Public Financial Statements Research Articles

Do Public Financial Statements Influence Private Equity and Venture Capital Financing?

ABSTRACT We study whether the availability of public audited financial statements influences the probability of private firms receiving private firm equity financing. Using a setting in the EU with plausibly exogenous variability in the extent to which private firms issue public financial reports, we find that private firms subject to public reporting requirements have a higher probability of obtaining private equity (PE) financing. In addition, we show that the increase in PE financing occurs in industries in which PE funds have prior experience. Last, we show that our findings also extend to other forms of private firm financing such as private firm acquisitions and venture capital. Our evidence highlights the importance of public financial statements in the decision-making of PE investors, an important and understudied segment of the private firm financing market. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M2; G24; G34.

Effectiveness of Tax Benefits for Information Technology Organizations in Russia

The subject of the study is a set of measures of tax incentives for the information technology industry in the Russian Federation — “tax maneuver in IT”, launched from the beginning of 2021. The purpose of the study is to identify and qualitatively assess the stimulating effect of the tax maneuver in IT, which is expressed in changes in key financial and natural performance indicators of IT industry organizations, and to develop proposals on ways of tax incentives for the development of the industry. The article describes the distortion of the aggregate tax reporting characterizing the IT industry, which takes into account not only recently established IT organizations, but also “nominal” separates from large organizations IT subdivisions or technically clarified classification code, making it inappropriate to use such reporting as a basis for analysis and reliable conclusions. Based on the data of the public financial statements of selected sample from the top-100 Russian IT organizations, the article analyzes the dynamics of financial indicators of their activities, among which are the profiles of profiles, operating profit, net profit, investment in basic assets, the number of staff, the amount of products supplied for export, the capitalization of the company. The observation was conducted for 2017– 2022 and covers the periods both before and during the engagement of tax benefits. A comparative study was carried out with similar indicators of the organizations of the “control group”, which included IT companies operating in other countries that were not affected by such tax benefits. According to the results of the study, small or no extra growth was observed in key financial indicators of IT organizations due to the tax maneuver compared with the “pre-maneuver” period and compared with the indicators of the control group. It is concluded that there is no evidence of a significant impact of the tax maneuver on the development of the IT industry in Russia. We proposed dismantling of the “maneuver” and transition, based on the Chinese and some EU countries approaches, to taxation of the qualified profit. The latter is the profit of Russian and foreign IT developers from the localization of IT development and value creation in Russia. The achievable effective rate is 2.5%.

Monthly income patterns and earnings management in banking

ABSTRACT This study makes use of 38,070 loan portfolio-month observations in the 2009–2017 recessionary period and investigates whether monthly loan portfolio income distribution patterns can indicate earnings management in banking. We find that discontinuous monthly income patterns throughout the year based on Gini estimations are clear telltale signs of reported income manipulation detected via a Regression Discontinuity Design. We highlight that banks manipulate reported income by varying their loan loss provisions and reversals throughout the year. Specifically, they increase provisioning in the early months and release them towards year-end. This monthly-based strategy is employed by bank managers to influence the annual financial numbers reported in year-end public financial statements. The study contributes to understanding how banks internally manage provisioning on-average within a year, revealing a key mechanism of earnings management in the banking sector. The study fills a significant research gap in the existing literature on bank earnings management, primarily focused on quarterly earnings research.

