Firm characteristics associated with concurrent disclosure of GAAP-compliant financial statements with earnings announcements

2018 ◽  
Vol 26 (3) ◽  
pp. 365-381 ◽  
Author(s):  
Thomas D’Angelo ◽  
Samir El-Gazzar ◽  
Rudolph A. Jacob
Keyword(s):  
Financial Reporting ◽  
Voluntary Disclosure ◽  
Earnings Announcements ◽  
Balance Sheet ◽  
Control Sample ◽  
Financial Statements ◽  
Cash Flows ◽  
Content Type ◽  
Quarterly Earnings ◽  
Earnings Releases

Purpose This paper aims to examine the characteristics of firms that voluntary disclose generally accepted accounting principals (GAAP)-compliant statements of income, statement of cash flows (SCF) and balance sheet (BS) concurrently with quarterly earnings releases. Cardinal motivation of the paper stems from the increasing demand over the past decade by professional analysts and the Securities and Exchange Commission for concurrent disclosure of GAAP-compliant financial statements with earnings’ announcements. Design/methodology/approach Using hand-collected archival data, a random sample was identified as disclosing GAAP-compliant SCF and BS with their quarterly earnings releases compared to a control sample identified as non-GAAP-compliant disclosing firms during the 36-month period of 2009-2011, and several hypotheses are tested to determine managements’ incentives to disclose GAAP-compliant versus non-GAAP financials with their earnings releases. Findings The results in this paper suggest that debt financing, corporate governance, operating performance, earnings volatility, industry membership (such as technology and more research and development-intensive) and complexity of operations (number of segments) are significant characteristics of firms electing to concurrently disclose GAAP-compliant SCF and BS with earnings releases. Practical implications The findings discussed in this paper are of special interest to financial reporting policymakers, financial analysts, firm managers and stakeholders and academics. Originality/value The voluntary disclosure literature on quarterly earnings releases is extended by differentiating between GAAP-compliant and non-GAAP-compliant voluntary disclosers. The specific findings of this study may provide valuable input to policymakers as they study prevailing voluntary disclosure rules and practices.

An IFRS-based taxonomy of financial ratios

2019 ◽  
Vol 32 (1) ◽  
pp. 20-35 ◽  
Author(s):  
Thomas Zeller ◽  
John Kostolansky ◽  
Michail Bozoudis
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Manufacturing Sector ◽  
Balance Sheet ◽  
Financial Statements ◽  
Component Analysis ◽  
Financial Ratios ◽  
Reporting Standard ◽  
Content Type ◽  
Country Differences

Purpose This study aims to identify a taxonomy of financial ratios derived from financial statements prepared using International Financial Reporting Standards (IFRS). The work first empirically establishes and then statistically validates the taxonomy of financial attributes captured in financial ratios. In 2005, the European Commission required that publicly traded companies in the European Union use IFRS as the basis for financial reporting. In the same year, Australia adopted IFRS as a basis for financial reporting. Since then, 120 countries and reporting jurisdictions have adopted IFRS as the basis for financial reporting. Given that IFRS predominate in the financial reporting world, it seems essential to establish and validate IFRS-based ratio attributes. Only then can reliance upon and comparability of these ratios be warranted (Altman and Eisenbeis, 1978). Using principle component analysis, the authors empirically identify nine stable attributes (factors) for ratios drawn from IFRS-based financial statements from 84 counties. The findings provides an empirical basis to formulate testable hypotheses regarding the predictive and descriptive utility of financial ratios draw from IFRS-based financial statements. Design/methodology/approach The paper begins with a broad category of IFRS-based financial ratios, 50, found in practice and research, including income statement, balance sheet, cash flow, profitability and liquidity measures. Then, a sample of companies from the manufacturing sector is segmented using IFRS as a basis of financial statement reporting. Next, principal component analysis, a method of factor analysis, is applied to empirically identify factors and financial attributes captured in financial ratios used in research inquiry and financial analysis. Findings The authors find that the financial attributes captured by IFRS-based ratios go well beyond the traditional measures of profitability, liquidity and solvency. The authors identify nine factors that are interpretable and stable over the period, 2011-2015: asset relationship, asset turnover, capital structure, expense insight, fixed asset usage, inventory turnover, liquidity, profitability margin and performance return. Interestingly, the authors did not find a separate cash flow factor. Most importantly, the results corroborate that IFRS-based ratios are consistent and comparable, despite innate country differences that have been shown to influence the application, interpretation and use of IFRS. Research limitations/implications The efforts are limited to the manufacturing sector. The financial attributes may be different in service, distribution and retail sectors. Also, limiting the effort are the ratios selected in this study. A broader range of ratios may widen the identification of unique stable factors over time. Practical implications The findings provide a basis for research and analysis efforts regarding the validity, comparability and stability of IFRS-based financial ratios. Most importantly, the results corroborate that IFRS-based ratios are consistent and comparable, despite innate country differences that have been shown to influence the application, interpretation and use of IFRS. The findings should be of interest to international and national financial reporting standard setters, investors and analysts. Originality/value An empirically evidenced classification system for IFRS-based financial ratios has yet to be determined based on a financial statements across a wide breadth of countries and reporting jurisdictions. Identification of stable interpretable factors, financial attributes, has been limited. The first is that inquiry has been limited to domestic-based, such as US Generally Accepted Accounting Principles, financial ratios. The second is inquiry has been limited to IFRS-based financial ratios within a specific country.

