scholarly journals Financial statement analysis

2019 ◽  
Vol 4 (2) ◽  
pp. 233-245
Author(s):  
Reginald Masimba Mbona ◽  
Kong Yusheng
Keyword(s):  
Financial Performance ◽  
Financial Reporting ◽  
Principal Component ◽  
Financial Statements ◽  
Financial Statement ◽  
Content Type ◽  
Know How ◽  
China Telecom ◽  
To Come ◽  
China Unicom

Purpose The Chinese Telecoms Industry has been rapidly growing over the years since 2001. An analysis of financial performance of the three giants in this industry is very important. However, it is difficult to know how many ratios can be used best with little information loss. The paper aims to discuss this issue. Design/methodology/approach A total of 18 financial ratios were calculated based on the financial statements for three companies, namely, China Mobile, China Unicom and China Telecom for a period of 17 years. A principal component analysis was run to come up with variables with significance value above 0.5 from each component. Findings At the end, the authors conclude how financial performance can be analysed using 12 ratios instead of the costly analysis of too many ratios that may be complex to interpret. The results also showed that ratios are all related as they come from the same statements, hence, the authors can use a few to represent the rest with limited loss of information. Originality/value This study will help different stakeholders who are interested in the financial performance of each company by giving them a shorter way to analyse performance. It will also assist those who do financial reporting on picking the ratios which matter in reflecting the performance of their companies. The use of PCA gives unbiased ratios that are most significant in assessing performance.

Fintech in financial reporting and audit for fraud prevention and safeguarding equity investments

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Paulina Roszkowska
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Fraud ◽  
Financial Statement Fraud ◽  
Content Type ◽  
Financial Scandals ◽  
External Auditor ◽  
Equity Investments

Purpose The purpose of this paper is to explore the audit-related causes of financial scandals and advice on how emerging technologies can provide solutions thereto. Specifically, this study seeks to look at the facilitators of financial statement fraud and explain specific fintech advancements that contribute to financial information reliability for equity investments. Design/methodology/approach The study uses the case studies of Enron and Arthur Andersen to document the evidence of audit-related issues in historical financial scandals. Then, a comprehensive and interdisciplinary literature review at the intersection of business, accounting and engineering, provides a foundation to propose technology advancements that can solve identified problems in accounting and auditing. Findings The findings show that blockchain, internet of things, smart contracts and artificial intelligence solutions have different functionality and can effectively solve various financial reporting and audit-related problems. Jointly, they have a strong potential to enhance the reliability of the information in financial statements and generally change how companies operate. Practical implications The proposed and explained technology advancements should be of interest to all publicly listed companies and investors, as they can help safeguard equity investments, thus build investors’ trust towards the company. Social implications Aside from implications for capital markets participants, the study findings can materially benefit various stakeholder groups, the broader company environment and the economy. Originality/value This is the first paper that seeks solutions to financial fraud and audit-related financial scandals in technology and not in implementing yet another regulation. Given the recent technology advancements, the study findings provide insights into how the role of an external auditor might evolve in the future.

Information content of IFRS versus GAAP financial statements

2018 ◽  
Vol 16 (1) ◽  
pp. 120-137 ◽  
Author(s):  
Robert C. Ricketts ◽  
Mark E. Riley ◽  
Rebecca Toppe Shortridge
Keyword(s):  
Financial Reporting ◽  
Forecast Accuracy ◽  
Financial Statements ◽  
Significant Loss ◽  
Financial Statement ◽  
Fiscal Year ◽  
Systematic Change ◽  
Forecast Errors ◽  
Content Type ◽  
Us Gaap