DEVELOPMENT OF INFORMATION SUPPORT FOR FISCAL RISK MANAGEMENT WITHIN CRISES

Crisis phenomena, such as economic downturns, health emergencies and geopolitical conflicts, had a significant impact on the transparency of information support for public financial management processes and the development of digitalization of the economy.The objective of the study is to assess the current state of information support and transparency of the management of fiscal risks caused by state-owned enterprises' activities under uncertainty.Within the study, the existing international approaches to identifying and assessing fiscal risks are analyzed; the areas for improving information support for managing fiscal risks caused by the activities of state-owned enterprises in emergency situations are identified; the impact of digital finance development on mitigating fiscal risks caused by emergencies is assessed. Proposals to increase the transparency of public finances and create additional revenues to the state budget by the development of innovative technologies are substantiated.Implementation of fiscal and monetary policy measures to mitigate the impact of COVID-19 and ensure sustainable post-pandemic recovery requires relevant financial information reflecting the country's financial position. A reliable source of such information is public financial and budgetary statements prepared by IPSAS and on an accrual basis. Given the negative impact of uncertainty caused by the coronavirus pandemic and war on the activities of state-owned enterprises, an important tool for improving the efficiency of fiscal risk management is the unification of approaches to establishing indicators for assessing relevant risks and providing information for their calculation. In response to lockdowns and social distancing measures during crises, citizens have increasingly relied on digital channels to access government services, pay taxes, and receive financial support. This has necessitated improved digital infrastructure and service delivery mechanisms.

Methodological tools in the processes of income and expenditure accounting: Contemporary discussions and developments in Galicia at the turn of the century

Analytical reviews at the international level highlight the issue of the quality of public reporting information on the performance of companies and their economic potential. The component and subject of these discussions is the use of alternative methods in the accounting system – “comparison of income and expenses” and the “balance sheet approach”, which significantly affect the results of the calculated indicators. The purpose of this study is to formulate proposals for solving existing problems and analyse the best practices of accountants in Eastern Galicia in the second half of the 19th and mid-20th centuries to identify successful ideas for their use in modern research. The study uses a system of general scientific methods and specific techniques to clarify the role and significance of accounting information in the architectonics of the modern economy. The scientific results substantiate the author's opinion that the information presented based on the approach of coordinating (comparing) income and expenses objectively reveals the level of performance of modern companies, and therefore, more meets the real needs for management processes and the functioning of the market mechanism. The paper substantiates that the methodology of “coordination of income and expenses” should be given more weight in accounting theory and practice, and the results obtained on its basis should take a more significant position in the system of market analytics criteria. The balance sheet approach with its fair value principles in the accounting system is considered necessary, but its application should be considered as an additional tool for providing information to investors and counterparties of the market process. On its basis, companies provide the capital and investment markets with information in their public financial statements about the state and structure of their actual financial and economic potential. The scientific results also include the methodological developments identified and evaluated in past studies, which are reasonably recognised as applicable to modern realities. The paper is valuable because the introduction of the studied methods into practice based on their proposed parity use and some provisions from past developments regarding the measurement of income and expenses will positively affect the information content and transparency of public reporting of modern companies

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.

The influence of internal audit departments on external municipal audit reports

PurposeThe purpose of this paper is to examine whether the voluntary implementation of an internal audit department (IAD) by municipalities has any influence on external auditors' opinions.Design/methodology/approachThis study population comprises the 308 Portuguese municipalities, from which the authors extracted a sample of 179. Financial and audit reports were collected from the period under analysis (2014–2017). The sample was then divided into two groups: municipalities that had voluntarily implemented an IAD and those that had not. Internal audit departments were characterized according to their robustness – whether they were more or less robust. First, a descriptive statistical analysis of the dataset was performed to analyze the representativeness of the sample and to extract insights. To address the research questions, ordinal random effect regression models were considered.FindingsContrary to the authors' expectations, the voluntary implementation of an IAD had no influence on the audit report type. However, when the authors refined the approach to include the robustness of the IAD, it became clear that this variable does influence the report issued by the external auditor.Originality/valueThis paper contributes to the current literature by determining the effects of the robustness of IADs on municipality audit reports. As far as the authors know, this paper is novel. Since auditing plays an important role in the transparency of public financial statements and in promoting equity, this study shows that a robust IAD is an advantage in the pursuit of these goals.

