Canadian Institute Of Chartered Accountants Research Articles

The centrality of ethical utterances within professional narratives

This study examines the centrality of ethics within editorials published in the Canadian Institute of Chartered Accountants’ professional journal, CA Magazine, over the 1912 to 2010 period. Starting from the twin assumptions that editorials speak about appropriate professional behavior using a variety of words such as ‘ethics,’ ‘conduct,’ and ‘codes,’ and that appropriate professional behavior is situational, we use topic modeling techniques to identify these dimensions of ethical discourse. We then use social network analysis methods to map the position and centrality of ethics within the editorials across time. The results show that enunciations about appropriate professional conduct are broader than simply enunciations using the word ‘ethics’. The results also highlight that ethical utterances become more central, not less central, over time.

The creation and acceptance of public sector accounting standards in Canada

This study explores the events leading up to the origination of public sector accounting standards in Canada by the Canadian Institute of Chartered Accountants (CICA) and their adoption by the Government of Canada. We interpret these events from the perspective of institutional theory. We find that a long-standing institutionalized practice of self-developed government accounting policies was disrupted by a series of challenges. An influential actor in this process was the Office of the Auditor General of Canada which first pushed for the creation of independent government accounting standards and then pushed the government toward the implementation of the accounting policies developed by the CICA’s public sector accounting standard-setting body. Two CICA studies served to further disrupt the status quo. We also find evidence of the role played by an inter-organization professional network in defining and labeling problems that ultimately resulted in the change.

Pomiar kondycji finansowej jednostek samorządu lokalnego – kwerenda międzynarodowa

The assessment of local authorities’ financial condition is crucial to develop knowledge in the field of public finance, to identify mechanisms explaining the relations between particular components of local authorities’ financial condition, to determine potential ways of finance optimization and to meet the need for information of a broad group of stakeholders. The measurement of financial condition allows for the assessment of financial security understood as the ability to ensure the continuity in the implementation of basic own tasks and to maintain financial credibility related to the payment of current and future financial obligations. The aim of this article was to undertake a critical review of the definitions and methods to assess the financial condition of local authorities collected during the review of international literature. Various methods of measuring the financial condition of local authorities, which allow to carry out comparative studies and to determine the spatial trends of its assessment, were summarized in the article. The variety of financial condition depictions encountered in the literature depends on the purpose and adopted definition and also on the spatial extent and availability of statistical data. A common practice is to use the concept of measuring the financial condition proposed by the Canadian Institute of Chartered Accountants or the International City/County Management Association. The analysis of international literature, complemented by the achievements of Polish authors, led to the identification of two basic approaches to measuring the financial condition of local authorities: 1) many empirical measures 2) composite index. The primary sector of interest in this article is the second approach, which adapts different methods of creating a multivariate index of financial condition (composite index), on the basis of which it is possible to relatively measure the level of the financial situation.

Contingency liabilities: The effect of three alternative reporting styles

The International Accounting Standards Board's (IASB) new international financial reporting standards (IFRS) relating to contingencies became effective on January 1, 2011, officially replacing the CICA's (Canadian Institute of Chartered Accountants) contingent liability accounting standards for publicly accountable enterprises. Although both sets of standards (IFRS and CICA) are based on fundamentally similar conceptual frameworks, they differ significantly in certain respects. This study examines the changes now required in contingency reporting and their implications for regulators. Rules for contingency reporting were previously dictated by Canadian GAAP (CGAAP), as formulated by the Canadian Institute of Chartered Accountants, but are now subject to the IASB's IAS 37. However, to enhance clarity and ease of understanding for financial statement users, the IASB has proposed a new version of contingent liability accounting standards under IFRS, titled exposure draft IAS 37. The message conveyed by the three different types of reporting is investigated, with findings that have implications for other similar rules adopted by IASB. Results indicate variations in four types of judgments by the Canadian loan officers in the experiment. Although their loan granting decisions were not influenced by the change to IASB's IAS 37, the officers charged significantly different interest premiums according to the type of financial statement received, i.e. based on former Canadian requirements, the original IAS 37 or the proposed IAS 37 exposure draft. Loan officers' judgments are therefore influenced by the way contingent liabilities are presented, a finding that has implications for regulators, mainly in view of the fact that the proposed IAS 37 reporting style could facilitate clarity and understanding of these liabilities.

