Income Statement Approach Research Articles

FAIR VALUE ACCOUNTING DAN KEMAMPUAN LABA MEMPREDIKSI LABA DAN ARUS KAS MASA DEPAN MENGGUNAKAN PENDEKATAN BALANCE SHEET DAN INCOME STATEMENT

This study aims to determine whether the disclosure of the fair value of financial instruments used in the financial statements may improve the ability of earnings to predict future earnings and future cash flows after the application of PSAK 50 and 55 (revised 2006). Fair value measurements using two approaches, namely the balance sheet approach and an income statement approach. This study used a banking company listed on the BEI in the period 2010-2013. Using purposive sampling method, the balance sheet approach used a sample of 28 companies and approach to the income statement using a sample of 19 companies. Data analysis methods used in this study are Moderated Regression Analysis (MRA) and multiple regression analysis using SPSS 16. The results of this study showed that after the application of PSAK 50 and 55 (revised 2006) can improve the relevance of information on the fair value of financial instruments. This is supported by the results of studies showing that the fair value of financial instruments can improve the ability of earnings to predict future earnings and future cash flows using the balance sheet approach. However, this research has not been able to provide evidence that the components of other comprehensive income can provide an incremental effect on the ability of earnings to predict future earnings and future cash flows using an income statement approach.

Deferred Tax Accounting for SMEs: Modified Income Statement Approach

Purpose: Accounting for income tax under International Financial Reporting Standards (‘IFRS’) is dealt with in IAS 12 Income Taxes. It is often said that users of financial statements do not find information produced in accordance with IAS 12 useful. This is a serious problem because for many businesses tax is one of the largest expenses. In some cases, preparers find the requirements of IAS 12 difficult to apply in practice. Its requirements are said to be unclear, and preparers sometimes question the relevance and understandability of the information that is provided in accordance with the standard. The IFRS for SMEs currently require use of balance sheet approach for accounting of deferred taxes. In India, the Institute of Chartered Accountants of India (ICAI) – the apex standard-setting body in India, is formulating revised accounting standards for SME’s in India. This article examines an alternative to the balance sheet approach which is less complicated and easy to implement.[Reviewer1] [AB2] Methodology: This article proposes a new method i.e. Modified Income Statement Approach. This method is a mix of income statement approach and balance sheet approach, as it requires recognition of deferred taxes using temporary difference approach but calculated using income statement and the other comprehensive income (in effect, Comprehensive income statement). Modified Income Statement Approach requires comparison of tax expense with the underlying related income and expenses so that they are recognized in the same period. In doing so, it also considers income and expenses recognized in the income statement as well as the Other Comprehensive Income. Hence, this approach is more of temporary difference approach but applied by using income statement method. It covers all items of timing differences and most items of temporary differences. The SMEs have less complicated structures and transactions. Also, in many countries, including India, there exists no concept of tax balance sheet. Hence, it would be worthwhile to ease-out the deferred tax accounting for SMEs. The hypothesis is that application of modified income statement approach can result in similar outcome as the balance sheet approach.Findings: A survey of 50 top companies in India was conducted. The results show that 60% of the companies would have recognized the same deferred tax asset/ liability under both the methods i.e. modified income statement approach and balance sheet approach. Balance 40% had some minor differences, but such transactions may be less frequent for SME. On an average, the impact of using modified income approach as against balance sheet approach is a mere 4%. The only items not covered by the modified income statement approach as against the balance sheet approach are Fair valuation of assets/ liabilities on business combination, Compound financial instrument and the existence of undistributed profits of subsidiaries, branches, associates and joint arrangements[Reviewer3] .[AB4] Unique contribution to theory, practice and policy: [Reviewer5] [AB6] To balance out the cost and benefits of implementing an accounting standard as per the framework, it is critical that SME’s use a simpler and less complicated method which is easy to understand and implement. Modified income statement approach is easy to apply and not complicated or technical to understand. In India, companies are used to calculating deferred tax using income statement approach. Hence, this will be a small change from the existing approach, while achieving the objectives of the balance sheet approach. Hence, modified income statement approach seems to be an appropriate method for SMEs.

