Changes In Accounting Policies Research Articles

The Impact of Financial Assets on Accounting Robustness-Based on the Perspective of Macro-Monetary Policy Changes

Accounting robustness is not only affected by micro business activities such as accounting policy changes, accounting treatments, and management profit manipulation, but also by changes in monetary policies in the broader environment in which firms operate. This paper examines the impact of financial asset price fluctuations on accounting soundness from the perspectives of investment return, discounted stock value, the purchasing power of money, company performance, and market follow-through effect, and concludes that a loose monetary environment will overestimate the value of financial assets and reduce accounting soundness; a tight monetary policy will underestimate the value of financial assets and improve accounting soundness.

Completeness of the qualitative characteristics using Foucauldian critical discourse analysis and content analysis paradigms: towards a revised conceptual framework

PurposeThe qualitative characteristics of decision-useful financial information (as set out in the revised March 2018 Conceptual Framework for financial reporting of the International Accounting Standards Board [IASB]) are fundamental for standard setting relied on by companies when making accounting policy changes and choices. However, there has not been an overarching universally agreed conceptual context of the qualitative characteristics. This paper aims to study the completeness of the qualitative characteristics towards suggesting a revision of the Conceptual Framework.Design/methodology/approachThe present study evaluated the completeness of these qualitative characteristics using Foucauldian critical discourse analysis and content analysis paradigms to elucidate the inclusion conundrum. Foucauldian analysis allowed focus on power relationships, governmentality and subjectification in accounting society, as expressed through language and practices of the IASB who ultimately decide on the qualitative characteristics. Content analysis was used to analyse data collected via interviews with preparers and users of banks’ accounts, changes in banks’ accounting policies after the conceptual framework was published and comment letters from banks who wrote to the IASB.FindingsNovel findings from this study revealed the potential significant omissions of the constraints of “materiality”, “transparency” and “regulatory/supervisory framework”. Also, surrounding the qualitative characteristics having been shown to be valid and includable, the adjective “decision-useful” reinstated in the chapter title and the IASB project team technical writers needing to show completeness of attention to all comments.Originality/valueFrom these findings, a freshly formulated chapter in the conceptual framework on the qualitative characteristics can now be submitted for consideration by the IASB, with potential for international post-implementation review.

Accounting Policy Changes and Misstatement Risk

We examine how various types of accounting policy changes affect financial misstatement risk and the ways auditors mitigate that risk. We find greater misstatement risk for both idiosyncratic and industry-wide accounting policy changes and that auditors play an important role in mitigating these risks in some situations but not others. Higher quality auditors appear to mitigate the misstatement risk from industry-wide changes, but not idiosyncratic changes. Misstatement risk is also mitigated when auditors communicate accounting policy changes through explanatory paragraphs and preferability letters and when they identify material weaknesses. Our evidence suggests that accounting policy changes are associated with a heightened risk of misstating the financial statements and auditors do not fully mitigate these risks in their audits.

Changes in IFRS accounting policies in the European Union: a count data approach data approach

Changes in IFRS accounting policies in the European Union: a count data approach data approach

Assessment of efficiency of corporate accounting policy from the perspective of optimization of income tax

Accounting policy is one of the key instruments for optimizing taxation of a business. At the same time, many companies do not use this strategy to reduce their tax costs due to absence of tax planning, and thus, likelihood of receiving economic benefits from the changes in accounting policy. The subject of this research is the changes in corporate accounting policy, aimed at optimizing income tax. The author suggests methods of forecasting economic impact from implementation of accelerated depreciation. The work employs general scientific methods and approaches. Method of scientific abstraction allowed formulating abstract concepts, while methods of analysis and synthesis allowed studying separate elements of socioeconomic phenomena with subsequent combination of these elements into one whole. The scientific novelty of this study consists in the proposed methodology for optimizing tax base by income tax through changes in accounting policy within the framework of creating reserves, redistribution of costs, classification of expenses, etc. The conclusions carry practical importance and allow high level of precision in substantiation of management decisions pertaining to tax planning and optimization of taxation.