A comparison of US and Canadian environmental disclosures according to AICPA and CICA guidelines

This study discusses potential influences on firms to provide voluntary environmental disclosure and empirically analyses the extent of environmental disclosure and changes in disclosure levels in the annual reports of US and Canadian firms over a three-year period. Firms' environmental disclosure content is measured based on environmental reporting guidelines published by the American Institute of Public Accountants and the Canadian Institute of Chartered Accountants. Overall, US firms provided a significantly higher level of environmental disclosure than did Canadian firms. Also, firms in each nation did provide a significant increase in disclosure for at least one specific environmental subject area relative to firms in the other nation. Regression results indicate that the number of polluting facilities and firm size each have a positive and significant effect on the extent of environmental disclosure.

Analysts' Cash Flow Forecasts and the Decline of the Accruals Anomaly

Contemporary Accounting ResearchVolume 31, Issue 4 p. 1143-1170 Original Article Analysts' Cash Flow Forecasts and the Decline of the Accruals Anomaly† Partha S. Mohanram, Partha S. Mohanram University of TorontoSearch for more papers by this author Partha S. Mohanram, Partha S. Mohanram University of TorontoSearch for more papers by this author First published: 17 August 2013 https://doi.org/10.1111/1911-3846.12056Citations: 70 †Accepted by Steve Salterio. An earlier version of the paper was presented at the 2012 Contemporary Accounting Research Conference, generously supported by the Canadian Institute of Chartered Accountants. The author would like to thank Steve Salterio, the discussant Katherine Schipper, two anonymous referees, Sid Balachandran, Urooj Khan, Gordon Richardson, Julian Yeo, and seminar participants at the 2012 CAR Conference, Columbia Business School, University of Toronto, Ohio State University, Carnegie-Mellon University, IIM-Bangalore, INSEAD, RSM-Erasmus University and the Indian School of Business. The author acknowledges generous research support funding from the Certified General Accountants of Ontario (CGA Ontario) and the Rotman School of Management. Read 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 Citing Literature Volume31, Issue4Winter 2014Pages 1143-1170 RelatedInformation

Continuous auditing: Developing automated audit systems for fraud and error detections

Indonesian Institute of Certified Public Accountants, American Institute of Certified Public Accountants and the Canadian Institute of Chartered Accountants(SAS 99 sec 110, par 2) establishes auditors responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis- statement, whether caused by error or fraud to plan and perform audits to provide a reasonable assurance that the audited financial statements are free of material fraud. This study proposed the development of Automated Audit System model to assist auditors in bridging them to the challenges in detecting fraud. This approach firstly provides a framework to have better understanding about the business process and data structures of information systems which is required in establishing an effective audit program. These ingredients are mapped in the audit process, including audit objectives, internal control and audit rules by using the Use-Case Diagram, Data Flow Diagram and Entity Relationship Diagram. Second, this study employs Ben- fords Law and Automatic Transaction Verification for the detection of anomalies and irregularities to design the framework. It also presents a systematic case study of ac- tual continuous auditing in department stores that using ERP systems. It is expected to detect frauds and errors. It proves that Continuous Audit and Benford Law can establish strong framework in Automated Audit Systems for Fraud Detections and finally provide a big contribution to internal control and company policies.

What questions do board members in public service organizations ask about executive compensation?

The purpose of this study is to investigate the governance questions that board members in public service organizations ask as they go about fulfilling their responsibilities for the oversight of executive compensation. The research uses 24 of the questions – as proposed by the Canadian Institute of Chartered Accountants - that directors should ask about executive compensation and investigates both their usage and perceived importance by board members. The study is based on a usable sample of 47 board members from public service organizations who were attending a Canadian director training program. The research finds that, insofar as public service organizations are concerned, not all of the recommended executive compensation governance questions were asked with the same frequency nor were they considered equally important. Additionally, the relationship between a question’s usage frequency and its perceived importance was not perfect. However, there appears to be a significantly positive relationship among the number of executive compensation governance questions asked and selected elements of a board’s governance structure.