ANALISIS PERBANDINGAN KINERJA KEUANGAN BANK SYARIAH DENGAN MENGGUNAKAN INCOME STATEMENT APPROACH DAN VALUE ADDED APPROACH

Abstract
 This study was conducted on Islamic Banking in Indonesia. The direction of this study to analyze financial performance of Islamic banking with income statement approach and value added approach. Population in this study is the 13 islamic Banks. The sample is taken using purposive sampling with specified criteria resulting 6 islamic Banking in Indonesia. This study conducted through Paired samples t-test by using SPSS 20. For testing the variable, researcher exercise financial rasio. The results show that : (1) There are significant differences on the ROA ratio if analyzed with income statement approach and value added approach, (2) There are significant differences toward ROE ratio with income statement approach dan value added approach, (3) There are significant differences on the LBAP ratio if analyzed with income statement approach and value added approach, (4) There are significant differences toward NPM ratio with income statement approach and value added approach. The overall results of the study are significant differences in financial performance with income statement approach and value added approach.

Measuring Sharia Bank Performance by Syari'ate Value Added Approach: Sharia Enter-prise Implementation in Sharia Banking in Indonesia

This study aims to measure the financial performance of Islamic banking in Indonesia using Shari’ate Value Added Approach. This research also analyzes whether there are significant differences of financial performance of Islamic banking using the income statement approach and shari’ate value added approach. The sample of this study is islamic banking, with research period 2010-2015, selected using a purposive sampling. Financial performance used in this study is Return on Asset (ROA), Return on Equity (ROE), Net Profit to Productive Asset (NPPA), and Net Profit Margin (NPM). They were analyzed using independent sample t test. The result shows that financial performance of Islamic banking is healty. There are significant differences of financial performance (ROA, ROE, and NPM) of islamic banking measured by means of income statement approach and syari’ate value added statement approach. Yet, there is no significant difference of NPPA of Islamic banking measured by the income statement approach and syari’ate value added statement approach. The result of this study provide a significant contribution to developing syariah enterprise theory. For manager of Islamic banking, Bank Indonesia and Sharia Financial Standard Board, they can use this ese findings to make policies related to the measurement of Islamic Banking performance.

Kinerja Keuangan Berbasis Shari’ate Value Added Approach: Komparasi Antara Bank Umum Sharia dan Unit Usaha Sharia di Indonesia

This study aims to measure the financial performance of Islamic banking in Indonesia using Sharia Value Added Approach. In specific, objectives of this study is comparing financial performance between Islamic banking (sharia commercial banking) and sharia busness unit that measure using shari’ate value added approach. The object of this study is islamic banking covers Islamic Banking and Sharia Business Unit, with research period is 2010-2015. Sample selection using purposive sampling mehod. Financial performance was measued in this study is Return on Asset (ROA), Return on Equity (ROE), Net Profit to Productive Asset (NPPA), and Net Profit Margin (NPM). The result of this study shows that financial performance of Islamic banking is healty. There are a significant difference of ROA, ROE, and NPPA between sharia commercial banking and sharia business unit that measure using income statement approach and using sharia value added statement approach. But, NPM is not. The result of this study provides a significant contribution to developing Sharia Enterprise Theory. For manager of Islamic banking, Bank Indonesia and Sharia Financial Standard Board, the result of study can used to create policies related to measurement of Islamic Banking performance.Keywords: financial performance, shari’ate value added approach, Islamic banking, sharia business unit