THEORETICAL AND METHODOLOGICAL ASPECTS OF CHANGES IN ACCOUNTING POLICY ACCORDING TO INTERNATIONAL AND NATIONAL STANDARDS

Accounting policy is an internal document that contains data to ensure effective accounting, preparation and presentation of financial information, which is developed to combine with management decisions. The use of accounting policies should be consistently for similar transactions, other events or conditions. An entity has the right to change accounting policies only with the documentation of changes and their foundation. Cases in which it is possible to change the use to the accounting policies can be voluntary and mandatory. Accountants should use the theoretical and methodological aspects set out in UAS 6 “Error Correction and Changes in Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” to reflect properly changes in the accounting policies. Due to detailed analysis of these standards, IAS 8 was found to consist all needed methodology of accounting policy changes. The international standard gives variable instructions on: financial statements data change due to the event of factors that exist on this balance sheet; information to be covered in the notes (disclosure) to financial statements; accounting estimate changes, etc. International and national standards disclose changes and amendments to the accounting policies. This fact is very important for the users of the accounting policies and financial statements, as the amendment does not provide any financial statements data change. The company should clearly understand the difference between changes in the accounting policies and accounting estimates, know due to what circumstances retrospective application of changes in the accounting policies is impossible and how reflect them properly in a prospective way. To ease understanding of the described processes an algorithm for using changes in accounting policies according to international and national standards was developed. This will improve the quality of information presented in the financial statements of the company and as a result of using these data top management will make effective decisions.

Understanding How the Effects of Conditional Conservatism Measurement Bias Vary with the Research Context

While the asymmetric timeliness (AT) measure of Basu (1997) underpins a large body of empirical research on conditional conservatism (CC), prior studies have demonstrated that it is biased and could lead to Type 1 error. To assess how this bias could affect inferences from prior literature, we re-examine previous CC studies that apply the AT measure, and we compare the outcomes with those based on the asymmetric conditional variance (ACV) measure of Dutta & Patatoukas (2017) confirmed to be less influenced by similar bias. We draw two primary conclusions. First, both measures yield similar inferences in interrupted time-series settings that examine the impact of exogenous accounting policy changes on CC. Second, the inferences drawn from the AT measure are not supported by the ACV measure in seminal studies that model the determinants of CC in cross-sectional settings. In addition, we find that the conflicting results between the AT and ACV measures in the cross-sectional settings disappear when the AT measure is allowed to vary across firms. Our findings have implications for both past and future empirical studies of CC.

Climate-governance entrepreneurship, higher-order learning, and sustainable consumption: the case of the state of Oregon, United States

ABSTRACTThe ongoing devolution of climate policy-making to sub-national levels has prompted growing interest in policy entrepreneurship by individuals who are politically and technically creative and institutionally resourceful. This paper investigates the case of the materials-management programme in the Oregon Department of Environmental Quality which has emerged as a national and international leader by focusing on the role of household consumption in greenhouse gas (GHG) emissions. Two noteworthy innovations involve the development of a consumption-based GHG emissions inventory and introduction of policies aimed at facilitating construction of small homes (so-called Accessory Dwelling Units, ADU). The case traces over several decades the higher order learning processes within the group and their entrepreneurship toward affecting broader changes in emission accounting and climate policies in Oregon. The paper identifies the enabling factors for these innovations, and considers: how to create the conditions for learning, experimentation, and policy entrepreneurship; how to reproduce these conditions in different locales; and how to recognize and foster innovations that arise outside the established mainstream ‘climate community’. It also stresses the benefits of breaking down the barriers between science-based analysis and policy. The two questions frequently raised in the climate policy debate – how to bring researchers and practitioners together to develop efficacious policies; and how to replicate successful programmes and policies across different communities, jurisdictions, and locations – should be re-examined. It may be more appropriate to ask instead: How to create conditions for learning, experimentation, and policy entrepreneurship; and how to reproduce these conditions in different locales.Key policy insightsUsing a consumption-based greenhouse gas emission inventory instead of a sector-based inventory radically changes climate policy priorities, shifting the emphasis from technological fixes to curbing household consumption.Policy innovations thrive in teams that combine technical and scientific competencies with: a commitment to addressing societal problems; interest in inquiry, experimentation, and learning; entrepreneurship; and strategic and political savvy.These qualities require breaking down artificial barriers between science and policy.Transformative policy ideas can originate within institutional nodes that operate outside of an established community of expertise and authority; and these should be identified and fostered.

How Do Banks Account for Short-Term Effects of IFRS 9?

This study addresses how EU banks accommodate their accounting policy to face the challenge addressed by the forthcoming implementation of IFRS 9. Precisely, this study identified two challenges that banks would have to face in a short-term: 1) an increase of the amount of their assets designed at fair value through profit and loss, due to failures in Solely Payment of Principal and Interest test, and 2) a decrease on earnings generated by the implementation of the expected losses-based provisioning. Results from a difference-in-differences test show a significant downward trend regarding the amount of assets designed at fair value through profit and loss starting the IFRS 9 publication, and an upward trend for investments held to maturity. A downward and significant trend for cumulated loan loss provisions is also found. In addition, results from multivariate analysis do not exhibit unfavorable impact of those accounting policy changes on the bank share volatility.

