Volume 35 Number 1
Volume 35 Number 2
Volume 35 Number 3
Volume 35 Number 4
Volume 35 Number 1
2000
The Institutional
Environment of Financial Reporting Regulation in ASEAN
SHAHROKH M. SAUDAGARAN AND JOSELITO G. DIGA
Key Words:
Accounting institutions in ASEAN;
Financial reporting in emerging markets; Accounting in developing countries
Abstract:
The growth of regional trading blocs and economic alliances such as the
European Union (EU) and the North American Free Trade Agreement (NAFTA), has
served to magnify interest in cross-national aspects of financial reporting
regulation. While most of the extant literature has looked at developed
industrialized countries, this article focuses on the principal features of
the institutional environment for financial reporting in an economic bloc of
developing countries – the Association of Southeast Asian Nations (ASEAN).
These countries are currently the subject of much attention due to the Asian
economic crisis. The article has several objectives. First, it highlights
the principal features of the institutional structure of financial reporting
regulation in ASEAN countries. Second, it helps understand how these features
impact on and are affected by several issues, particularly the limits of
private sector participation in regulatory affairs, and the need to improve
the enforcement in these countries. Finally, it also studies the
international dimensions of financial reporting regulation in ASEAN and
considers whether ASEAN’s institutional arrangements provide an auspicious
environment in which to pursue accounting harmonization.
Assessing
the Acceptability of International Accounting Standards in the US: An Empirical
Study of the Materiality of US GAAP Reconciliations by Non-US Companies
Complying with IASC Standards
DONNA L. STREET, NANCY B. NICHOLS AND SIDNEY J. GRAY
Key Words:
IASC; US GAAP reconciliations; Net income; IOSCO; SEC
Abstract:
With the International Accounting Standards Committee (IASC) reaching the
completion of its core standards program, the International Organization of
Securities Commissions (IOSCO) is considering its response to the IASC’s
application for endorsement of International Accounting Standards (IASs). A
critical aspect of IOSCO’s acceptance of IASs is likely to be the extent to
which such standards are compatible with US Generally Accepted Accounting
Principles (US GAAP). This issue is explored by an empirical study of US GAAP
reconciliations by non-US companies complying with IASC standards. The
results indicate that the impact of accounting differences between IASs and US
GAAP is narrowing and suggest that the Securities Exchange Commission (SEC)
should consider accepting IASC standards without condition. Alternatively, an
SEC endorsement could include a short list of IASs where acceptance is subject
to additional disclosures.
The Effect of Accounting
Diversity on International Financial Analysis: Empirical Evidence
JOSE’ A. LAINEZ AND SUSANA CALLAO
Cross-Corporate Ownership, Information
Asymmetry and the Usefulness of Accounting Performance Measures in Japan
LI JIANG AND JEONG-BON KIM
The Entry of International CPA Firms into
Emerging Markets: Motivational Factors and Growth Strategies
ROBERT J. KIRSCH, KENNETH R. LAIRD, AND THOMAS G. EVANS
Audit Quality in ASEAN
MICHAEL FAVERE-MARCHESI
Abstract:
This
article focuses on funding issues facing local government in Russia during the
current financial crisis. It concludes that efforts to develop a budget for
the Lysogorski raion were hampered by (1) lack of generally accepted
accounting principles, (2) the transfer of commercially unproductive assets
from old Soviet enterprises to local authorities; (3) no funding for capital
improvements; (4) unshared private information, (5) lack of economic resources
to fund everyday purchases; (6) a return to the barter system, and (7) a
chaotic system of raising and allocating tax revenue.