KOMPARASI KINERJA KEUANGAN PERBANKAN SYARIAH BERBASIS PENDEKATAN LABA RUGI DAN NILAI TAMBAH

Abstract-The objectives of this study are to analyze the differences in financial performance of Islamic bank by using the income statement approach and value added approach on financial ratios. Financial ratios used consisted of ROA, ROE, the ratio between the total net income by total earning assets, NPM, and BOPO. The Object used in this study are listed Islamic Bank at Bank Indonesia. Population of this research are the financial statements of Islamic Banks, while the sample used was the financial statements for 2010-2014 for each income statement and the value added statement. Analysis tool used to prove the hypothesis of this study is an independent sample t-test.The results showed that the average financial ratio (ROA, ROE, net profit ratio of productive assets, and NPM) there are significant differences between the Income Statement and Value Added Statement, while the BOPO ratio between the Income Statement and the Value Added Statement there is not a difference.

Comparison of Income Statement Approach and Shari'ate Value Added Statement Approach in Assessing the Financial Performance of Islamic Banks in Indonesia

The purpose of this study is to comparison in financia performance of Islamic banks in Indonesia by using the Income Statement (IS) approach and Shari'ate Value Added Statement (SVAS) approach. The type of research is quantitative, sample using a purposive sampling technique with the criteria of Islamic banks in Indonesia the which presents a financial annual report the period 2008-2012. Financial ratios used consisted of Return On Asset (ROA), Return on Equity (ROE), the ratio between the total net income by total productive assets (LBAP), Net profite Margin (NPM), and Operating Expense to Operation Income (OEOI), Analysis tool used to prove the hypothesis of this study is an independent sample t-test and Mann Whitney U. The result Showed that the average financial ratios (ROA, ROE, LBAP, NPM and OEOI) there are differences singnificant between the model of IS and SVAS. Differences in the ratio of financial performance is due to the differences in the design of the presentation and disclosures relating to profit and added value. Income Statement "IS" looked at income as profit, whereas the Shari'ate Value Added Statement "SVAS" looked at income as an added value.

Convergent Evolution in Accounting Conceptual Framework: Barker and Penman (2016) and ASBJ (2006)

Criticizing the IASB’s Conceptual Framework project based on the balance sheet approach, Barker and Penman (2016) have been advocating a mixed balance sheet and income statement approach. Although they do not seem to have noticed, their approach is quite similar to that of the Japanese accounting standard setter promulgated in ASBJ (2006). We will explicate the basic similarity as well as some differences between these two approaches.

Analiza koncepcji ujęcia odroczonego podatku dochodowego w sprawozdawczości finansowej

The article analyses deferred tax allocation procedures in an important area of the contemporary accounting standards. The domestic and international standards solutions are similar, while the theory of accounting offers a range of alternative solutions. The article considers the concepts of full and partial allocation, liability method, deferred tax method, and the pros and cons of the balance sheet and income statement approach. The evaluation identifies the areas of coherence with current accounting standards and theory. It also points out those aspects which might be suitable for re-evaluation in the context of the accounting standards objectives.

The Impact of Fair Value Accounting on Earnings Quality in Eastern European Countries

This research investigates whether the extent to which fair values are used in financial reports is related to the earnings quality measures in Eastern European countries over 2002-2011 periods. It is expected that companies (banks) in Eastern Europe will more often estimate fair values by using valuation techniques (i.e. mark-to-model) than companies (banks) in market developed countries, due to lack of market data. This gives opportunity to managers to manipulate with estimation values and therefore could lead to lower quality of reported earnings. Six earnings quality approximations are examined: persistence, predictability, smoothness, accruals quality, value relevance and conservatism. Furthermore, an aggregate earnings quality measure is formed based on six earnings attributes. Exposure to fair value accounting is measured by income statement approach. First, for both banks and companies in the selected sample, two alternative measures of reported income are compared: net income and comprehensive income, because other comprehensive income consists mainly of fair value adjustments. Second, reported net gains (losses) on assets at fair value through income statement are used to capture the extent to which fair values are used in banks’ income statements. Preliminary empirical findings suggest that both firms and banks with increased exposure to fair value accounting in financial reporting have lower level of aggregate earnings quality.

