Users Of Financial Statements Research Articles

The concerns of linking IRS tax disclosures to financial statements on analysts' effective tax rate forecasts

This study examines the effect of uncertain tax position (UTP) disclosures on analysts' effective tax rate (ETR) forecasts. The Internal Revenue Service (IRS) requires that firms provide detailed information about UTPs reported in their annual 10-K filings on their Schedule UTP form. Schedule UTP applies to federal tax positions for which a corresponding tax reserve has been created for financial reporting purposes. Academics and practitioners have deliberated whether Schedule UTP disclosures could lead to firms altering how they account for their unrecognized tax benefits (UTBs) in financial statements. Overall, we find that UTB additions were originally useful to analysts in forecasting ETRs but became less useful after the implementation of the Schedule UTP form, as it likely reduced the usefulness of information for financial statement users. Our findings contribute to the debate regarding the extent of tax policy overlapping with the generally accepted accounting principles of financial reporting. Following up on a 2018 Treasury Department study that recommended more disclosure on Schedule UTP, the IRS, in December of 2022, finalized additional disclosure requirements to Schedule UTP, These new requirements may further incentivize firms to alter UTB reporting in their financial statements.

The relationship between economic complexity and green economy with earnings management

Purpose This study aims to analyze the relationship between economic complexity (EC) and the green economy (GE) with the real and accrual earnings management (REM and AEM) of the listed companies on the Iranian stock exchange. The authors study whether EC and the GE can affect REM and AEM. Design/methodology/approach The authors used a multiple regression model based on the panel data and a fixed effect model to test hypotheses. The sample includes 1,351 companies listed on the Tehran Stock Exchange from 2014 to 2021. Findings The results show a positive and significant relationship between EC and the GE with REM and AEM. Originality/value Considering the importance of a GE and since this research is the first to address the mentioned topic in emerging markets, it provides helpful insights for financial statement users, analysts and legal entities. Our study fills the literature gap and promotes knowledge regarding its relevant literature. Examining this relationship portrays the latest research perspectives in this field. The information from this study can assist in environmental management decision-making and relevant policymaking, promoting the movement toward sustainable development.

The Regulatory Approach of James R. Doty: PCAOB Chair 2011–2018

James R. Doty was the chair of the US Public Company Accounting Oversight Board (PCAOB) from February 2011 to January 2018. Extant research investigates the outcomes of the PCAOB's regulatory approach without examining what that approach is. This article examines two approaches to regulation: merit and disclosure. For example, the PCAOB inspection process, which focuses on remediation of deficiencies, is a form of merit regulation. A disclosure approach to regulation would focus instead on more timely disclosure of inspection findings to audit committees, investors, and other users of financial statements. The article explores the impact of Doty's regulatory approach on the direction of the PCAOB during his tenure. Under Doty, the PCAOB's approach shifted towards a more disclosure based regulatory approach and away from a merit based regulatory approach. The article is based on extensive documentary evidence as well as interviews with James Doty.

THE EFFECT ANALYSIS OF EARNING MANAGEMENT AND FAMILY CONTROL ON THE Z-SCORE MODEL OF FINANCIAL DISTRESS PREDICTION

The validity of the use of financial statements as a source of information for detecting financial distress is questionable because of the opportunistic behaviour of the company’s management. This study aims to analyse the effect of accrual earnings management, real earnings management, and family control on the Z-score financial distress prediction. Using the sample that includes 372 firm years of observations for the 2017 to 2019 periods listed on the Indonesia Stock Exchange, this study found that accrual earnings management, real earnings management, and family control variables affect the Z-score financial distress prediction and cause a higher probability for the company to be in the category of better financial condition. The novelty of this study lies in earnings management and family control as factors that affect the category of assessment and the probability of assessing the company’s financial condition as a better company. Empirical evidence from this study is important for investors and company creditors, as input to consider these factors in using the company’s financial distress prediction model. For standard setters, the results of this study can be used as input for establishing corporate governance design rules to improve the quality of financial information.

Policy uncertainty and real activities manipulation: evidence from Brexit

AbstractBrexit exposed the UK to substantial policy uncertainty that could affect the performance and behavior of British firms. We examine the impact of Brexit as an exogenous shock to policy uncertainty on real activities manipulation by British firms. Using several measures of real activities manipulation and a difference-in-differences design, we compare the earnings management of firms most adversely affected by Brexit uncertainty (affected firms) to other firms. Our results indicate that the affected firms exhibit higher real activities manipulation after the Brexit vote and we also find that they demonstrate similarly higher accruals management. Our findings suggesting that policy uncertainty induces the costly practice of real activities manipulation are relevant to various stakeholders including policymakers and financial statements users.

