Accounting Enforcement Research Articles

Uncertainty, financial reporting quality and accounting enforcement: Evidence from the European Union

Uncertainty, financial reporting quality and accounting enforcement: Evidence from the European Union

THE ROLE OF LEAN ACCOUNTING METHODS IN COST REDUCTION: EXPLORATORY STUDY FOR A SAMPLE OF INDUSTRIAL INSTITUTIONS IN BLIDA STAT

Objective: The aim of this study is to examine the role of lean accounting methods in cost reduction, and how the lean accounting methods are implemented in the modern manufacturing environment Theoretical Framework: Identifying the different meanings pertaining to the lean accounting and defining the principles, practices and tools for lean accounting enforcement. Method: this study was an exploratory study of 180 employees in ten industrial institutions of Blida Stat, using the questioner tool and “Microsoft Excel” for unloading data and the Statistical Packages for Social Sciences SPSS V25 for processing data, analyzing and explaining results. Results and Discussion: This study concluded that lean accounting methods contribute in costs reduction from three aspects which are save costs in product planning and designing phase then avoid additional costs in product implementation phase, It also contributes to profit maximization, competition support, and maximizing the value of products from the customer's perspective. Research Implications: The findings suggest providing the elements for implementing the lean accounting tools through replacing the wide production system by the lean production one in order to reduce wastage Originality/Value: Our study is different from the previous ones as it is among the modern and few studies particularly in the Algerian environment. The study focuses indeed on bringing out the probable implementation of the lean accounting tools in the productive corporations and its contribution in reducing costs in the industrial corporations

Country‐level Accounting Enforcement and IPO Underpricing

Using a sample of up to 2,503 initial public offerings (IPOs) in 32 countries from 2011–2017, we predict and find that higher levels of country‐level accounting enforcement are associated with lower levels of IPO underpricing. IPOs in countries with a relatively low accounting enforcement score (second quintile) exhibit a mean underpricing of 19%, whereas the mean underpricing amounts to just 9% in countries with a relatively high score (fourth quintile). The results remain qualitatively the same when we employ a multi‐level model or a difference‐in‐difference design. In countries that substantially strengthened their accounting enforcement in the 2003–2009 period, the level of IPO underpricing decreased significantly. We show that accounting enforcement matters for the cost of going public.

Country-Level Accounting Enforcement and IPO Underpricing

Country-Level Accounting Enforcement and IPO Underpricing

From a Two-Tier to a One-Tier Accounting Enforcement System: The Case of Germany

From a Two-Tier to a One-Tier Accounting Enforcement System: The Case of Germany

Re-examining the impact of mandatory IFRS adoption on IPO underpricing

In the mid-2000s, the European Union adopted a number of regulatory reforms intended to increase transparency and disclosure for IPO firms, including mandating the use of International Financial Reporting Standards (IFRS). The reforms also included (1) adoption of the Prospectus Directive, which mandated increased IPO prospectus disclosures and (2) increased accounting enforcement. These new regulations apply only to IPOs listing on “EU-regulated” markets; firms admitted to trading on “exchange-regulated” markets are exempt. We examine the impact of these regulations on IPO firms. For firms listing on EU-regulated markets, we find no association between IFRS and IPO underpricing; however, we find a significant decrease in IPO underpricing associated with adoption of the Prospectus Directive in countries that also increased accounting enforcement. Further, we confirm that, after 2005, most IPOs on exchange-regulated markets went public using domestic accounting standards, not IFRS. Our findings suggest that mandatory IFRS adoption did not play a major role in reducing IPO underpricing and contrast sharply with prior results, which failed to account for IPOs on exchange-regulated markets. Our evidence highlights the importance of controlling for contemporaneous changes in regulations and details of the institutional setting before attributing major economic consequences to a switch from domestic accounting standards to IFRS.