The value relevance of deferred tax attributed to asset revaluations

Our study focuses on the incremental value relevance of the balance sheet relative to the income statement approach to deferred tax accounting and whether such value relevance is attributable to firms being required to report the deferred tax consequences of asset revaluations. Our results suggest that the increment to deferred tax balances upon adopting the balance sheet approach has value relevance, with such value relevance driven by the deferred taxes on certain asset revaluations (specifically, property, plant and equipment, and equity-accounted investments). We interpret our results as reflecting investors’ preference for the balance sheet approach to deferred tax accounting and their view that deferred taxes on asset revaluations are real liabilities.

Governmental Financial Accounting and European Harmonisation: Case Study of Finland

AbstractThe Finnish government accounting has developed from its own premises which used to emphasise the importance of budgetary accounting and prudence. Since the 1990s and the impact of New Public Financial Management, the Finnish government financial accounting has been accruals based. However, the Finnish application of accruals is based on the income statement approach, realisation principle and prudence. The International Public Sector Accounting Standards (IPSAS) based more on the balance sheet approach and fair value accounting are not suitable for the Finnish government accounting culture and practice. Furthermore, this means from the Finnish perspective that the EPSAS standards should not be based on IPSAS but on a conceptual framework especially developed for the European context.

A fundamentalist perspective on accounting and implications for accounting research

This paper presents a framework for addressing normative accounting issues for reporting to shareholders. The framework is an alternative to the emerging Conceptual Framework of the International Accounting Standards Board and the Financial Accounting Standards Board. The framework can be broadly characterized as a utilitarian approach to accounting standard setting. It has two main features. First, accounting is linked to valuation models under which shareholders use accounting information to values their stakes. Second, the desirable characteristics of accounting information are inferred from the demand of investors and analysts who use the information in practice. This stands in contrast to the “qualitative characteristics” in the Boards’ Framework which are embraced largely on the basis of their aesthetic appeal. These features lead to a set of broad accounting principles that resolve “recognition” and “measurement” issues at the core of the Boards’ Conceptual Framework and also the central issue of a balance sheet approach versus an income statement approach. The framework in the paper also frames the research questions for researchers interested in accounting policy.

Financial performance difference analysis of Mandiri Islamic Bank by using sharia value added and income statement approach on 2007-2011 period

This study tries to analyze the difference of financial performance of Islamic banks byusing income statement approach and value added approach based on financial ratio.The financial ratio which is used consists of ROA, ROE, and the ratio between thetotal net income by earning assets, NPM, and BOPO. The data for analysis weretaken from PT. Bank Syariah Mandiri Indonesia. Thus, the population of this researchis the financial report of PT. Bank Syariah Mandiri; while the sample of this researchwas the financial report year 2007- 2009 for each approaches that are Income StatementApproach and Value Added Approach. The means of analysis to prove the hypothesisof this research is an independent sample t-test. It shows that the averagefinancial ratio (ROA, ROE, net profit ratio of productive assets, and NPM). There aresignificant differences between the Income Statement Approach and Value AddedApproach, while the BOPO ratio between the Income Statement Approach and ValueAdded Approach has no difference. Yet, when viewed in the overall level of profitability,it shows that there are significant differences between the Income Statement Approachand Value Added Approach.