The effect of economic complexities and green economy on financial statements fraud

PurposeThis study aims to address the relationship between economic complexities (EC) and the green economy (GE) with fraud in the listed companies on the Tehran stock exchange. The authors study whether EC and GE increase the detection of financial statement fraud.Design/methodology/approachThe authors used a multiple regression model based on the panel data method and fixed effect model to test hypotheses. The sample includes 1,351 companies listed on the Iranian stock exchange from 2014 to 2021.FindingsThe results show a negative and significant relationship between EC and GE with financial statement fraud.Originality/valueSince this research is the first to address the mentioned topic in emerging markets, it provides helpful insights for financial statement users, analysts and legal entities. The study fills the literature gap and promotes knowledge regarding its relevant literature.

THE READABILITY OF KEY AUDIT MATTERS PARAGRAPH IN AUDITOR'S REPORT: A STUDY FROM ASEAN COUNTRIES

The objective of this research is to explore the readability level of the Key Audit Matters (KAM) paragraph as well as its progress since the first time implementation of KAM for financial statements issued by auditors for listed companies in ASEAN countries. KAM paragraph is extracted from an audit opinion issued by a public accounting firm for companies listed in the capital market around ASEAN countries. Following prior research, by using learning curve theory as a basis, this research applies a quantitative approach to evaluate the readability of the KAM and its progress. Readability is measured by using several commonly used linguistic techniques, which are Flesch Reading Ease (FLESCH), Flesch–Kincaid (KINCAID), and Gunning Fog (FOG) measures). In addition to its role in KAM topic-related research, by bringing the perspective to focus more on readability, this research is able to provide new perspectives on the capability of KAM to affect financial statements users' decisions, as well as provide additional insight for the regulator or professional body for public accountant profession on designing the practical support and assistance to enhance the current practice of KAM writing done by the public accountant, as well as insight for the public accounting firm in preparing clearer and readable KAM paragraphs. This research used ASEAN market data as an emerging market and covered up to the recent year auditor's report to study the readability of the KAM paragraph. Despite some inconsistencies in the observation result, we can make an inference that the readability level of KAM produced by auditors for listed entities in ASEAN countries tend to be more difficult to read as number of experiences in issuing it increasing. This pattern is consistently shown when the sample is divided by type of Auditor and country of exchange. However, when the sample is further detailed down by industry sector, inferences is difficult to be made.

Managers of enterprises under court restructuring as users of financial statements

Purpose: The objective of the article is to define the reasons and conditions for the use of financial statements by managers of enterprises undergoing court restructuring processes.Methodology/approach: The study consists of an analysis of legal regulations, a literature review and empirical research conducted on a sample of 109 specialists in restructuring and bankruptcy. The author used her own questionnaire for the empirical research. Statistical methods were used to develop the research results, in particular, the basic statistical parameters that describe the research sample were determined. The Kruskal-Wallis test was conducted to examine the differences between the results in the different groups of respondents.Findings: The legal regulations emphasize the need for managers of enterprises undergoing court restructuring to use financial statements. The research results indicate a positive assessment of managers’ accounting knowledge, which is essential when using information from financial statements. The respondents also positively assessed the significance of all the qualitative features of financial statements when managers of court restructuring enterprises use them to make decisions. Research limitations/implications: The informational role of accounting in judicial restructuring processes is an extensive subject matter; therefore, the research was limited to one stakeholder group, i.e., managers. Another limitation is the relatively small population of enterprises undergoing these processes and, as a result, the small population of specialists in this field.Originality/value: The research is an attempt to fill the research gap regarding the needs and possibilities of using information from financial statements by managers of enterprises undergoing judicial restructuring.