Purpose This study aims to determine whether financial statement users suffered a significant loss of information when, in November 2007, the SEC dropped the requirement for foreign private issuers using International Financial Reporting Standards (“IFRS firms”) to reconcile their financial statements to US generally accepted accounting principles (GAAP). Design/methodology/approach The study investigates whether analyst forecast errors and forecast dispersion increased for IFRS firms to a greater extent than for US GAAP firms after the Securities and Exchange Commission (SEC) dropped the reconciliation requirement. Using a treatment group comprised of IFRS firms and a matched sample of US GAAP firms, this study uses regression analyses to compare forecast errors and dispersion for the last fiscal year the reconciliation was available and the first fiscal year during which the reconciliation was unavailable to analysts. Findings The study finds evidence that forecast errors for IFRS firms exhibited no systematic change after the reconciliation was no longer available for analysts covering those firms. Thus, it does not appear that dropping the reconciliation requirement was associated with a change in forecast accuracy. However, the study does find evidence of increased dispersion in the IFRS firms’ forecasts relative to their US GAAP counterparts after the reconciliation requirement was dropped. Practical implications These findings have implications for evaluating the Securities and Exchange Commission’s 2007 decision to eliminate the reconciliation for IFRS firms. Specifically, the Securities and Exchange Commission’s decision does not appear to have significantly altered analysts’ information environments. Originality/value This paper contributes to the understanding of how a group of sophisticated financial statement users adapt to different sets of accounting standards.

Financial statement comparability in the extractive industry

2020 ◽  
Vol 33 (3) ◽  
pp. 523-541
Author(s):  
Christelle Smith ◽  
Elmar R. Venter
Keyword(s):  
Financial Reporting ◽  
Mineral Resources ◽  
Financial Statements ◽  
Financial Statement ◽  
Accounting Standard ◽  
Extractive Industry ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Cross Country

Purpose This paper aims to investigate financial statement comparability in the extractive industry. This paper focuses on the extractive industry because International Financial Reporting Standards (IFRS) contain limited guidance on the accounting treatment for exploration and evaluation (E&E) costs and IFRS 6 – Exploration for and Evaluation of Mineral Resources allowed firms to continue with existing divergent accounting treatment of E&E costs. Design/methodology/approach The authors use data from Australia, a country that adopted IFRS in 2005 with a large extractive industry. They also compare changes in cross-country comparability around the IFRS adoption date between Australian firms and adopters relative to Australian firms and non-adopters to better isolate changes in comparability that are attributable to the adoption of IFRS from other sources that are not related to the adoption of IFRS. The authors measure comparability consistent with De Franco et al. (2011) where financial statements are comparable when two firms produce similar accounting amounts for similar economic events. Findings For non-extractive industry firms, the authors find the comparability of financial statements of Australian firms increased with other adopters and that this increase was relatively greater than the increase with non-adopter firms. This evidence is consistent with comparability benefits associated with the adoption of IFRS. However, for extractive industry firms, the authors do not find a significantly greater increase in the comparability of financial statements of Australian firms with adopters relative to the increase with non-adopters, suggesting that the increase is likely not associated with the adoption of IFRS. In additional analysis, they find that following IFRS adoption non-extractive Australian firms have greater within-country comparability relative to extractive Australian firms, while there was no difference in the pre-adoption period. Originality/value The evidence suggests that the divergent practices for E&E costs under IFRS 6 and the lack of an accounting standard that deals with matters relating to the extractive industry hinder the comparability of financial statements in this industry.

Fraud of Financial Statements at Listed Enterprises on Ho Chi Minh City Securities Department

2018 ◽  
Vol 34 (4) ◽  
Author(s):  
Nguyen Tien Hung ◽  
Huynh Van Sau
Keyword(s):  
New York ◽  
Financial Reporting ◽  
Financial Statements ◽  
Financial Statement ◽  
Viet Nam ◽  
Fraud Triangle ◽  
Fraudulent Financial Reporting ◽  
Financial Statement Fraud ◽  
Corporate Fraud ◽  
Two Factors