Income smoothing in European banks: The contrasting effects of monitoring mechanisms

This study provides evidence of the combined effect of various monitoring mechanisms on income smoothing through loan loss provisions using data on European banks across 25 countries and covering 2003 to 2015. We find that prudential supervision increases bank income smoothing, consistent with the idea that strict supervision increases banks’ incentives to signal business stability by managing earnings. However, the effect of prudential supervision is conditional on the intensity of market discipline and accounting enforcement, which reduce income smoothing only in strict supervisory regimes. The analysis also takes into account the effectiveness of prudential supervision, measured by considering the powers of national regulators and the results of financial health checks performed by European Union regulators. The results show that the effectiveness of prudential supervision influences how other monitoring mechanisms constrain bank income smoothing. Accounting enforcement reduces bank smoothing only in countries where prudential supervision is effective. Our findings suggest that strengthening investors’ governance and improving coordination between prudential supervisors and accounting enforcers can limit the paradoxical effect of strict supervision, which reduces bank transparency if not adequately combined with other monitoring mechanisms.

DETERMINAN FAKTOR FRAUD DENGAN KEEFEKTIFAN PENGENDALIAN INTERNAL SEBAGAI VARIABEL MODERASI (Studi Pada Organisasi Perangkat Daerah Kabupaten Keerom)

he purpose of this study was to test and analyze the Determinant of the Fraud Factor with theEffectiveness of Internal Control as a Moderation Variable in the Keerom District GovernmentOrganizations. The research population were all 28 Regional Apparatus Organizations, where thesample in this study was the Head of the Regional Apparatus Organization, Head of Division.Accounting and Head of subdivision.General/administration in each Regional ApparatusOrganization. The Test was accomplished about 77 sample respondents by using probabilitysampling. Data collection was collecting by directing a survey. Hypothesis testing was empiricallytested by using Smart PLS.The results showed that information asymmetry was affecting the tendency of accounting fraud. Thepursuance of accounting regulations was not affecting the likelihood of accounting fraud. Thesuitability of compensation has influenced the leaning of accounting fraud. The leadership hasinfluenced the tendency of accounting fraud. The effectiveness of internal control has moderated theinformation asymmetry towards accounting fraud tendencies. The internal control has moderatedthe accounting enforcement of trends in accounting fraud. The usefulness of internal controls hasmoderated the suitability of compensation for accounting fraud tendencies. The effectiveness ofinternal controls moderates leadership towards accounting fraud trends.

Is accounting enforcement related to risk-taking in the banking industry?

Using a sample of banks from 36 countries, we document that accounting enforcement is negatively related to bank risk-taking. We also provide evidence that accounting enforcement enhances bank stability during the crisis. In addition, we show that banks assume less risk through more conservative lending decisions and a reduction in complexity in jurisdictions with higher accounting enforcement. Our results show that formal institutions such as accounting enforcement are associated with bank financial decisions and risk-taking behavior.

Revisiting the effectiveness of the German accounting enforcement reforms: a replication study

In this paper, we replicate and extend the study “Economic Consequences of Accounting Enforcement Reforms: The Case of Germany” published by Ernstberger, Stich and Vogler (ESV) in the European Accounting Review in 2012. ESV (in Eur Account Rev 21(2):217–251, 2012) is, among others, widely cited for the evidence it provides on the weak but consistently positive effects of the German accounting enforcement reforms on earnings quality, stock liquidity and market valuation. The results were to be expected and are in line with the literature prior to 2012. More recent empirical archival and survey studies question these weak positive effects and, in particular, their persistence. Hence, we believe it is beneficial to provide further evidence on whether regulatory measures in the field of financial reporting show the intended “impact” and contribute to regulators’ objectives. As a first step, we replicate ESV (2012), and in a second step, we extend the analysis to a longer-term investigation period. While some of our findings are similar to ESV (2012), we are not able to provide consistent evidence for an increase in earnings quality, stock liquidity or market valuation.

Accounting enforcement in a national context: an international study

The purpose of this study is to investigate whether the national characteristics of culture, religion and political factionalization are associated with the strength of accounting enforcement. The study uses data on percentages of religious adherents in a sample nation, the Hofstede cultural dimensions and political factionalization. National legal code (e.g., Common Law or Civic Code) and market liquidity are controlled for. Factor analysis is used to generate factor scores from the data. The dependent variable, accounting enforcement, is drawn from Brown et al. (J Bus Finance Account 41(1/2):1–52, 2014). The findings demonstrate that this set of national characteristics is strongly associated with national accounting regulatory enforcement. The implications of this research are that national characteristics should be taken into account in considering the impact of accounting standards on accounting comparability across nations. The limitation of this study is that, like much international research, the sample size is limited, here to 42 nations. The authors collectively have many years of research examining/studying domestic and international regulation, its determinants and consequences. This study importantly extends previous research on the determinants and consequences of regulation in the auditing and accounting arenas. This study provides an important contribution to the literature by helping establish that national characteristics do affect accounting enforcement efforts cross-nationally. This helps researchers and regulators better understand whether international standards can provide the link in comparability across nations that proponents are seeking. It does so by focusing on the variation in enforcement across nations rather than on the standards themselves.