Discussion of “The Economics of Setting Auditing Standards”

Contemporary Accounting ResearchVolume 30, Issue 3 p. 1216-1222 Article Discussion of “The Economics of Setting Auditing Standards”† Judson Caskey, Judson Caskey University of TexasSearch for more papers by this author Judson Caskey, Judson Caskey University of TexasSearch for more papers by this author First published: 16 September 2013 https://doi.org/10.1111/1911-3846.12008 † Accepted by Raffi Indjejikian. An earlier version of this discussion was presented at the 2011 Contemporary Accounting Research Conference, generously supported by the Canadian Institute of Chartered Accountants. I thank Dan Simunic and Minlei Ye, the authors of the paper I discussed, for comments on the discussion. I would also like to thank John Hughes, Volker Laux, Bugra Ozel, and the conference participants for their comments. Read 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 onFacebookTwitterLinked InRedditWechat Volume30, Issue3Fall 2013 (September)Pages 1216-1222 RelatedInformation

The Economics of Setting Auditing Standards

Contemporary Accounting ResearchVolume 30, Issue 3 p. 1191-1215 Article The Economics of Setting Auditing Standards† Minlei Ye, Minlei Ye University of TorontoSearch for more papers by this authorDan A. Simunic, Dan A. Simunic University of British ColumbiaSearch for more papers by this author Minlei Ye, Minlei Ye University of TorontoSearch for more papers by this authorDan A. Simunic, Dan A. Simunic University of British ColumbiaSearch for more papers by this author First published: 16 September 2013 https://doi.org/10.1111/j.1911-3846.2012.01191.xCitations: 27 † Accepted by Raffi Indjejikian. An earlier version of this paper was presented at the 2011 Contemporary Accounting Research Conference, generously supported by the Canadian Institute of Chartered Accountants. The authors greatly appreciate the advice from Kin Lo, Hugh Neary, Sandra Chamberlain, and especially Ralph Winter. An earlier version of the paper benefited from comments by Florin Sabac and Paul Fischer. We also wish to thank Paul Newman, Bill Kinney, Volker Laux, Gordon Richardson, Ping Zhang, Gilles Hilary, Jeroen Suijs, Robert Knechel, Pierre Liang, Giri Kanagaretnam, Tim Baldenius, Steven Salterio, Raffi Indjejikian, Judson Caskey, two anonymous referees, seminar participants at the University of British Columbia, the University of Toronto, the University of Texas at Austin, HEC Paris, Tilburg University, the University of Arizona, the City University of Hong Kong, and the University of Technology–Sydney, as well as conference participants at the Auditing Midyear Meeting 2010, EAA conference 2010, CAAA conference 2010, the JCAE Doctoral Symposium held at Seoul National University 2010, and the CAR conference 2011. We also gratefully acknowledge the financial support of the Social Sciences and Humanities Research Council of Canada, the KPMG Research Bureau in Financial Reporting at the Sauder School of Business, UBC, and the start-up research fund, University of Toronto. This paper is based on Professor Ye's Ph.D. thesis at the University of British Columbia. Read 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 onFacebookTwitterLinked InRedditWechat Citing Literature Volume30, Issue3Fall 2013 (September)Pages 1191-1215 RelatedInformation

Discussion of “Are Analysts' Cash Flow Forecasts Naïve Extensions of Their Own Earnings Forecasts?”

Contemporary Accounting ResearchVolume 30, Issue 2 p. 466-481 Article Discussion of “Are Analysts' Cash Flow Forecasts Naïve Extensions of Their Own Earnings Forecasts?”† Claudine Mangen, Claudine Mangen Concordia UniversitySearch for more papers by this author Claudine Mangen, Claudine Mangen Concordia UniversitySearch for more papers by this author First published: 13 June 2013 https://doi.org/10.1111/care.12016Citations: 3 † Accepted by Steve Salterio. This paper was presented at the 2011 Contemporary Accounting Research Conference, generously supported by the Canadian Institute of Chartered Accountants. I am grateful to Michel Magnan as well as conference participants for useful comments. Read 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 onFacebookTwitterLinked InRedditWechat Citing Literature Volume30, Issue2Summer 2013 (June)Pages 466-481 RelatedInformation

Extent of environmental disclosure of U.S. and Canadian firms by annual report location

This study discusses various influences on firms to provide additional environmental disclosure and empirically measures and analyzes the extent of actual environmental disclosures included in the annual reports of firms in the U.S. and Canada. The environmental disclosure content provided in the annual reports of firms is evaluated based on environmental reporting guidelines published by the American Institute of Public Accountants and the Canadian Institute of Chartered Accountants. In general, the results indicate that U.S. firms provided a significantly higher level of environmental disclosure than did Canadian firms. Also, firms in each nation varied significantly in the amount of environmental disclosure provided in each of four annual report sections.