The resilience of Islamic banking efficiency in the face of the Covid-19 epidemic

Purpose - Since 2020, the COVID-19 pandemic has harmed the Efficiency Islamic banking industry. This study examines the effects of the COVID-19 pandemic on 33 Islamic stock-traded banks in Asia.Method - This study includes public financial statements and stock prices of Islamic banks in Asia. This study compares peer-to-peer of how the Covid-19 pandemic affect 33 Islamic financial institutions in 2019 and 2020. A dummy-covid separated pre-pandemic and post-pandemic periods and bank efficiency was a dependent variable. Least-squares panel data regression, fixed-effects, and random-effects models determine model parameters.Result - This panel regression analysis shows that Islamic banking's usefulness changed after the Covid-19 pandemic. Islamic financial institutions performed better than usual during the pandemic. The analysis results show this clearly.Implication - Islamic banking appears relatively unaffected by the current economic downturn. The Islamic banking sector, which differs from its conventional counterpart in that it is based on the principle of profit sharing, will fare better during economic contractions, according to these findings.Originality - This is the first study to use a cross-country sample of Islamic banks in Asia to analyze the efficiency of Islamic banking during COVID-19.

Impact of the Mobile Banking Application Ratings on the Vietnamese Bank Service Income

Based on the relationship between fintech and bank performance and the role of mobile applications in bank operations, we investigate the impact of mobile banking application (MBA) ratings on bank service income. The quarterly data from the 15 biggest Vietnamese commercial banks in 2019–2020 were extracted from the public financial statements and the Google Play Store. The Generalized Least Squares method is applied to process the proposed regression models. We find a positive impact of MBA ratings on bank service income. We additionally explore the MBA quality of a large bank that does not meet customer expectations and how the interaction between MBA ratings and leverage harms bank service income. Finally, users generally appreciate the MBA quality, and COVID–19 does not affect the link between MBA ratings and bank service income. The study provides novel knowledge on customer behavior through MBA ratings and their effect on bank service income in an emerging country.

Complete Accounting of Fixed Assets at Vietnam Public Hospitals When Applying VPSAS 17 and VPSAS 31

Purpose: The aim of this study is to provide a solution based on the regulations of VPSAS that have been issued to improve the accounting of fixed assets in public hospitals in Vietnam today. Theoretical framework: The study uses regulatory documents of the government and industry to understand the nature, scale of management, fixed assets used in Vietnamese public hospitals. Design/methodology/approach: The study uses survey data through google form, the research article synthesizes existing shortcomings, analyzes and evaluates from survey data, thereby offering solutions from previous research results, specific characteristics of the health sector and applying VPSAS 17 and VPSAS 31 to accounting for tangible fixed assets at Hanoi public hospitals today to help accountants and managers at Vietnamese public hospitals to participate. study and apply it well in their work. Findings: The study has provided a number of solutions to improve fixed asset accounting in Vietnamese public hospitals when using VPSAS 17 and VPSAS 31. Next, The results show The determination and recognition of fixed assets are influenced by different management mechanisms, so the treatment and recognition of assets are also different. Research, Practical & Social implications: The study shows Vietnam is in the process of integrating and perfecting the accounting system according to international regulations, including the public accounting system. One of the public sectors that manages the largest amount of government fixed assets is the public hospital sector. Originality/value: The value is that In the process of public sector financial reporting disclosure and transparency, the Ministry of Finance has recently developed and issued 11 Vietnamese public accounting standards, the first two phases in the reform process in the field of financial management. public administration at the national and local levels…the application of Vietnamese Public Accounting Standards is important in the PFM Program efforts to improve the efficiency of public spending and strengthen governance. management of public resources towards sustainable development, including accounting for fixed assets at public hospitals. Therefore, it will greatly affect and influence the financial position in the public financial statements.