The effect of expensing share-based payments on basic earnings per share of South African listed companies

Purpose – This study aims to investigate the post-implementation impact of expensing share-based payment transactions on basic earnings per share. In recent years, IFRS 2 was one of the most opposed and controversial standards issued by the IASB. Design/methodology/approach – The sample relates to the period immediately after implementation (2006-2009) and consists of the 531 firm-year observations where share-based payments were present among Johannesburg Stock Exchange listed companies. The effect of share-based payments on basic earnings per share is assessed. Findings – The findings of this study show a statistically significant impact on basic earnings per share, but the results are more modest than suggested by prior studies. The number of companies reporting a share-based payment expense increased over the five-year period 2005-2009. Originality/value – The introduction of IFRS 2 caused small but not necessarily immaterial changes to the income profile of companies. This is important for analysts and general users of financial information who need to be aware of these changes. The results also suggest that IFRS 2 did not merely cause accounting policy changes, but has impacted on the way share-based payment transactions are used by companies.

The effect of changes in Japanese consolidation policy on analyst forecast error

Our broad research objective is to investigate whether convergence towards international standards improves the decision usefulness of information. Recent changes in Japanese consolidated reporting practices to better align with international standards provide an excellent setting to investigate this research objective. Specifically, we examine the effect of changes in Japanese consolidation policy on financial analysts’ perceptions of the persistence of subsidiary earnings. Previous research provides evidence that, prior to the change in consolidation policy, consolidated financial information was not used efficiently in the Japanese capital market. Prior research finds a positive relation between subsidiary earnings and future stock returns in Japan, indicating that investors underestimate the persistence of subsidiary earnings. Consistent with prior research using stock returns, we find that financial analysts also underestimate the persistence of subsidiary earnings in Japan. We document a significant positive relation between subsidiary earnings and future forecast errors of consolidated earnings. However, following the changes in consolidation policy in Japan, we find that financial analysts no longer underestimate the persistence of subsidiary earnings. Changes in Japanese consolidation policy in conformance with international standards increase decision usefulness by improving the ability of financial analysts to predict overall firm performance. One limitation of our research design relates to the adoption of mandated accounting policy changes by all sample firms in the same calendar time. This makes it difficult to control for the impact of correlated omitted variables. While this concern can never be completely eliminated, we provide additional tests that examine sample partitions by firm size and industry. These additional tests support the primary findings that Japan’s efforts to converge consolidation rules with international standards have improved analysts’ consolidated earnings forecasts.

An empirical investigation of earnings restatements by Australian firms

AbstractFrom 1970 to 2003, we document earnings restatements for the top 500 Australian firms, examine the characteristics of restating firms, and test whether restatements are value relevant. Of the 195 earnings restatements, 49 per cent decrease prior‐period earnings (negative restatements). Negative restatements are relatively larger than positive restatements. We identify three reasons for earnings restatements; namely, accounting policy changes, revision of estimates, and errors and unknown, and they comprise 49, 40 and 11 per cent of the sample, respectively. Restatement firms have higher growth opportunities and are smaller than non‐restating firms from the same industry. Restatements are generally negatively associated with market and non‐market value.

Trends of Accounting Changes in the Context of Lithuanian Economic Development

Changes in accounting system have direct impact to economic stability and development of the states. It could be noticed analyzing experience of accounting harmonization in stabile and transitional economy countries, as well. The aim of this paper is to disclose to what extent changes in Lithuanian accounting policy within the framework of European Union determined results of Lithuanian economic development. In the first part of the article we tried to shed more light to the preconditions of those tremendous changes in the Lithuanian economy and accounting as well by analyzing the main features of transitional economy from accounting changes point of view. In the second part we briefly discussed changes in Lithuanian accounting systems since 1990 and disclose impact of it to the results of economic development. Further accounting policy perspectives, national peculiarities and problems of it discussed as well. The main conclusion based in performed study is as follows: • Natural feature of initial stage of Lithuanian accounting reform is that the State government becomes the main initiator of accounting legislation. An important role in the drafting of accounting reform legislation played considerations about tax revenue. On the other hand authorities remained primary users of accounting information, because of lack of interest form private sector. • Business accounting standards and international accounting and financial reporting standards become the main methodological basis for accounting in Lithuanian companies. Those standards raised accounting to a higher level of quality and this could be an advance of Lithuanian accounting. Application of IAS (international accounting standards), required for companies listed in the stock exchange market, opens new possibilities for foreign investors and capital market development. • According to the results of the research it is difficult to evaluate the direct effect to economic results, because of the complexity of factors influencing economic development. The tendencies of the relations between changes in accounting policy and foreign direct investment are similar to EU states. However according to the results in the case of capital market the tendencies were opposite. In Lithuanian case the domestic investors were more active than the foreign ones. Summarizing it could be maintained that the changes in accounting policy in Lithuania did not make such significant influence on economic development, as it happened in other EU countries, because of features of transitional economy and it is too early to look for visible results.