Developing a Method to Assessing the Municipal Financial Health

Following the conceptual framework developed by the Canadian Institute of Chartered Accountants, which is based on three broad dimensions of sustainability, flexibility and vulnerability, this paper proposes a method for evaluating the financial health of municipalities. This methodology could be useful for performance assessment in any country and framework. An aggregate indicator has been obtained for each municipality that covers all the aspects analyzed. For this, multivariate statistical techniques of principal component analysis and discriminant analysis are combined. The proposed method overcomes the problem that we detected in the literature related to the weighting of variables, optimizing the measurement of the variability of all indicators that are included in the financial condition. The indicator evaluates and ranks the degree of financial health of each municipality and serves as a tool to study how different factors might have an impact on its financial health. The performance of the indicator has been contrasted with the socioeconomic variables of population size and geographic location. The proposed method has been applied to 5,165 Spanish municipalities.

Discussion of “Information Externalities along the Supply Chain: The Economic Determinants of Suppliers’ Stock Price Reaction to Their Customers’ Earnings Announcements”*

Contemporary Accounting ResearchVolume 28, Issue 4 p. 1344-1348 Discussion of “Information Externalities along the Supply Chain: The Economic Determinants of Suppliers’ Stock Price Reaction to Their Customers’ Earnings Announcements”* J. Richard Dietrich, J. Richard Dietrich The Ohio State UniversitySearch for more papers by this author J. Richard Dietrich, J. Richard Dietrich The Ohio State UniversitySearch for more papers by this author First published: 24 October 2011 https://doi.org/10.1111/j.1911-3846.2011.01128.xCitations: 1 † Accepted by Jeffrey Callen. An earlier version of this paper was presented at the 2010 Contemporary Accounting Research Conference, generously supported by the Canadian Institute of Chartered Accountants. Read 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 Citing Literature Volume28, Issue4Winter 2011 (December)Pages 1344-1348 RelatedInformation

The Case of Sustainability Assurance: Constructing a New Assurance Service*

Contemporary Accounting ResearchVolume 28, Issue 4 p. 1230-1266 The Case of Sustainability Assurance: Constructing a New Assurance Service† Brendan O’Dwyer, Brendan O’Dwyer University of Amsterdam Business SchoolSearch for more papers by this author Brendan O’Dwyer, Brendan O’Dwyer University of Amsterdam Business SchoolSearch for more papers by this author First published: 30 May 2011 https://doi.org/10.1111/j.1911-3846.2011.01108.xCitations: 201 † Accepted by Yves Gendron. An earlier version of this paper was presented at the 2010 Contemporary Accounting Research Conference, generously supported by the Canadian Institute of Chartered Accountants. This paper has benefited from the helpful comments of Shannon Anderson, Roel Boomsma, Mary Canning, Wai Fong Chua, Jesse Dillard, Mahmoud Ezzamel, Clinton Free, Yves Gendron, Georgios Georgakopoulos, Mike Gibbins, James Hazelton, Reggy Hooghiemstra, Chris Humphrey, Thomas Riise Johansen, Nonna Martinov-Bennie, Hugh McBride, John Roberts, Vaughan Radcliffe, Steve Salterio, and Marc Wouters. Highly helpful comments were also received from two anonymous reviewers, a reviewer for the 6th Asia-Pacific Interdisciplinary Research in Accounting (APIRA) Conference at the University of Sydney, and participants at: the 12th Alternative Accounts Conference and Workshop, Schulich School of Business, Toronto; the University of Sydney Discipline of Accounting research seminar series; the 6th Asia-Pacific Interdisciplinary Research in Accounting (APIRA) Conference at the University of Sydney; the 10th Seminar of the Research Centre of Accounting and Control Change (RACC) at the Open University, Eindhoven; the 25th anniversary Contemporary Accounting Research conference hosted by Queen’s University in Kingston; and the Royal Holloway, University of London, Accounting, Finance and Economics research seminar series. The author would also like to gratefully acknowledge the assistance of the interviewees who participated in the study. Read 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 onFacebookTwitterLinked InRedditWechat Citing Literature Volume28, Issue4Winter 2011 (December)Pages 1230-1266 RelatedInformation