The study was conducted to identify fraudulent financial statements at listed companies (DNNY) on the Ho Chi Minh City Stock Exchange (HOSE) through the Triangular Fraud Platform This is a test of VSA 240. At the same time, the conformity assessment of this model in the Vietnamese market. The results show that the model is based on two factors: the ratio of sales to total assets and return on assets; an Opportunity Factor (Education Level); and two factors Attitude (change of independent auditors and opinion of independent auditors). This model is capable of accurately forecasting more than 78% of surveyed sample businesses and nearly 72% forecasts for non-research firms.  Keywords Triangle fraud, financial fraud report, VSA 240 References Nguyễn Tiến Hùng & Võ Hồng Đức (2017), “Nhận diện gian lận báo cáo tài chính: Bằng chứng thực nghiệm tại các doanh nghiệp niêm yết ở Việt Nam”, Tạp chí Công Nghệ Ngân Hàng, số 132 (5), tr. 58-72.[2]. Hà Thị Thúy Vân (2016), “Thủ thuật gian lận trong lập báo cáo tài chính của các công ty niêm yết”, Tạp chí tài chính, kỳ 1, tháng 4/2016 (630). [3]. Cressey, D. R. (1953). Other people's money; a study of the social psychology of embezzlement. New York, NY, US: Free Press.[4]. Bộ Tài Chính Việt Nam, (2012). Chuẩn mực kiểm toán Việt Nam số 240 – Trách nhiệm của kiểm toán viên đối với gian lận trong kiểm toán báo cáo tài chính. [5]. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.[6]. Võ Hồng Đức & Phan Bùi Gia Thủy (2014), Quản trị công ty: Lý thuyết và cơ chế kiểm soát, Ấn bản lần 1, Tp.HCM, Nxb Thanh Niên.[7]. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman independence on corporate fraud. Managerial Finance 26 (11): 55-67.[9]. Skousen, C. J., Smith, K. R., & Wright, C. J. (2009). Detecting and predicting financial statement fraud: The effectiveness of the fraud triangle and SAS No. 99. Available at SSRN 1295494.[10]. Lou, Y. I., & Wang, M. L. (2011). Fraud risk factor of the fraud triangle assessing the likelihood of fraudulent financial reporting. Journal of Business and Economics Research (JBER), 7(2).[11]. Perols, J. L., & Lougee, B. A. (2011). The relation between earnings management and financial statement fraud. Advances in Accounting, 27(1), 39-53.[12]. Trần Thị Giang Tân, Nguyễn Trí Tri, Đinh Ngọc Tú, Hoàng Trọng Hiệp và Nguyễn Đinh Hoàng Uyên (2014), “Đánh giá rủi ro gian lận báo cáo tài chính của các công ty niêm yết tại Việt Nam”, Tạp chí Phát triển kinh tế, số 26 (1) tr.74-94.[13]. Kirkos, E., Spathis, C., & Manolopoulos, Y. (2007). Data mining techniques for the detection of fraudulent financial statements. Expert Systems with Applications, 32(4), 995-1003.[14]. Amara, I., Amar, A. B., & Jarboui, A. (2013). Detection of Fraud in Financial Statements: French Companies as a Case Study. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(3), 40-51.[15]. Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting Review, 443-465.[16]. Beneish, M. D. (1999). The detection of earnings manipulation. Financial Analysts Journal, 55(5), 24-36.[17]. Persons, O. S. (1995). Using financial statement data to identify factors associated with fraudulent financial reporting. Journal of Applied Business Research (JABR), 11(3), 38-46.[18]. Summers, S. L., & Sweeney, J. T. (1998). Fraudulently misstated financial statements and insider trading: An empirical analysis. Accounting Review, 131-146.[19]. Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary accounting research, 13(1), 1-36.[20]. Loebbecke, J. K., Eining, M. M., & Willingham, J. J. (1989). Auditors experience with material irregularities – Frequency, nature, and detectability. Auditing – A journal of practice and Theory, 9(1), 1-28. [21]. Abbott, L. J., Park, Y., & Parker, S. (2000). The effects of audit committee activity and independence on corporate fraud. Managerial Finance, 26(11), 55-68.[22]. Farber, D. B. (2005). Restoring trust after fraud: Does corporate governance matter?. The Accounting Review, 80(2), 539-561.[23]. Stice, J. D. (1991). Using financial and market information to identify pre-engagement factors associated with lawsuits against auditors. Accounting Review, 516-533.[24]. Beasley, M. S., Carcello, J. V., & Hermanson, D. R. (1999). COSO's new fraud study: What it means for CPAs. Journal of Accountancy, 187(5), 12.[25]. Neter, J., Wasserman, W., & Kutner, M. H. (1990). Applied statistical models.Richard D. Irwin, Inc., Burr Ridge, IL.[26]. Gujarati, D. N. (2009). Basic econometrics. Tata McGraw-Hill Education.[27]. McFadden, D. (1974). Conditional Logit Analysis of Qualita-tive Choice Behavior," in Frontiers in Econometrics, P. Zarenm-bka, ed. New York: Academic Press, 105-42.(1989). A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration," Econometrica, 54(3), 1027-1058.[28]. DA Cohen, ADey, TZ Lys. (2008), “Accrual-Based Earnings Management in the Pre-and Post-Sarbanes-Oxley Periods”. The accounting review.