Determinants of leasing propensity in Canadian listed companies

PurposeThe purpose of this paper is to examine the relationship between a firm's propensity to lease and several firm characteristics: tax position, financial constraint, ownership structure, growth, and size.Design/methodology/approachControlling for industry, total lease share, operating and capital lease share ratios, obtained using an income statement approach, are regressed on a trichotomous tax variable, a dichotomous cash flow coverage ratio variable, debt over fixed assets, ownership concentration, market to book value of shares and the natural log of sales.FindingsTotal lease share increases with leverage, tax position and growth; it decreases with cash flow coverage, ownership concentration and firm size. Results for operating lease share are similar to those for total lease share. In contrast, capital lease share decreases with tax position and increases with ownership concentration and size.Research limitations/implicationsThe results suggest that leasing offers added debt capacity and increases in financially constrained firms. Firms that pay high taxes seem to place more value on the constant stream of tax deductions from the rental payments than on deductions from decreasing interest costs and amortization. Finally, highly concentrated Canadian firms may use less leasing because they are more family‐controlled.Originality/valueThe literature offers mixed reasons for firms' decisions to lease or purchase assets. This study provides further evidence in a rich setting. In 2001, the Canadian tax authorities changed the tax treatment of leases, thus providing an opportunity to validate prior results on the impact of taxes on leasing. By including two different measures of financial constraint, this study disentangles the substitution and the added debt capacity hypotheses.

ROA-Matched Discretionary Accruals Models vs. the Original Jones Type Models: A Cost and Benefit Analysis

Kothari et al. (2005) propose ROA matched models to estimate discretionary accruals for samples skewed toward firms with good or poor performance to reduce the frequency of Type I errors. Many researchers, however, use such models for unskewed samples. In these cases, ROA matched models have no advantage over the original Jones type models in frequency of Type I errors. This study shows, more importantly, ROA-matched Jones type models systematically underestimate discretionary accruals for firms that manage earnings. Thus, researchers using discretionary accruals estimated from such a model as an independent variable in regression analysis may obtain a coefficient estimate with a different sign from the true coefficient. Moreover, the ROA-matched models are likely to have a much higher frequency of Type II errors than the original Jones type models. The results of empirical tests are consistent with this prediction. Depending on the extent of earnings management, the ROA matched models often are less than half as likely to detect earnings management as the original Jones type models for random (unskewed) samples. The results hold for both annual and quarterly data, and regardless of whether accruals are estimated using the balance sheet or income statement approach. Researchers therefore should use the ROA matched models in empirical research with caution, and only for situations where the partitioning variable is highly correlated with performance.

Measuring Discretionary Accruals: Are ROA-Matched Models Better than the Original Jones Type Models?

Kothari et al. (2005) propose ROA-matched models to estimate discretionary accruals for samples skewed toward firms with good or poor performance to reduce the frequency of Type I errors. Many researchers, however, use such models for unskewed samples. In these cases, ROA-matched models have no advantage over the original Jones type models in frequency of Type I errors. This study shows, more importantly, ROA-matched Jones type models systematically underestimate discretionary accruals for firms that manage earnings. Thus, researchers using discretionary accruals estimated from such a model as an independent variable in regression analysis may obtain a coefficient estimate with a different sign from the true coefficient. Moreover, the ROA-matched models are likely to have a much higher frequency of Type II errors than the original Jones type models. The results of empirical tests are consistent with this prediction. Depending on the extent of earnings management, the ROA-matched models often are less than half as likely to detect earnings management as the original Jones type models for random (unskewed) samples. The results hold for both annual and quarterly data, and regardless of whether accruals are estimated using the balance sheet or income statement approach. Researchers therefore should use the ROA-matched models in empirical research with caution, and only for situations where the partitioning variable is highly correlated with performance.

Mathematics in Accounting as a Big Unanswered Question

Mathematics has been employed in accounting for centuries. It was included in the double entry system in the Luca Pacioli’s mathematics book but has not, so far, received appropriate attention in the development of modern accounting. The expanded accounting equation employed nowadays is considered a black-box, and there have been no significant improvements to the equation. This paper outlines the importance of the accounting equation in identifying the limitations of current accounting standards, particularly the definition of the elements of financial statements. Furthermore, this paper argues that the approach employed in the definitions of the elements of financial statements should be on the basis of information-base, instead of the use either the balance sheet or the income statement approach. Finally, the paper suggests that the application of mathematics in accounting be dealt with so that accounting will make a significant contribution to the academic world.