ANALISIS FAKTOR-FAKTOR YANG BERPENGARUH TERHADAP INTEGRITAS LAPORAN KEUANGAN

Financial reports are a source of information in the form of notes containing financial data of a company for a certain period. Submission or disclosure of the company's financial statements, must be presented with high integrity so that it can be used by report users of financial statements in making decisions. This study aims to determine the effect of company size, leverage, financial distress, and IOS (Investment Opportunity Set) on the integrity of financial statements. This type of research is quantitative research. The population of this study are manufacturing companies in the consumer goods industry sector which are listed on the Indonesia Stock Exchange (IDX) for the 2018-2021 period. Sampling in this study used a purposive sampling technique with predetermined criteria. Based on the criteria for sampling, a total sample of 31 companies was obtained. The type and source of data used is from secondary data obtained through the official website of the Indonesia Stock Exchange (IDX). The data analysis technique used is multiple regression using the SPSS Version 26 program as a tool. The results show that partially company size and financial distress have no effect on the integrity of financial statements. Meanwhile, leverage and IOS affect the integrity of financial statements. Simultaneously company size, leverage, financial distress, and IOS affect the integrity of financial reports

Are risk management disclosures relevant to firm's profitability? A Tanzanian case

This research investigated the relevance of risk management disclosures on firm’s profitability in Tanzania. Risk Management Disclosures (RMD) were measured using a disclosure index adopted from the Tanzania’s Capital Market Securities Act (CMSA) regulations while firms' profitability was represented by Return on Equity (ROE) and Return on Assets (ROA). A quantitative research approach was used, secondary data was collected from the annual reports of firms listed on the Dar es Salaam Stock Exchange (DSE) for the period ranging from 2010 to 2021. Panel regression modeling was used to estimate the parameters in this study. Results demonstrated that Risk Management Disclosure (RMD) was relevant to firm’s profitability since it had a significant and positive effect on ROA and ROE. Based on this, the research draws the conclusion that risk management disclosures are important as they assisted Tanzanian businesses to become more profitable. We recommend firms to include more risk management-related information in their annual reports for the benefit of users of financial statements. The study contributes to the existing body of knowledge by by adding new variables to the existing models

Fraud Pentagon dan Kecurangan Laporan Keuangan: Potret pada Perusahaan Sektor Kesehatan di Indonesia

Financial statement fraud is an intentional misstatement related to the reporting of company conditions to obscure financial statement users in making decisions. This research was conducted to examine the influence of the five pentagon fraud elements namely pressure, opportunity, rationalization, ability, and arrogance on fraudulent financial statements. This research uses the Beneish M-Score Model to detect potential fraud in financial reports. The data used in this study is secondary data derived from the annual financial reports of health sector companies listed on the Indonesia Stock Exchange during the 2016-2020 period. The sampling method used a purposive sampling method and the total research sample was 13 companies. Hypothesis testing was carried out using logistic regression analysis with SPSS 26.0 software statistical tools. The research results show that pressure has an influence on financial report fraud. Meanwhile, opportunity, rationalization, ability and arrogance have no effect on fraudulent financial reporting.
 Keywords: Fraud Pentagon; fraudulent financial reporting; Logistic Regression

Financial Shenanigans in the Perspective of the Hexagon Theory

Financial Shenanigans are the actions of a person or group in a company by deliberately manipulating the company's financial statements to mislead users of financial statements, one of which is investors. This study aims to see the partial influence of Hexagon Theory on financial shenanigans. The sample of this research is companies in the primary consumer goods sector that are listed on the Indonesia Stock Exchange in 2017-2021. The sampling technique used was non-probability sampling and purposive sampling in order to obtain a total of 160 samples from 32 companies in the primary consumer goods sector. The analytical method used is analysis logistic regression and using SPSS 25 software. Based on the results of the entire series of studies conducted, researchers can conclude that, the opportunity variable proxied by the whistleblowing system, the rationalization variable proxied by auditor turnover and the collusion variable proxied by audit fees have no effect on financial shenanigans. Then the variable pressure is proxied by personal financial needs, the variable capability is proxied by the change of directors, arrogance is proxied by the frequency of CEO photos, and has an influence on financial shenanigans. Future research is expected to broaden the scope of data that is the object of research and it is suggested to further test other proxies that represent the Hexagon Theory factors, especially the rationalization, arrogance, and collusion factors and conduct further research on the collusion factor proxied by the audit fee so as to find the results maximum research.

Commentary: Climate‐Related Risks Disclosures in the Notes to Financial Statements: Descriptive Evidence from Australia

AbstractThis paper aims to provide background information about the International Accounting Standards Board's Climate‐Related Risks in the Financial Statements project. Further, we provide some observations of related disclosures in the notes to the 2022 financial statements of the top 75 Australian Securities Exchange‐listed entities. Overall, we find that there has been improvement in the disclosures and considerations of climate‐related risks in the financial statements in recent years. However, the disclosures appear to be generic, which may not meet the needs of financial statement users. We suggest that further research is needed to provide evidence about how such risks are considered and disclosed in the financial statements and whether such information meets user needs. Evidence will help standard setters to consider appropriate action, such as providing educational material or amending the Accounting Standards, to enhance the quality of financial reporting.