Volume 35
Number 2 2000
The Future of Financial Reporting in Europe: Its Role in Corporate Governance
C. RICHARD BAKER AND PHILIP WALLAGE
Key Words:
Financial reporting; Financial
accounting standards; International harmonization of accounting standards;
Corporate governance; Accountability
Abstract:
At a recent congress of the
European Accounting Association, the President of the Belgian Institute of
Registered Auditors, Paul Behets, delivered a plenary speech with the title:
Are Financial Statements an Obsolete Product? Behets’ answer was “no,” that
financial statements are an essential component of the financial reporting
system that is necessary for the proper functioning of capital markets. In this
article, we reach a similar conclusion, but for somewhat different reasons. A
central argument of this article is that an effective system of corporate
governance requires an effective financial reporting system, and that an
effective financial reporting systems requires a well-ordered system of
financial accounting. Behet’s speech provides evidence that financial
reporting, and the role of traditional audited financial statements within
financial reporting, are undergoing a period of change. The future of financial
reporting is difficult to predict with any degree of certainty, but it is likely
to be a future marked by change. One possible path for change has been
suggested by Elliott (1994), who has indicated that the currently accepted model
of financial reporting might be replaced by electronic information systems
providing financial and other forms of information about companies, not
necessarily in the form of audited financial statements, which would be widely
available via the Internet. Under this scenario, decision-makers could decide
on the types information that are important, and then arrange the information in
the ways they see fit. Financial reports in their present form (i.e. audited
financial statements) might become obsolete as users decided individually on the
types of information that are important to them. If this scenario were to come
into being, the question arises as to whether there would be a continuing need
for financial reports as presently constituted. It is the argument of this
article that even if it is technologically feasible for financial reports to be
changed from their present form, there would still be a need for financial
reports as an important component of corporate governance.
A Further Examination of Income Shifting Through
Transfer Pricing Considering Firm Size and/or Distress
TERESA L. CONOVER AND NANCY B. NICHOLS
Key Words:
Transfer pricing; Income shifting;
Global taxes; Firm size
Abstract:
This study evaluates the effect
of firm size on income shifting between tax jurisdictions through the use of
transfer prices both before and after the passage of the Tax Reform Act of 1986
(TRA86). Prior research addressing income shifting through transfer pricing
anlayzes larger, financially sound firms. This empirical study extends the
transfer pricing literature by including smaller and some cases financially
distressed firms in the sample and testing the effect by firm size on income
shifting. Our findings suggest that smaller and/or distressed firms are less
likely to shift income through transfer pricing than larger firms.
The Reintroduction of the True and Fair Override and
Harmonization with IASC Standards in Austalia: Lessons From the EU and Implications for Financial
Reporting And International Trade
ALAN S. DUNK AND ALAN KILGORE
Key Words: True and fair view; Override;
Harmonization; Accounting directives; Internationalization
Abstract:
Two issues currently facing
Australia having implications for financial reporting and trade are first, calls
for the reintroduction of the true and fair view (TFV) override and second, the
move to harmonize Australian accounting standards with those of the
International Accounting Standards Committee (IASC). The purpose of the article
is to examine the likely effects of such moves given the increasing
globalization of both financial and product markets. The conclusions of the
article suggest first, a reintroduction of the TFV override would be consistent
with its role in the Fourth Directive as the fundamental principle of financial
reporting. Second, harmonization with IASs by default will allow an override,
as IAS 1 now provides for one. Third, Australia’s harmonization of financial
reporting requirements with the wider global community may be impeded because of
inconsistencies between IASs, US GAAP, and EU Directives. Hence, the proposed
reintroduction of the TFV override together with IASC reporting is unlikely to
enhance Australia’s link to the wider global community, leading to potential
negative consequences in both financial and product markets.
Fundamental Analysis and the Valuation of IPOs in the
Construction Industry
DIMITRIOS C. GHICAS, NIKOLAOS IRIOTIS, APHRODITI PAPADAKI,
AND MARTIN WALKER
Key Words:
IPOs; Construction industry; Fundamental
analysis; Valuation
Abstract:
This study shows that (1) In
addition to past earnings, incomplete contracts disclosed in the prospectuses of
construction firms’ IPOs is an important explanatory variable of earnings
forecasts made by investment bankers. (2) Earnings forecasts can explain the
offer prices set by investment bankers in the IPOs of construction firms. (3)
Stock returns subsequent to the initial public offering are predictable on the
basis of incomplete contract information available in the prospectuses. This
last finding is robust to the inclusion of control variables for ex ante
uncertainty, size, book-to-market, leverage, and earnings-to-price effects. The
association between stock returns subsequent to the equity offering and
incomplete contracts is consistent with both market inefficiency and the
presence of risk factors for which investors expect greater underpricing of the
IPO.