Accounting Policy Changes and Debt Contracts

Prior research provides evidence that firms make accounting choices to avoid violation of debt covenant provisions and the resulting costs of technical default. We extend this research by asking why some firms refrain from making accounting policy changes when faced with costs of technical default. We considered two possible explanations. First, we hypothesise that these defaulting firms may lack the flexibility to make accounting changes. Second, we hypothesise that these defaulting firms may lack incentive to change accounting methods. Results confirm prior research and indicate that defaulting firms make more accounting changes than non‐defaulting firms. The decision by defaulting firms to change or not change accounting methods during the three years ending in the year of a technical default of debt covenants can be explained in part by the ability of the firm and by the incentives of the firm to make a change.

Non-US Firms' Accounting Standard Choices

My study investigates the factors associated with non-US firms voluntarily reporting financial information prepared in accordance with International Accounting Standards (IAS) or United States (US) Generally Accepted Accounting Principles (US-GAAP). Documenting the factors associated with non-US firms' disclosures of IAS or US-GAAP financial information is important in that many equity market regulators are now allowing, or considering allowing, registrants to report under alternative sets of accounting standards. The annual reports of 211 non-US firms listed with the London Exchange are examined to determine firms' disclosure of IAS or US-GAAP financial information. Using multivariate logit regression, I found systematic differences in firm characteristics associated with non-US firms disclosing IAS or US-GAAP financial information rather than or in addition to financial information prepared in accordance with their domestic generally accepted accounting principles (domestic-GAAP). The results are consistent with the hypotheses that non-US firms are more likely to disclose IAS or US-GAAP financial information as their shares trade in more equity markets. In addition, I found that firms are more likely to disclose IAS or US-GAAP financial information when by doing so they can provide more standardized financial information relative to the information generated via their domestic-GAAP. I also found that firms are more likely to report IAS financial information when they participate in seasoned equity offerings and when US-GAAP requires more accounting policy changes relative to what is required under firms' domestic-GAAPs. These results suggest that non-US firms report IAS financial information to receive some benefits of providing more standardized financial information at costs less than what are incurred to implement US-GAAP.

Creative accounting: the auditor effect

Terry Smith’s infamous Accounting for Growth (1992) clearly demonstrated the differences in the use of accounting policy manipulations, impacting on profit and loss account and balance sheet for companies and industries. Now evidence has emerged in Australia (Smith et al., 1997), of differences in the acceptability of income increasing accounting policy changes which appear to be associated with auditors and auditor groupings. This paper re‐examines Smith (1992) to determine the existence of an auditor effect for UK accounting manipulations.

Changes in accounting policies and investment analysts' fixation on accounting figures

This paper describes and explains how investment analysts deal with changes in accounting policies. The extent to which analysts appear to be fixated on accounting figures is examined using their reports about companies that adopted accounting changes in their financial statements. Sixteen accounting policy changes were identified and divided into four categories and a distinction was made between strong and weak levels of fixation. Consideration is given to the level of fixation of investment analysts that can be explained by the extent of disclosure concerning the accounting change, the moment the accounting change is announced for the first time, the nature of the accounting change and the type of employer. The level of disclosure and the nature of accounting change are important determinants of fixation. Furthermore, it appears that financial journalists explain accounting changes and their effects on accounting figures more extensively than investment analysts employed by banks or firms of stockbrokers. This study focuses on investment reports in practice in a Dutch context, in contrast to previous research conducted in experimental settings.

THE IMPACT OF IMPENDING CORPORATE FAILURE ON THE INCIDENCE AND MAGNITUDE OF DISCRETIONARY ACCOUNTING POLICY CHANGES

This paper investigates the influence of impending corporate failure on income and asset increasing discretionary accounting policy changes (DAPCs) and discusses its implications for failure prediction model development and use. Deriving hypotheses from the ‘opportunistic behaviour’ perspective, the paper argues that management of failing firms have a greater incentive than management of non-failing firms to select accounting policies that will mask performance problems. The results of the study support the hypotheses in that: (1) management of failing firms tend to adopt a greater number of favourable DAPCs than management of non-failing firms; (2) failing firms are more likely than non-failing firms to adopt favourable DAPCs and (3) failing firms are more likely than non-failing firms to adopt DAPCs for a combined material net favourable effect on income and total assets. The results imply that failure prediction model accuracies may be influenced by the frequency and magnitudinal effect of DAPCs adopted by failing firms. Thus, model developers and users should not ignore or assume that the effects of potential manipulation of financial information is either negligible or will be randomly distributed.