic perspective, particularly in Islamic business ethics and sharia management, earnings management practices are regarded to be incompatible with the principles contained in Islamic business ethics and sharia management.The data collection of this research uses documentation technique from financial reports of Islamic bank and conventional bank. The analytical method which is used in this study is panel data regression. This study found that the Non-Performing Financing (NPF) have a significant positive effect with Earnings Management. For the implication, investors and other financial statements customers are anticipated to be more cautious in evaluating financial statements. For business institutions, especially sharia business institutions, the principles of Islamic business ethics should always be instilled in carrying out their operations.

Accounting Reporting Complexity Measured Behaviorally

We propose a new measure of accounting reporting complexity (ARC) based on customized extensions XBRL elements in relation to the number of reporting tags (NRT), expressed as the relative Extension Rate (ER) as a behavioral economics solution to improve markets. Behavioral insights have recently gained attention in different scientific and applied fields. Thereby behavioral economists set out to improve market conditions to aid practitioners and consumers make wiser and more informed decisions that have a positive impact over time. XBRL extensions reduce comparability of financial disclosures and complicate financial analysis and investor decision making. We find that ER is negatively associated with market capitalization and profitability. ER is on average higher in industries perceived as complex. The preparation and disclosure of more accounting items deviating from the base taxonomy is more complex for consumers of financial and non-financial information. Increasing ER imply comparability among peers is less enabled. In comparison to commonly used measures of operating and linguistic complexity, the associations between ARC and these outcomes are more consistent, exhibit greater explanatory power, and have stronger economic significance. The ER resulting from IFRS-filers, i.e. companies which prepare their financial statements under International Financial Reporting Standard (IFRS) are on average significantly higher than US GAAP filers, i.e. companies which prepare their financial statements under United States General Accepted Accounting Principles (US GAAP). This article is based on the “transparency technology XBRL (eXtensible Business Reporting Language)” (Sunstein, 2013), which should make data more accessible as well as usable for private investors. Overall, the findings contribute to the emerging behavioral economics trend with a novel application in data science and accounting.

The Impact of the Use of Internal Audit Standards on Sales in Libyan Economic Institutions: Case Study Al-Ahlia Cement Company

The aim of this research was to find out the impact of the internal audit standards on sales in Al Ahlia Cement Company - Libya. The research was based on statistical analysis and descriptive analysis (SPSS). The researchers used both the arithmetic mean for standard deviation to describe the axes of the questionnaire and the Pearson correlation coefficient for the relationship between variables and multiple regression analysis for the Impact of internal audit standards on sales. The study concluded that there is Impact and a strong relationship between internal audit standards and sales in Al-Ahlia Cement Company – Libya, and that internal audit staff have sufficient experience in and adhere to internal audit standards. Auditors are honest and independent in their work. The internal audit has a prominent role in the decision-making process by the beneficiaries, and there is a special section of the sales audit in the institution checks the invoices with the goods and records the sales by an independent person. The researchers recommended that the audit opinion be consistent with accepted accounting principles and internal audit standards. They also recommended analyzing sales regularly to avoid fraudulent bills.

Treasurer's Report November 2017

Treasurer's Report November 2017

The Role and the Current Status of IFRS in the Completion of National Accounting Rules – Evidence from Spain

The way Spain adapted the legislation to the Accounting Directives as well as a brief analysis of the Spanish standard setting process is followed by a description of the influence of International Financial Reporting Standards (IFRS) is the Spanish legislation and the different stakeholders’ position on IFRS. We show and explain why the local General Accepted Accounting Principles (GAAP) are clearly inspired by IFRS principles, even for Small- and Medium-Size entities, while at the same time there is no direct application of IFRS and no mention of IFRS as a complementary source of interpretation. We explain the influence of different stakeholders in the standard setting process and highlight the mostly positive attitude towards IFRS principles. We also show the major differences between the IFRS and local GAAP.