MEMPERTIMBANGKAN DASAR ETIS TANGGUNG JAWAB MORALAKUNTAN DARI PERSPEKTIF ETIKA EMMANUEL LEVINAS

The development of a free market economy that is massive and competitive and the desire to reap hugeprofits instantly has given birth to fraudulent business practices. One of the unethical business practices isthe manipulation of financial reports by accountants. In some cases, public accountants turn loss-makingcompany financial statements into profits. In this case, professional accountants already have a moralumbrella in the form of a code of ethics for the accounting profession as a basic guideline in carrying outaccounting practices. The code of ethics for the accounting profession emphasizes that accountants mustadhere to professional principles such as responsibility, public interest, maintaining integrity, objectivity,increasing competence and professionalism, being independent, applying the precautionary principle,maintaining confidentiality, and must comply with the rules. ethics for the accounting profession. LawNumber 5 of 2011 concerning The Public Accountants also emphasizes that public accountants must behaveproperly, be honest, be responsible, and have high integrity. However, in several major cases in Indonesia,the credibility, integrity, honesty and responsibility of public accountants to the state and the widercommunity have been questioned. Why does this happen so often? This article will analyze philosophicallythe relevance of Emmanuel Levinas's ethical thoughts for the ethical responsibilities of accountants. Theresults of library research using the content analysis method show that for Levinas the ethical-moral basisfor accountants' ethical responsibilities is not something normative-pragmatic but substantial-ontological.The ethical basis of the moral responsibility of accountants is not on the autonomy, freedom,professionalism and competence of accountants as subjects but on the subordination and intersubjectivitybetween the subject and the "Others" (the Others). For Levinas, responsibility towards the "Others" (theOthers) is characterized as ethical, asymmetrical, and absolute.

Do public account financial statements matter? Evidence from Japanese municipalities

Many governments are introducing business-like accounting systems. This paper examines the fiscal effects of compiling business-like financial statements on the expenditures of local governments in Japan as a complement to cash-based reporting. Using the variation in the deadlines for compiling new statements given by the central government in a difference-in-differences instrumental variable approach, we found that business-like financial statements have limited effects on municipalities’ expenditures but have short-run effects on social assistance expenses. This might be a part of the reconstruction of their expenditure structure.

Environmental Disclosure and Return on Assets of Manufacturing Companies Listed in Nigeria

The return on assets indicator informs existing and potential investors how effectively management has optimally utilized its resources from investments. Studies have advanced that manufacturing companies’ level of commitment has the ability to enhance earnings and corporate return on assets. Lack of optimal utilization of corporate assets and non-compliance with environmental requirements has weakened the earnings of manufacturing companies. Evidence has revealed that not many manufacturing coming have integrated environmental disclosure into their operations. This study examined the effect of environmental disclosure on the return on assets of manufacturing companies listed in Nigeria. The study adopted an ex-post facto research design. The population consisted of the 66 listed manufacturing companies listed on the Nigerian Exchange Group as of December 31, 2021. Purposive sampling was used to select 29 manufacturing businesses. Validated data were taken from the public financial statements of the selected manufacturing enterprises for 16 years (2006-2021). A statutory audit of the financial accounts was used to ensure the data's veracity. Descriptive and inferential (multiple regression) statistics were utilized to assess the data. The study revealed that environmental disclosure affects the return on assets of manufacturing companies listed in Nigeria (Adj.R2 = 0.017, F(5, 458) = 8.333, p < 0.05). The study recommended that managers of manufacturing companies should integrate environmental disclosure as a critical duty as evidence of policies in practice in protecting the environment towards gaining legitimacy and patronage in deepening the return on assets of the companies.