Does Auditor Explanatory Language in Unqualified Audit Reports Indicate Increased Financial Misstatement Risk?

2014 ◽  
Vol 89 (6) ◽  
pp. 2115-2149 ◽  
Author(s):  
Keith Czerney ◽  
Jaime J. Schmidt ◽  
Anne M. Thompson
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Positive Association ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Reporting Quality ◽  
Accounting Principles ◽  
Client Relationship ◽  
Financial Misstatement ◽  
Audit Reports

ABSTRACT According to auditing standards, explanatory language added at the auditor's discretion to unqualified audit reports should not indicate increased financial misstatement risk. However, an auditor is unlikely to add language that would strain the auditor-client relationship absent concerns about the client's financial statements. Using a sample of 30,825 financial statements issued with unqualified audit opinions during 2000–2009, we find that financial statements with audit reports containing explanatory language are significantly more likely to be subsequently restated than financial statements without such language. We find that this positive association is driven by language that references the division of responsibility for performance of the audit, adoption of new accounting principles, and previous restatements. In addition, we find that (1) “emphasis of matter” language that discusses mergers, related-party transactions, and management's use of estimates predicts restatements related to these matters, and that (2) the financial statement accounts noted in the explanatory language typically correspond to the accounts subsequently restated. In sum, our results suggest that present-day audit reports communicate some information about financial reporting quality.

Corporate Social Responsibility and Financial Reporting Quality:Evidence from Restatements

2020 ◽  
Author(s):  
Yi-Hung Lin ◽  
Hua-Wei (Solomon) Huang ◽  
Mark E. Riley ◽  
Chih-Chen Lee
Keyword(s):  
Financial Reporting ◽  
Negative Relationship ◽  
Reporting Quality ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Reporting Quality ◽  
Csr Reporting ◽  
Corporate Social ◽  
Reporting Environment ◽  
The Relationship

We find a negative relationship between aggregate CSR scores and the probability that firms restated financial statements over the period 1991-2012. We then break that period into three sub-periods in order to determine whether the relationship holds for all three sub-periods. During the sub-periods of 1991-2001 and 2002-2005, the negative CSR score - restatement probability relationship holds. The negative relationship disappears in the 2006-2012 sub-period. Additional analyses indicate CSR scores are significantly higher in the 2006-2012 sub-period, suggesting the disappearance of the relationship between aggregate CSR scores and financial statement quality may relate to changes in CSR assessments and the CSR reporting environment. Our findings update the literature linking CSR scores and financial reporting quality and identify the need for further research as to the reasons the link between these constructs disappeared.

Do globalisation and adoption of IFRS by banks in Africa lead to less earnings management?

2019 ◽  
Vol 17 (2) ◽  
pp. 222-248 ◽  
Author(s):  
Mohammed Amidu ◽  
Haruna Issahaku
Keyword(s):  
Financial Reporting ◽  
Design Methodology ◽  
Information Quality ◽  
Accounting Information ◽  
Financial Statements ◽  
International Standards ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Accounting Information Quality ◽  
National Economies

Purpose This paper aims to analyse the implications of globalisation and the adoption of international standards (International Financial Reporting Standards [IFRS]) for accounting information quality. Design/methodology/approach This paper uses a sample of 329 banks across 29 countries leading up to and beyond the implementation of IFRS to test for related hypotheses. Findings First, banks’ financial statements are prepared on the basis of international standards as national economies are integrated when social norms are diffused. Building on these results, the second test suggests that the relatively high-quality earnings among banks in Africa during the period is attributable to the adoption of and interaction of IFRS with globalisation and the strategy of banks to diversify within and across interest and non-interest income. Originality/value The authors investigate how globalisation and the adoption of IFRS affect accounting information quality.