Accounting for Intangible Assets in Scandinavia, the UK,
the US, and by the IASC: Challenges and a Solution
NILES E. JOACHIM HǾEGH-KROHN AND KJELL-HENRY KNIVSFLǺ
Key Words:
Intangible assets; Value-relevance;
International accounting practice
Abstract:
Improved accounting for
intangible assets is one of the major challenges to future financial reporting.
Conventionally, resources spend on intangibles such as knowledge, design,
licenses, and trademarks have been expensed and hence treated merely as costs
and not as investments with book values. Such an arbitrary way of dealing with
intangible resources is believed to have increasingly reduced the
value-relevance of financial reporting as the importance of intangibles in the
economy has increased over time. Intangible resources that meet certain
criteria for asset recognition should be capitalized as assets and their costs
amortized over the best estimate of their useful lives. In this article, we
argue that the value-relevance of financial statements would be further improved
if previously expensed costs are partly reversed and capitalized if, at a later
period, the intangible item in question meets the asset recognition criteria.
The increased income variation due to reversed expenses would be a signal of
earnings potential and risk.
The Relevance and Observance of the IASC Standards in
Developing Countries and the Particular Case of Zimbabwe
EDWARD E. CHAMISA
Key Words:
Developing countries; Harmonization;
International Accounting Standards (IASs); International Accounting Standards
Committee (IASC); Compliance with; Zimbabwe
Abstract:
An important outgrowth of the
International Accounting Standards Committee’s (IASC) international accounting
harmonization program is the adoption of its standards by a considerable and
increasing number of accounting professional bodies in developing countries.
This has taken place against the backdrop of academic arguments suggesting that
the IASC standards are irrelevant and/or even harmful to these countries. This
contradiction and the question of the relevance of the IASC standards to
developing countries are evaluated and explored further (in this article), using
Zimbabwe as a case study. The article also examines de facto compliance with
the IASC standards by a sample of listed Zimbabwe companies. The results of
both the compliance level and the impact of the IASC standards on the reporting
practices of listed Zimbabwe companies (a) appear to be significant; and (b)
seem to buttress the conclusion that the IASC standards are relevant to Zimbabwe
and similar capitalistic developing countries where the “shareholder/fair view”
is paramount. These results suggests important implications for the IASC’s
standardization program.
Disclosure Level and Compliance with IASs: A
Comparison of Companies With and Without U.S. Listings and Filings
DONNA L. STREET AND STEPHANIE M. BRYANT
Key Words:
International accounting standards;
Compliance with IASs; IASC; Voluntary disclosure
Abstract:
This research investigates the extent
to which the disclosure requirements of the IASC are complied with or exceeded
for companies claiming to use International Accounting Standards (IASs).
Additionally, the research seeks to identify significant differences between
those companies with U.S. listings, U.S. filings, and those with no U.S.
listings or filings with regard to (1) compliance with IASC-required
disclosures, and (2) level of disclosure (including both mandatory and
voluntary items). The findings reveal the overall level of disclosure is
greater for companies with U.S. listings. Additionally, greater disclosure is
associated with an accounting policies footnote that specifically states that
the financial statements are prepared in accordance with IASs and an audit
opinion that states that International Standards of Auditing (ISAs) were
followed when conducting the audit. Further, the findings indicate the extent
of compliance with IASs is greater for companies with U.S. listings or
filings. A higher level of compliance is associated with an audit opinion
that states the financial statements are in accordance with IASs and that ISAs
were followed when conducting the audit.