Towards an understanding of the influence of sustainability culture on the accounting profession

While some previous research has critiqued accounting behaviour towards society and the environment, this paper points in a slightly different direction. With the aid of a chronological chart, it uses sustainability initiatives from the Canadian Institute of Chartered Accountants (CICA) to demonstrate the accounting profession's positive response to societal sustainability culture. Applying the cultural theories of Gray and Hofstede, it argues that society is responsible for alleged negative behaviour in accounting and that society hampers progress in sustainability accounting through political and corporate manoeuvrings. It asserts that, at least within the Canadian context, the more society embraces deeper green culture, the more accounting will transform towards sustainability values. It provides a future research agenda towards extenuating accounting criticisms. The paper suggests some policy implications for government and highlights that the power to condition and moderate accounting behaviour resides within society, governments and the laws of nations; it follows therefore that attaining any goals in sustainable development depends on the choice and commitment of governments and institutions.

Interactive Discretionary Disclosures*

Contemporary Accounting ResearchVolume 29, Issue 2 p. 382-397 Interactive Discretionary Disclosures* BJORN N. JORGENSEN, BJORN N. JORGENSEN University of Colorado at BoulderSearch for more papers by this authorMICHAEL T. KIRSCHENHEITER, MICHAEL T. KIRSCHENHEITER University of Illinois at ChicagoSearch for more papers by this author BJORN N. JORGENSEN, BJORN N. JORGENSEN University of Colorado at BoulderSearch for more papers by this authorMICHAEL T. KIRSCHENHEITER, MICHAEL T. KIRSCHENHEITER University of Illinois at ChicagoSearch for more papers by this author First published: 27 January 2011 https://doi.org/10.1111/j.1911-3846.2011.01070.xCitations: 24 † Accepted by Steven Huddart. An earlier version of this paper was presented at the 2002 Contemporary Accounting Research Conference, generously supported by the CGA-Canada Research Foundation, the Canadian Institute of Chartered Accountants, CMA Canada – Ontario, CGA Ontario, and the Institute of Chartered Accountants of Ontario, Deloitte & Touche LLP, and Grant Thornton LLP. We appreciate the helpful comments of Ulf Schiller, Phillip Stocken, Robert Verrecchia, two anonymous referees, and participants at the 2002 Contemporary Accounting Research conference, University of California at Berkeley, Boston University, the Burton Workshop at Columbia University, Carnegie Bosch Institute Conference on Interdisciplinary Accounting Research, Columbia finance brown bag seminar, EIASM Workshop on Accounting and Economics, Emory, London School of Economics, NYU/Columbia accounting seminar, Northwestern, Purdue, and Tel Aviv. We thank Kelly Puig for editorial assistance. Read 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 onFacebookTwitterLinked InRedditWechat Citing Literature Volume29, Issue2Summer 2012 (June)Pages 382-397 RelatedInformation

Regulatory competition in accounting. A history of the Accounting Standards Authority of Canada

This article examines a unique period (1981–1998) in Canadian accounting standard-setting history when, nominally, two competing standard-setting bodies existed: the Canadian Institute of Chartered Accountants and the nascent Accounting Standards Authority of Canada. Sunder (2002a, 2002b) advocates competing accounting standard-setting regimes within a single jurisdiction to allow firms to voluntarily select standards that reflect their business model and provide the lowest cost-of-capital. This situation, however, is rare and has not been examined empirically. The existence of competing standards assumes the existence of competing standard-setters, but the entry of a new standard-setter into the domain of an existing standard-setter faces numerous obstacles. The analysis of this case suggests some factors missing from Sunder's model.