Indigenous reporting of a national housing corporation

2018 ◽  
Vol 36 (2) ◽  
pp. 221-233 ◽  
Author(s):  
Alistair Brown
Keyword(s):  
Papua New Guinea ◽  
Financial Reporting ◽  
Local Level ◽  
New Guinea ◽  
Financial Statements ◽  
Financial Reports ◽  
Content Type ◽  
Housing Corporation ◽  
Regulatory Instruments ◽  
National Housing

Purpose The purpose of this paper is to assess the level of reporting compliance achieved by the National Housing Corporation (NHC) of Papua New Guinea in terms of local indigenous reporting expectations. Design/methodology/approach Testing of a framework of indigenous accountability through indigenous enactments and regulations is conducted by textual analysis, which is informed by the theory of indigenous alternatives to assess the financial reporting compliance of the NHC of Papua New Guinea’s financial statements for years ending 2004-2013. Findings Documentary evidence of the state auditor reports of the NHC’s financial statements reveals that the corporation’s financial reports are not submitted for audit on a timely basis and receive disclaimed audit opinions. Despite the clear indigenous reporting expectations raised by local legislative and regulatory instruments, the NHC is unable or unwilling to provide an accurate account of their activities. Practical implications The lack of compliant reporting suggests that the planning, management and monitoring of the housing needs of residents of Papua New Guinea are compromised. There also appears merit in asking why parliament continues to fund the corporation given its difficulties in meeting local-level reporting expectations. Social implications The results have wider implications for the reporting ideologies of indigenous-run housing corporations operating in other developing countries. It might be fruitful to meet local reporting expectations before taking on the specialized reporting that accompanies introduced western-oriented policies on housing. Originality/value Accountability in relation to indigenous property management is constructed through a lens of reporting issues facing a developing country housing corporation.

Financial statement effects of adopting IFRS: the Canadian experience

2018 ◽  
Vol 26 (4) ◽  
pp. 466-491 ◽  
Author(s):  
Eva K. Jermakowicz ◽  
Chun-Da Chen ◽  
Han Donker
Keyword(s):  
Financial Reporting ◽  
Stock Exchange ◽  
Panel Data Analysis ◽  
Financial Statement ◽  
Net Income ◽  
Cross Sectional ◽  
Toronto Stock Exchange ◽  
Content Type ◽  
Publicly Traded Companies ◽  
Interaction Terms

Purpose The purpose of this study is to examine the effects of adopting International Financial Reporting Standards (IFRS) on financial statements of the largest Canadian firms (S&P/TSX 60) listed on the Toronto Stock Exchange (TSX). Design/methodology/approach This study investigates the financial statement effects of 46 companies from the S&P/TSX 60 index which report under IFRS in 2011 and switched to IFRS from CGAAP. This study used panel data analysis, which can be considered as more powerful when conducting cross-sectional and in time analysis among companies. Because of weakness of Cramer statistic on R-square, the authors used interaction terms as suggested by Hope (2007). Findings Consistent with the authors’ perceptions, this study finds that significant effects of adopting IFRS are associated with industry practices. The empirical results show that the adoption of IFRS in Canada created more relevant financial reporting for book value of equity and net income in the post-adoption periods. Originality/value This study should be of interest to the US regulators considering IFRS adoption by US publicly traded companies as well as to regulators, standard setters and listed companies in all countries worldwide that are in transition to IFRS.

scholarly journals Transparency of local government in Indonesia

2018 ◽  
Vol 3 (1) ◽  
pp. 123-138 ◽  
Author(s):  
I Made Pradana Adiputra ◽  
Sidharta Utama ◽  
Hilda Rossieta
Keyword(s):  
Local Government ◽  
Financial Reporting ◽  
Local Governments ◽  
Financial Statements ◽  
Political Environment ◽  
Content Type ◽  
Audit Opinion ◽  
Government Response ◽  
Positive Effect

Purpose The purpose of this paper is to provide empirical evidence about the influence of the size of local government, the quality of local government financial statements, the level of local government response to the disclosure of financial information and the local political environment on the transparency of local government in Indonesia. Design/methodology/approach The study sample consisted of 34 regional governments (provinces) in Indonesia in 2016, using purposive sampling and multiple regression analysis. Findings The results showed that the quality of financial reporting through the audit opinion and political environment have a significant positive effect on the transparency of local government in Indonesia. On the other hand, the size of the local government and local government response rate on the regulation do not affect the transparency of local government in Indonesia. Originality/value The agency, legitimacy and institutional theory have an important role in the underlying local government transparency practices in Indonesia. The results of this study should be used as the basis of thought and study to determine the factors that affect the performance of local governments from the financial and non-financial aspects.

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