The research highlights the significance of the
enforcement issue for the International Accounting Standard Committee (IASC)
as it seeks an International Organization of Securities Commissions (IOSCO)
endorsement. The findings indicate enforcement of IASs may be less of an
issue for companies with listings and filings in the U.S. However, for
companies without U.S. listings and filings, compliance is indeed of great
concern.
Corporate Ownership and Governance in Russia
VICTORIA KRIVOGORSKY
Key Words:
Russia; Corporate ownership; Managers’
behavior
Abstract:
This article investigates the impact of
privatization on managers’ behavior, considering both the unique features of
the Russian reality and general theoretical issues in property rights and
economic behavior. Our analysis was primarily concentrated on corporate
ownership structure as the derivative of managers’ primary interest in
corporate control, on the approaches they employ in order to satisfy their
primary interests, and on sources on managers’ power. Attention then was
directed to the relationship between the ownership structure and governance
potentials of different groups of investors.
The results of the study
conclude that (1) the initial attempt to separate ownership and control in
order to increase managers’ incentives to be concerned about accounting
numbers has not been successful; (2) currently, managers have a negative
attitude toward any actions, which could alter their powerful position and the
distinctive socio-economic environment in Russia provides enough incentives to
ensure that the managers’ behavior remains consistent with their desire to
keep control of the corporate leadership; (3) corporate behavior during the
transition period will not necessarily vary with changes in the structure of
corporate ownership toward giving a greater power to outsiders, due to the
very specific relationship between inside and outside owners.
The Determination of a Group for Accounting Purposes in
the UK, Poland, and the Czech Republic in a Supranational Context
JOHN CRANER, DANUTA KRZYWDA, JIRI NOVOTNY, AND MAREK SCHROEDER
Key Words:
Groups, United Kingdom; Poland; Czech
Republic
Abstract:
A detailed cross-national and
supranational comparison of the de jure requirements for the determination of
a group for accounting purposes in the United Kingdom (UK), Poland, and the
Czech Republic establishes differences at both levels. The analysis
identifies cross-national differences that cannot be fully explained by
non-equivalencies between relevant International Accounting Standards (IAS)
and the European Commission (EC) 7th Directive on consolidated
accounts. These differences are non-trivial and more numerous than the
research literature suggests and provide evidence of the prolonged nature of
the accounting reforms in economies in transition. In the absence of a
theoretical framework for determining the content and sequence of accounting
reform in transition, accounting change defaults to an iterative process of
learning by doing.
Problems in Comparing Financial Performance Across International
Boundaries: A Case Study Approach
MARK WHITTINGTON
Key Words:
International accounting practices;
Financial reporting issues; Dual listed companies
Abstract:
In increasingly global markets for
finance, goods, and services, a variety of decision makers need to assess
companies from numerous countries on a common basis. Differences between
national and international accounting principles and practices make such a
task difficult, if not impossible.
This article considers the contribution of previous
research to resolving this problem. Much of the earlier work in this area has
used metrics based on a broad database of companies from many different
industries and worked out conservatism indices based on a comparison of profit
levels of companies reporting in two generally agreed accounting principles
and practices (GAAPs). While useful, this does not address the problems of
conversion for any one industry or company. In order to examine the
implications of GAAP differences for international comparisons, a case study
approach is adopted, considering two of the major players in the European
steel industry. Accounting information is produced for both companies under
their domestic GAAPs and under United States (US) GAAP, thus allowing for an
analysis based on a common, US, GAAP. As a part of this analysis, a time
series approach is taken.
The article concludes that there are additional factors
that may affect the evaluation of relative conservatism and the financial
comparison of individual companies even when carried out on a common GAAP
basis.
Controlling Multinational Companies: An Attempt to
Analyze Some Unresolved Issues
HANNE NOERREKLIT AND HANNS-MARTIN W. SCHOENFELD
Key Words:
Control in multinationals; Control
theory; Cross-cultural understanding; Dialogue method, Enculturation;
Managerial accounting; Models of thinking; Performance evaluation
Abstract:
Controlling multinationals with
managerial accounting often is inefficient due to lack of understanding.