The use and perceived usefulness of public sector financial statements by politicians – evidence from Croatia

PurposeThis study analyses to what extent politicians use public sector entities' financial statements along with the politicians' perceptions of the usefulness of such statements in the politicians' decision-making. The authors analyze financial statements' use and usefulness when the statements are prepared on a modified accrual basis and in the setting where there is the intention of full accrual accounting adoption. In addition, this study provides information about the use of the individual components of financial statements and investigates the reasons why the statements may not be used.Design/methodology/approachThis study was conducted using a questionnaire. The authors surveyed politicians that are members of Croatian public sector bodies. To conduct this research, the politicians were contacted by telephone over the period from February to April 2022.FindingsThe findings of this study are of potential interest to researchers, regulators and policy makers. The findings show that most politicians use financial statements, but the politicians' perception of the statements' usefulness when the statements are prepared on a modified accrual accounting basis is greater than the politicians' actual use of the statements. The findings also show that in the process of making decisions, politicians use the selected financial statements that contain information of interest to the politicians; that the politicians tend to gravitate to the use of reports on revenue, expenses, receipts and expenditure prepared on modified accrual bases which are closer to budgetary reporting; that the politicians use the information that supports the politicians' sphere of responsibility as enforced by legislation.Originality/valueThis study provides insights into the use and usefulness of financial statements in public sector setting where modified accrual accounting is used to prepare the statements and reports. This study provides additional evidence on the significance of legal setting to the financial reporting in public sector.

KONSTRUKSI LAPORAN KEUANGAN PONDOK PESANTREN (STUDI PADA PONDOK PESANTREN AL-WASHOYA JOMBANG)

Pondok Pesantren is an Islamic Boarding School as a non-profit organization in the field of education carries out its activities with resources from the community. Transparency of financial reports is the main thing in accountability to stakeholders, especially external parties. Financial reports are prepared and presented in such a way that they are understandable and relevant to the needs of users of financial statements in making decisions. This case study research at the Al-Washoya Islamic Boarding School, Jombang resulted in the construction of its financial statements based on ISAK 35 and Islamic Boarding School Accounting Guidelines. The implementation of ISAK 35 and the Islamic Boarding School Financial Accounting Guidelines is carried out so that the presentation of the Al-Washoya Jombang Islamic Boarding School report as a non-profit concern organization pays attention to the requirements for presenting financial statements, the structure of financial reports and the minimum requirements for the contents of financial reports.

Analisis Pelaporan Keuangan Segmentasi PT.Indofood Sukses Makmur Tbk

Financial reporting is one of the activities carried out by companies that have gone public, financial reporting can assist users in making decisions or policies to develop activities. Segment and interim financial statements are one of the reports that need to be disclosed in the company's financial statements. The purpose of segment and interim financial reports is to provide information about the different types of business activities and the economic environment in which the company operates. Fulfillment of this objective will help users of financial statements to better understand the company's performance and assess future cash flow prospects, as well as be able to make more informed judgments about the company as a whole. The purpose of this study is to analyze the determination of reporting segments using the ten percent test on revenue and profit and loss in the financial statements of PT.Indofood Sukses Makmur Tbk for 2018-2022 in accordance with PSAK number 5. The research method used is a qualitative research method, the sample used is a purposive sampling technique, which is a sampling technique with certain considerations. The sample taken comes from the Financial Statements of PT.Indofood Sukses Makmur Tbk segment which consists of 4 segments namely Branded Consumer Products, Bogasari, Agribusiness and Distribution. The research results show that the distribution segment does not need to be reported because it does not pass the 10% test on income for 5 years (2018-2022), the agribusiness segment and the distribution segment do not pass the 10% test on profit and loss in 2018 and 2019 but in 2020, 2021 ,2022 the agribusiness segment passed the 10% test on profit and loss, and the 10% test on distribution segment assets did not pass the test for 5 years (2018–2022). And the bogasari segment only in 2020 did not pass the 10% test on assets

The Effect of Investment Opportunity Set (IOS), Earnings Persistence and Accounting Conservatism on Earnings Quality with Voluntary Disclosure as an Intervening Variable