Application of Accounting Information System at Fahiluka Health Center

This study aims to find out how to prepare financial statements at the Fahiluka health center. This type of research uses a qualitative descriptive method with a case study approach in the form of financial statement data at the Fahiluka health center. The data sources used in this study are data obtained from an interview with one of the staff of the Fahiluka health center and books, official archives or forms of records related to the financial statements of the Fahiluka health center. and using data collection techniques in interviews and documentation. The results of this study show that the lack of training regarding the process of preparing public sector financial statements in accordance with applicable government regulations or accounting standards has resulted in the Fahiluka health center not implementing an accounting information system and the resulting financial statements are not in accordance with government regulations or government accounting standards. The preparation of financial statements at the Fahiluka health center is not someone who has expertise in the field of accounting (bookkeeping) and the financial statements are not only prepared by one person in charge or treasurer but are prepared by each person in charge of the activity program. The results of this study mean that the Fahiluka health center has not implemented an accounting information system where in the process of preparing financial statements is still manually using Microsoft excel, the stages of preparing financial statements at the Fahiluka health center are only recorded in the form of journals, then reporting in the form of financial statements so that the financial statement information produced is only in the form of a general cash book

Polish public universities application of the materiality concept in disclosing information

Purpose: The purpose of the article is to assess the application of the materiality con-cept in information disclosures made by Polish public universities in their financial statements, as well as to attempt to interpret the materiality concept to increase the usefulness of a financial statement. Methodology/approach: Financial statements for the years 20172020, as well as summaries of significant accounting policies of public universities, were the main sources of the research data. In addition, the following research methods were used: source analysis (literature, legal regulations), a case study, participant observation, direct observation, deductive reasoning, and the author's personal experience in preparing financial state-ments. Findings: The research results confirmed that the description of the materiality concept made by public universities mainly focuses on quantitative materiality thresholds and does not relate to qualitative parameters. In addition, there are no connections between the de-scription of the materiality concept in a summary of significant accounting policies or the introduction to the financial statement and the presentation of material information, which is the result of the guidelines of a minister responsible for higher education and the requirements related to a digitalized version of financial statements submitted by univer-sities. Additionally, widely used financial statement layouts, as proposed by appendix no. 1 to the Polish Accounting Act, are not fully adapted to the specifics of public universities, neither in terms of the probability of specific resources and processes appearing nor the terminology used. Practical implications: The conclusions presented in the article should be used to begin work on the shape of public universities' financial statements. Originality/value: The article fills the gap related to the financial reporting of public universities. The critical views may be used to improve a university's financial state-ment.

The Relationship between Environmental Uncertainty and Firm Performance in Chinese Listed Manufacturing Companies: The Mediating Role of Competitive Strategy

Economic globalization has brought great challenges to companies. Faced with uncertainty, appropriate strategic choice is an important means to deal with uncertainty and competitive challenges. The purpose of this research is to investigate the mediating effect of competitive strategy on the relationship between environmental uncertainty and firm performance in Chinese listed manufacturing companies. This research uses OLS regression models to test the mediating role of competitive strategy. The data used in this research are all derived from the public financial statement of listed companies from 2007 to 2019. We found that there is a mediating role of competitive strategy on the relationship between environmental uncertainty and firm performance. In addition, corporate life cycle is introduced as a moderating variable in the relationship between environmental uncertainty and competitive strategy. This study provides strong evidence to help managers in the decision-making process under environmental uncertainty and give managers more accurate advice based on the corporate life cycle of their companies.

Blockholder Heterogeneity and Audit Fees: Does Private Information Matter?

ABSTRACT We analyze the impact of Small Blockholders’ (SBH – with 5% to 10% of voting rights) heterogeneity and their access to private information on the demand for audit services. By promoting enhanced audit services, we expect SBH to have a moderating effect on the relation between Large Blockholders (LBH – more than 10% of voting rights) and audit fees in a context of low shareholder protection. Drawn on Swiss public firm data over the 2002–2019 period, our results show that the presence of SBH flattens the concave relation between ownership concentration and audit fees found in prior studies. This moderating effect is mainly driven by the uninformed SBH, who given their lower – compared with informed SBH – access to private channels of information, are more likely to rely on audited public financial statements. Our findings contribute to the literature on the role of SBH in the company’s corporate governance.