Language, external variables, and headquarters decisions create distortions,
which prevent comparison with domestic data and require subsidiary accounting
adjustments. Furthermore, background and national cultural value systems let
individuals perceive and react non-uniformly to similar issues. Therefore,
steps are needed to assure cross-cultural understanding for communications.
This suggests that some accounting problems may be communications and
understanding issues, which need to be resolved first. This article described
a method to enhance understanding in cross-cultural management. This is
demonstrated for the management accounting, control, and performance
evaluation process.
Volume
35 Number 4 2000
Accounting Practices and the Market Valuation of
Accounting Numbers: Evidence from Indonesia, Korea, Malaysia, the Philippines,
Taiwan, and Thailand
ROGER C. GRAHAM AND RAYMOND D. KING
Key Words: International accounting practices;
Valuation; Asia; Clean surplus; Conservatism
Abstract:
This study examines the relation
between stock prices and accounting earnings and book values in six Asian
countries: Indonesia, South Korea, Malaysia, the Philippines, Taiwan, and
Thailand. The analysis is based on a residual earnings model that expresses
the value of the firm in terms of book value and residual income. The model
holds for any clean surplus accounting system. However for finite time
horizons, biased accounting may affect model estimates. The six countries
examined in this study differ in faithfulness to clean surplus accounting as
well as bias (conservatism). The study addresses two questions. First, are
there systematic differences across countries in the value relevance of
accounting, and are these differences related to accounting differences?
Second, are there systematic differences in the incremental and relative
information content of book value per share (BVPS) and abnormal (residual)
earnings per share (REPS) across the countries, and are such differences
related to accounting differences? We find differences across the six
countries in the explanatory power of BVPS and REPS for firm values.
Explanatory power for Taiwan and Malaysia is relatively low while for Korea
and the Philippines is relatively high. These differences are generally
consistent with differences in accounting practice; however, since Korean
accounting practice is strongly influenced by tax law, we did not expect the
high association for Korea. Second, with respect to the incremental and
relative explanatory power of BVPS and REPS, we find BVPS to have high
explanatory power in the Philippines and Korea but little in Taiwan. In all
six countries REPS has less explanatory power than BVPS in most years. Again,
the evidence may be interpreted as suggesting accounting practice affects
valuation (with Korea again as the exception). Finally, we provide evidence
on the sensitivity of the timing of comparisons of stock prices and accounting
values. We find that comparing prices at year-end (even though annual
accounting information has not been released at that time), in general,
provides the highest correlation between market and accounting numbers.
The Impact of Adopting International Accounting
Standards on the Harmonization of Accounting Practices
ANN B. MURPHY
Key Words:
International accounting standards;
Comparability; Harmonization
Abstract:
Over the past few decades numerous
organizations have been actively participating in the efforts to improve the
comparability of financial reporting. Many studies have discussed the
benefits and drawbacks of comparability. This study investigated the affect
on the harmonization, or comparability, of accounting practices when a sample
of companies choose to use international accounting standards (IASs) when
preparing financial reports.
This study analyzed trends in
the I index, a measure of concentration for the use of a particular
accounting practice introduced by van der Tas, to determine if the choice of
accounting methods by a sample of Swiss companies became more aligned with a
sample of companies from three other countries. The study included a control
sample of Swiss companies that did not switch from reporting using local Swiss
standards during the same time period, 1988 through 1995. Four accounting
practices were included; depreciation, inventory, financial statement cost
basis, and consolidation practices. The practices were compared with a sample
of companies from three countries; Japan, the UK, and the US.
The results indicated that across the 8-year period, the
majority of the I indices comparisons were positive and statistically
significant. However, the results did not support that these increases were
due primarily to the adoption of IASs.