There is No Evidence that Mandatory IFRS Adoption Significantly Decreased IPO Underpricing

In the mid-2000s, the European Union (EU) adopted a number of regulatory reforms intended to increase transparency and disclosure for IPO firms, including mandating the use of International Financial Reporting Standards (IFRS). The reforms also included (1) adoption of the Prospectus Directive (PD), which mandated increased IPO prospectus disclosures and (2) increased accounting enforcement. These new regulations apply only to IPOs listing on “EU-regulated” markets; firms admitted to trading on “exchange-regulated” markets are exempt from these regulations. We examine the impact of these regulations on IPO firms. For firms listing on EU-regulated markets, we find no association between IFRS and IPO underpricing; however, we find a significant decrease in IPO underpricing associated with adoption of the PD in countries that also increased accounting enforcement. Further, we confirm that after 2005, most IPOs on exchange-regulated markets went public using domestic accounting standards, not IFRS. Our findings are important since they suggest that mandatory IFRS adoption did not play a major role in reducing IPO underpricing and contrast sharply with the results of prior research, which failed to account for IPOs on exchange-regulated markets. Our evidence highlights the importance of controlling for contemporaneous changes in regulations and details of the institutional setting before attributing major economic consequences to a switch from domestic accounting standards to IFRS.

The influence of accounting enforcement on earnings quality of banks: Implications of bank regulation and the global financial crisis

We study the effects of country-level accounting enforcement on earnings quality of banks and whether bank regulation substitutes or complements the effect of accounting enforcement on bank earnings quality. We also examine whether the influence of accounting enforcement on bank earnings quality changed after the global financial crisis. Using a sample of listed banks from 40 countries between 2001 and 2014, and abnormal loan loss provisions (ALLP) as our main proxy for earnings quality, we document a consistent and strong association between accounting enforcement and bank earnings quality. More specifically, an increase in accounting enforcement decreases the level of ALLP and decreases the propensity to manage earnings to avoid losses. Furthermore, we provide empirical evidence that bank regulation complements the effect of accounting enforcement on bank earnings quality. Finally, unlike in the pre-crisis period, we find a positive association between accounting enforcement and income-decreasing ALLP in the post-crisis period, which indicates that stronger accounting enforcement is associated with more conservative earnings and higher loan loss reserves. Overall, our results indicate that accounting enforcement reduces opportunistic earnings management.

Analysis of an SEC Accounting Enforcement Case

Journal of Corporate Accounting & FinanceVolume 28, Issue 6 p. 66-68 Departments Analysis of an SEC Accounting Enforcement Case Donald A. Walker Jr, Donald A. Walker JrSearch for more papers by this author Donald A. Walker Jr, Donald A. Walker JrSearch for more papers by this author First published: 16 August 2017 https://doi.org/10.1002/jcaf.22297Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Volume28, Issue6September/October 2017Pages 66-68 RelatedInformation

What are the Costs of Admitting Mistakes for U.S. Listed Foreign Firms?

We examine the stock market consequences of accounting restatements for U.S. listed foreign firms. After controlling for the severity of restatement and other firm characteristics, we find that, among firms that engage in irregularities, foreign firms experience significantly more negative two-day stock market reactions following restatement announcements than do U.S. firms. Moreover, we find evidence that the stock market reactions are more negative for foreign firms from countries with greater differences in accounting standards from the U.S., countries with weaker auditing and accounting enforcement environments, and countries with weaker rule of law traditions. Finally, we provide evidence of a geographic contagion effect as non-restating firms from the same country also experience significant stock price declines following restatements. Within a country-year, this contagion effect is concentrated among firms with lower accrual quality, suggesting that foreign firms’ restatements cause investors to alter their assessment of the earnings quality of non-restating firms from the same country. Collectively, our results suggest that restatements cause U.S. investors to reassess the information risk associated with country-level factors.