The Relative Importance of Firm Incentives versus Country Factors in the Demand for Assurance Services by Private Entities*

Contemporary Accounting ResearchVolume 28, Issue 2 p. 487-516 The Relative Importance of Firm Incentives versus Country Factors in the Demand for Assurance Services by Private Entities* JERE R. FRANCIS, JERE R. FRANCIS University of Missouri–ColumbiaSearch for more papers by this authorINDER K. KHURANA, INDER K. KHURANA University of Missouri–ColumbiaSearch for more papers by this authorXIUMIN MARTIN, XIUMIN MARTIN Washington University in St. LouisSearch for more papers by this authorRAYNOLDE PEREIRA, RAYNOLDE PEREIRA University of Missouri–ColumbiaSearch for more papers by this author JERE R. FRANCIS, JERE R. FRANCIS University of Missouri–ColumbiaSearch for more papers by this authorINDER K. KHURANA, INDER K. KHURANA University of Missouri–ColumbiaSearch for more papers by this authorXIUMIN MARTIN, XIUMIN MARTIN Washington University in St. LouisSearch for more papers by this authorRAYNOLDE PEREIRA, RAYNOLDE PEREIRA University of Missouri–ColumbiaSearch for more papers by this author First published: 25 November 2010 https://doi.org/10.1111/j.1911-3846.2010.01053.xCitations: 58 † Accepted by Gordon Richardson. An earlier version of this paper was presented at the 2008 CAR Conference, generously supported by the Canadian Institute of Chartered Accountants. We thank the editors, Michel Magnan and Gordon Richardson; the referees; Dan Simunic, discussant on the paper at the 2008 CAR Conference; and CAR Conference participants for their many helpful comments. We also appreciate comments on earlier versions of the paper by Charles Chen, Claus Holm, Ole-Kristian Hope, Mingyi Hung, and Marlene Willekens; participants at the 2006 European Accounting Association Congress, 2006 mid-year meeting of the Auditing Section of the American Accounting Association, and 2005 European Audit Research Network Symposium; and workshop participants at Hong Kong Polytechnic University, Lehigh University, University of Melbourne, and Université Paris Dauphine. Read 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 Citing Literature Volume28, Issue2Summer 2011 (June)Pages 487-516 RelatedInformation

Decline in Financial Reporting for Joint Ventures? Canadian Evidence on Removal of Financial Reporting Choice

In 1995, the Canadian Institute of Chartered Accountants (CICA) changed its Generally Accepted Accounting Principles on accounting for joint ventures from permitting a choice between the equity method (EM) and proportionate consolidation (PC) to requiring only PC. More recently, the International Accounting Standards Board (IASB) has decided to issue a new standard that will eliminate choice between EM and PC and require only EM; but as of October 2010 a new standard was still to be issued. The past Canadian and proposed IASB changes are similar in that choice between the same two reporting methods is removed but differ in the required alternative, PC for Canada and EM for the IASB. In this paper we use a sample of Canadian companies over the period 1985–2003 to study financial reporting for joint ventures. To our knowledge, our Canadian sample is the only one reflecting a reduction of choice in financial reporting methods for joint ventures. Therefore, our results have particular relevance for evaluating the IASB's proposed change. Specifically, we investigate whether firms that use EM between 1985 and 1994 experience a decline in value relevance of key balance sheet amounts such as total assets and liabilities when forced to use PC from 1995 onwards. Since 1995 firms are also required to provide footnote disclosures on their share of joint venture assets and liabilities in addition to revenues, expenses and cash flows. Using these disclosures, we investigate whether disaggregate joint venture assets and liabilities are incrementally and overall value relevant. We find that firms that are forced to switch from EM to PC experience a decline in value relevance of reported assets and liabilities. The firms that use PC for the entire sample period experience no such decline. We also find that joint venture assets and liabilities are incrementally and overall value relevant when disclosures are mandatory from 1995 onwards. Our results show that the removal of choice of financial reporting method does have value-relevance implications, something that is of importance to users. We also find that the requirement of additional disclosure of joint venture assets and liabilities is value relevant, which may offset, to some extent, the costs of the reduction in choice. Our inferences may have implications for a number of jurisdictions across Europe and beyond that are affected by a similar reduction of accounting choice proposed by the IASB.