Impact of Culture, Market Forces, and Legal System on Financial
Disclosures
BIKKI JAGGI AND PEK YEE LOW
Key Words:
Financial disclosures; Culture; Legal
systems; Multinationals
Abstract:
This study examines the impact of legal
systems (LSs) on financial disclosures by firms from different countries. The
results indicate that firms from common law countries are associated with
higher financial disclosures compared to firms from code law countries. The
findings also reveal that cultural values have an insignificant impact on
financial disclosures by firms from common law countries, and the results on
firms from code law countries provide mixed signals. The results for
multinationals are similar to the results for the total sample. The cultural
values have no impact on financial disclosures of multinationals from common
law countries, and there are mixed signals for multinationals from code law
countries.
The Influence of Culture on Pension Plans
KAREN S. CRAVENS AND ELIZABETH GOAD OLIVER
Key Words:
Culture; Pension plans; International
accounting standards; Multinational firms
Abstract:
It is widely recognized that culture is
a dimension affecting a vast array of management and social choices. However,
we know little about the effect of culture on choices that combine both
business and social issues in an accounting setting. Employee benefit choices
by managers reflect both the business choices of a firm in the selection and
retention of employees and social choices in the type and extent of benefits
provided to employees. The objective of this study is to investigate the
extent to which culture affects employee benefits as manifested in pension
plans. In a comparison of plans that differ according to the home country of
the parent firm and are offered in the regulated environment of the United
States, results indicate an effect of culture on pension plan choices. In
particular, culture plays a role in determining the finding level percentage
of the plan, employer contributions receivable, and revenues received or
receivable from employers.
On the Myth of “Anglo-Saxon” Financial Accounting
DAVID ALEXANDER AND SIMON ARCHER
Key Words:
Anglo-Saxon; Financial reporting;
Myth; IASC
Abstract:
The term “Anglo-Saxon accounting” (ASA)
is used by a number of academic writers on the subject of International
Accounting to refer to an approach to financial accounting and reporting that
is supposedly common to the UK and Ireland, the USA and other English-speaking
countries including Canada, Australia, and New Zealand. While most of the
writers we cite as using this term are continental Europeans, they also
include an Englishman, J. Flower. The term is typically used to imply not
just similar conceptual and technical approaches, but also a hegemonic
alliance in the international politics of accounting regulation.
This article seeks to establish that ASA in this sense is
a myth. We do this first by critically examining four putative commonalities
that are frequently attributed to the UK and USA approaches to financial
accounting and that form the basis of the myth, and second by indicating the
unfeasibility of such a hegemonic alliance within the IASC. A myth may have
some factual foundations, but belief in it rests also on bases that are
non-factual. So it is with ASA. In particular, analysis of the terms “true
and fair view” (TFV) and “fair presentation (FP) in accordance with generally
accepted accounting principles (GAAP)” shows that, far from their possessing a
semantic equivalence that constitutes a commonality between UK and US
financial approaches. What UK and US financial reporting have historically
shared is a micro- and capital market orientation that lends itself to
international accounting regulation in a context of global capital markets.
But with such an orientation now being generally accepted internationally, the
differences between UK and US financial reporting are taking on an increased
significance that this article seeks to highlight.
Auditing Standards in China –
A Comparative Analysis with Relevant International Standards and Guidelines
KENNY Z. LIN AND HUNG CHAN
Key Words:
Chinese auditing standards;
International Standards on Auditing; Chinese professional ethics;
International Federation of Accountants; Code of Ethics for Professional
Accountants; Chinese accounting industry.
Abstract:
The continuing and deepening economic
reforms in China have brought many changes both socially and economically to
the society. The primary function of auditing in China has begun to shift
away from the traditional tax compliance assessment towards the credibility
lending to financial statements. The economic reforms and the development of
the Accounting Standards for Business Enterprises have necessitated the
parallel development of auditing standards in China. While some significant
differences exist, the new Chinese auditing standards are, in a number of
important aspects, similar to the professional standards promulgated by the
International Federation of Accountants. The development of a comprehensive
body of standards, auditor independence, the role of certain auditing
techniques, and certified public accountant (CPA) population are the major
areas that China needs to improve. Opening up the Chinese accounting industry
will trigger significant advances in the implementation of Chinese standards
and the development of the Chinese accounting profession.