The Effect of Characteristics of External Audit on Accounting Enforcement Actions

The Effect of Characteristics of External Audit on Accounting Enforcement Actions

Enforcement of accounting standards: how effective is the German two-tier system in detecting earnings management?

Within the European Union, the IAS-Regulation has harmonized applicable accounting standards for consolidated financial statements of capital market oriented companies by requiring IFRS since 2005. Regarding enforcement of financial reporting, the IAS-Regulation offered only small guidance for EU member states which led to the implementation of different enforcement systems. Currently, harmonization efforts are taken, in particular by the European Securities and Markets Authority (ESMA), to establish a cross-jurisdictional accounting enforcement regime. This paper contributes to the discussion of standardized EU-wide enforcement mechanisms by assessing the effectiveness of the current German two-tier enforcement system in detecting earnings management. Using a unique data set provided by the German capital market authority, we find that the German enforcement system is effective in detecting earnings management, but shows weak ability in constraining earnings management in years following error releases.

A Comparison of Between‐Country Measures of Legal Setting and Enforcement of Accounting Standards

AbstractAcademics and practitioners agree that the enforcement of accounting standards has an important role in promoting high quality financial reporting and favourable capital market outcomes. We test three new enforcement proxies from Brown, Preiato and Tarca (2014) that focus specifically on auditing and accounting enforcement. We examine firms’ information environments, represented by the error in analysts’ consensus forecasts and the extent of disagreement among analysts, as indicated by forecast dispersion. For financial years ending from 2003 to 2009, we construct a sample of 357,034 firm–month observations on the errors and dispersion of analysts’ earnings forecasts for 10,769 firms domiciled in those 39 countries. We find that higher scores for all three proxies are associated with lower error and less disagreement in forecasts. In addition, we find that the indices have significant explanatory power when previously used enforcement proxies (such as Kaufmann et al.'s 2010 rule of law measure) are included in the regression models, pointing to the importance of specific measures of accounting enforcement. We conclude that accounting enforcement may be more important in securing favourable economic outcomes than has been previously realised, because researchers commonly have used noisier, more general legal proxies for enforcement that understate its marginal effects.

Earnings Management and Enforcement of Accounting Standards – Evidence from Germany

Within the European Union, the IAS-Regulation has harmonized applicable accounting standards for consolidated financial statements of capital market oriented companies by requiring IFRS since 2005. Regarding enforcement of financial reporting, the IAS-Regulation offered only small guidance for EU member states which led to the implementation of different enforcement systems. Currently, harmonization efforts are taken, in particular by the European Securities and Markets Authority (ESMA), to establish a cross-jurisdictional accounting enforcement regime. This paper contributes to the discussion of standardized EU-wide enforcement mechanisms by assessing the effectiveness of the current German two-tier enforcement system in detecting earnings management. Using a unique data set provided by the German capital market authority, we find that the German enforcement system is effective in detecting earnings management, but shows weak ability in constraining earnings management in years following error releases.

A Comparison of Between-Country Measures of Legal Setting and Enforcement of Accounting Standards

Academics and practitioners agree that the enforcement of accounting standards has an important role in promoting high quality financial reporting and favourable capital market outcomes. Researchers have used a range of proxies to capture differences between countries in the extent of enforcement, usually based on aspects of the legal system or laws in place, rather than the activities of auditors and independent enforcement bodies. We assess the merits of eight proxies that have been used to distinguish between countries’ institutional settings, including three recently-available indices (AUDIT, ENFORCE and their summation, AETOTAL) that focus specifically on auditing and accounting enforcement. We examine firms’ information environments, represented by the error in analysts’ consensus forecasts and the extent of disagreement among analysts, as indicated by forecast dispersion. For financial years ending from 2003 to 2009, we construct a sample of 357,034 firm-month observations on the errors and dispersion of analysts’ earnings forecasts for 10,769 firms domiciled in those 39 countries, where a variety of accounting standards have been followed and institutional settings have varied. While the results for forecast dispersion are equivocal, those for forecast accuracy are clear. AETOTAL has the strongest association with forecast accuracy, and AUDIT, ENFORCE and AETOTAL have additional explanatory power in models including more general legal enforcement (‘rule of law’) measures. We conclude accounting enforcement may be more important in securing favourable economic outcomes than has been realised, because researchers commonly have used noisier, more general legal proxies for enforcement that understate its marginal effects.