Incorporating Financial Statement Information to Improve Forecasts of Corporate Taxable Income

ABSTRACTWe examine whether public financial statement information is incrementally useful in forecasting confidential taxable income. More precise firm-level taxable income forecasts can improve policymakers' modeling of the tax system and the analysis of proposed changes in corporate tax law, while more accurate macro-level forecasts of corporate taxable income can improve estimates of corporate tax revenues, a significant component of the federal budget. We find the addition of financial statement information improves firm- and industry-level estimates of future taxable income by primarily providing more timely information, but also through accruals. Our results suggest that macroeconomic forecasts of taxable income may be further improved by the aggregation of firm-level forecasts that are generated using financial statement information. Importantly, our results are driven primarily by tax information in financial statements. We also contribute to the research on the information content of financial statement information for forecasting economic activity.JEL Classifications: M41; M48; H25.

Trends in Debt Valuations of Private Equity–Backed Dermatology Groups Before and During the COVID-19 Pandemic

Private equity (PE) firms have invested in and consolidated dermatology practices. Private equity firms typically operate by conducting leveraged buyouts, which occur when target companies are acquired with capital from PE firms and a combination of debt, which may include debt instruments held in business development corporations (BDCs). To investigate the valuations of dermatology PE-backed group (DPEG) debt instruments in BDCs' portfolios both before and during the COVID-19 pandemic. This cross-sectional study, conducted from August 1, 2016, to August 31, 2021, examined public financial statements filed by BDCs lending to DPEGs. The public filings of BDCs were searched from inception of the DPEG's debt instrument in a BDC's portfolio, and the amortized cost and fair value of each debt instrument were tabulated. The premium or discount at which each debt instrument was valued at a given time was calculated by dividing the difference between the fair value and the amortized cost by the amortized cost. Different testing methods were conducted for normal or nonnormal data to test differences in debt valuations across all DPEGs between 2 consecutive or nonconsecutive quarters. The search of the public filings found 10 BDCs containing data on 9 unique DPEGs. Overall, there were 15 trackable DPEG debt instruments because multiple BDCs can hold debt instruments for a given DPEG. Data were available from August 2016 through August 2021. During the study time frame, the amortized cost of the loans for an individual DPEG ranged from a low of $1.7 million to a high of $100 million. The valuation of debt instruments was stable for many DPEGs until some were discounted starting in May 2018, with a significant decrease from May 2019 to August 2019 (-1.4%; 95% CI, not applicable; P = .04), prior to the COVID-19 pandemic. Another significant decrease occurred during the pandemic from February to June 2020 (-9.0%; 95% CI, -13.6% to -4.4%; P = .002). US Dermatology Partners decreased to the lowest valuation (Golub BDC, -39.7%; TCG BDC Inc, -48.8%; TCG BDC II, -48.8%) of the DPEGs examined in November 2020 even after receiving a $10 million forgivable Small Business Administration Paycheck Protection Program loan in May 2020. After pharmaceutical companies announced effective COVID-19 vaccine candidates in November 2020, there was a modest and significant improvement in debt valuations (2.3%; 95% CI, 0.2%-0.4%; P = .03); however, they remained discounted. Only PhyNet Dermatology's debt instruments improved to a premium valuation by August 2021. Debt valuations of some DPEGs found in this cross-sectional study suggest a lower probability that their loans will be repaid in full. This could be a signal that some DPEGs are not performing well financially.

Issues in the Disclosure of Financial Information by Multinational Enterprises

The aim of this paper is to explore issues of investment presentation, financial instruments, earnings disclosure indicators and software aspects of accounting for multinational enterprises. The study is based on the public financial statements of the Solvay Group. The main approach is using two viewpoints – accounting view of financial information and IT view of financial information. The results of this study are useful for other multinational enterprises that prepare their financial statements in accordance with International Financial Reporting Standards and use big data in accounting.