The main problem of this research is earnings quality. Earnings quality is very important for investors and is the center of attention for users of financial statements, because it will help them reduce information risk. Investors will tend to calculate information risk by conducting analysis so that it does not contain a large risk of loss. Investors can know that there is a poor allocation of resources in companies with low earnings quality. The purpose of this study is to determine the effect of investment opportunity set, earnings persistence and accounting conservatism on earnings quality in food and beverage companies listed in ISSI in 2018-2021 with voluntary disclosure as an intervening variable. This research is classified as a quantitative research with a population of 25 food and beverage companies registered at ISSI. The research sample was determined by purposive method with certain criteria so that the sample used was 18 companies. so that 72 data were obtained from the sample in the 2018-2021 observation period. the type of data used is secondary data. to test the intervening variables used path analysis method. The research results show that the investment opportunity set, earnings persistence and accounting conservatism and voluntary disclosure have a negative effect on earnings quality. the variables ios and conservatism have a negative and significant effect on earnings quality, while the earnings persistence variable has a positive effect on quality. The results of this study also indicate that voluntary disclosure is only able to mediate accounting conservatism on earnings quality.

To Examine The Effect Of Financial Conditions, Company Growth, And Company Size On Going Concern Audit Opinions In Manufacturing Companies Listed On The Indonesia Stock Exchange

This study aims to examine the effect of financial conditions, company growth, and company size on going concern audit opinions in manufacturing companies listed on the Indonesia Stock Exchange. Issuing a going concern audit opinion is very useful for users of financial statements to make the right investment decisions, because when an investor wants to make an investment he needs to know the financial condition of the company itself, especially concerning the survival of the company. This study uses a combination method, namely a combination of qualitative and quantitative. This study also uses secondary data, with documentation data collection techniques. The population in this study is 26 manufacturing companies listed on the (IDX). Researchers used non-probability sampling method. Data were tested using descriptive statistical tests, classical assumption tests, logistic regression analysis, regression model feasibility tests, overall model tests, hypothesis testing, and the coefficient of determination. The results of this study are as follows: 1) Simultaneously Financial Condition, Company Growth, and Company Size have a significant effect on Going concern Audit Opinion 2) Partially Financial Condition has a significant effect on Going concern Audit Opinion. 3) Partially, company growth has a significant effect on going concern audit opinion. 4) Partially, company size has no significant effect on going concern audit opinion. So that future researchers can use other variables besides those that the researchers examined, in order to realize even better research.

The quality of tax accounting for financial reporting purposes: International evidence from the United Kingdom

The quality of tax accounting can be defined as the relationship between the annual tax expense reported in firms’ financial statements and future tax cashflows. As corporate income taxes have a material proportion of earnings, assessing the tax accounting quality can help financial statement users in evaluating future commitment to internal funds. While there is an emerging US-based literature on tax accounting quality, to the authors’ knowledge this is the first study to examine tax accounting quality outside of the US and the first under a regime governed by International Financial Reporting Standards. The results indicate that tax accounting quality is significantly lower for firms that engage in higher levels of tax management or have stronger earnings management pressure. While corporate governance mechanisms do not moderate the relationship between tax management and tax accounting quality, there is some evidence of a moderating effect in the relationship between earnings management pressure and tax accounting quality. In addition, we observe variations in tax accounting quality associated with a change in tax-related financial reporting standards.

Audit(or) type and audit quality in emerging markets: evidence from explicit vs. implicit restatements

Purpose This paper aims to examine the link between audit(or) type and restatements in Egypt, a complex and multifaceted auditing market. The usual big 4 versus non-big 4 comparison is insufficient as Egypt has a unique mix of private audit firms, one governmental agency (Accountability State Authority) and mandatory/nonmandatory audit services, including single, joint and dual audits. Design/methodology/approach The study uses a sample of listed companies in Egypt and analyzes the impact of auditor type and audit type on explicit, implicit and total restatements. The study uses logistic regression model to examine the underlying relationship. Findings Results show no relationship between auditor type and audit quality, positive association between non-big foreign CPA firms and total/implicit restatements and mixed results for the impact of dual audits on audit quality. The study found no link between auditor type and audit quality in Egypt. Egyptian audit firms linked to non-big 4 foreign Certified Public Accounting firms were positively linked to total and implicit restatements. Joint audits did not improve audit quality and were directly related to total and explicit restatements. Dual audits showed mixed results, positively associated with implicit restatements but inversely associated with explicit restatements. Originality/value The study provides valuable insights into the complexities of the auditing market in emerging markets and offers valuable insights for stakeholders in the financial statement users, audit firms and governmental agencies.