Horse Vet, LLC: Transaction Analysis and Statement of Cash Flows Preparation (Option 1)

2017 ◽  
pp. 1-12
Author(s):  
Mark E. Haskins
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Financial Statements ◽  
Cash Flows ◽  
Financial Statement ◽  
Balance Sheets ◽  
Income Statement ◽  
Transaction Analysis ◽  
Business Events ◽  
Statement Of Cash Flows

This case pertains to the foundational underpinnings of the accounting process and the statement of cash flows. In Part I, students are presented with 23 business events that they must evaluate for recording in the financial records. Part II requires students to prepare a 2012 statement of cash flows using the information presented in the company's 2011 and 2012 year-end balance sheets along with its 2012 income statement. In Part III, students must rely on a 2011 balance sheet and a 2011 statement of cash flows to work backward to derive the 2010 year-end balance sheet. There are two versions of this case: Option 1 and Option 2. The Option 2 case is a bit more challenging than the Option 1 case. Instructors should use Option 2 if they feel students are well grounded in their understanding of financial statement relationships and the customary financial reporting of a typical set of business events. Both cases reinforce students' learning related to the accounting process and the connectivity between the financial statements. Please note that only one version of the case should be used due to the existence of some overlap between the two.

scholarly journals Board structure and supplementary commentary on the primary financial statements

2014 ◽  
Vol 15 (3) ◽  
pp. 273-290 ◽  
Author(s):  
Venancio Tauringana ◽  
Musa Mangena
Keyword(s):  
Impression Management ◽  
Voluntary Disclosure ◽  
Audit Committee ◽  
Balance Sheet ◽  
Financial Statements ◽  
Ordinary Least Squares ◽  
Annual Reports ◽  
Board Structure ◽  
Least Squares Regression ◽  
Content Type

Purpose – The purpose of this paper is to investigate the relationship between the extent and focus of supplementary narrative commentary (SNC) on amounts reported in the primary financial statements and board structure variables. Design/methodology/approach – The study uses the disclosure index methodology to measure the extent of SNC in annual reports of 167 FTSE 250 companies. Ordinary least squares regression analysis is employed to examine the association between the extent and focus of SNC and board structure variables. Findings – The findings show that the extent of SNC on amounts reported in the primary financial statements is about 30 per cent, suggesting that companies provide commentary on a small number of amounts reported in the financial statements. In terms of focus of SNC, companies provide greater SNC on amounts in the income statement relative to the balance sheet. The regression results indicate that the extent of SNC is negatively associated with board size, and positively associated with audit committee (AC) independence and financial expertise. Focus of SNC is negatively related to AC independence and finance expertise. Originality/value – The research contributes to both the voluntary disclosure and impression management literature streams. The findings provide evidence of the extent and focus of SNC on amounts in the financial statements. They also demonstrate that board structure variables are related to the extent and focus of SNC on amounts in primary financial statements. These findings have implications for policy makers who have responsibilities for ensuring that users of annual reports receive adequate information to make decisions.

Information Content of Earnings Announcements Around IFRS Adoption and a Simultaneous Change in Press Release Disclosure in Italy

2019 ◽  
Vol 54 (02) ◽  
pp. 1950005
Author(s):  
Pureum Kim ◽  
Pier Luigi Marchini ◽  
Gianfranco Siciliano
Keyword(s):  
Information Content ◽  
Financial Reporting ◽  
Earnings Announcements ◽  
Control Sample ◽  
Financial Statements ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Regulatory Changes ◽  
Market Benefits ◽  
Earnings Disclosures

This study examines the effect of a security regulation that occurs simultaneously with International Financial Reporting Standards (IFRS) adoption on the information content of earnings announcements in Italy. To identify the effect of this regulation, we use a treatment and a control sample of IFRS countries that vary in the adoption of the security regulation, but are similar along a set of accounting and institutional dimensions (Italy versus France, Belgium, and Portugal). We find that the increase in information content of earnings announcements is more pronounced in Italy (treatment sample). Further, we analyze non-earnings disclosures using 2106 earnings announcements and find that the inclusion of IFRS-based detailed financial statements in earnings announcements contributes to the increased informativeness of IFRS earnings announcements. Our results provide support to the notion that regulatory changes concurrent with IFRS adoption are necessary to yield capital-market benefits.

Consolidation of off-balance sheet entities and investment efficiency

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Fang Zhao ◽  
Abhijit Barua ◽  
Jung Hoon Kim
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Control Sample ◽  
Investment Efficiency ◽  
Financial Accounting Standards Board ◽  
Firm Level ◽  
Exogenous Shock ◽  
Content Type ◽  
Variable Interest Entities ◽  
The Impact

Purpose The purpose of this study is to examine the effect of consolidating off-balance sheet entities on firm-level investment efficiency. Financial Accounting Standards Board Interpretation No. 46, consolidation of variable interest entities – an Interpretation of ARB No. 51 (FIN 46) is used as a quasi-exogenous shock to financial reporting in this study. Design/methodology/approach The authors empirically test the change of investment efficiency for a sample of firms affected by FIN 46 in the post-FIN 46 periods. In the regression, a group of matched pairs selected from unaffected firms is used as the control sample and firm characteristics are used as control variables. Findings The authors find that firms affected by FIN 46 experience improvement in investment efficiency after adopting the standard compared to unaffected firms. The authors also document that FIN 46 firms’ level of investment decreases after FIN 46 compared to unaffected firms. These empirical results suggest that the improvement in investment efficiency is likely to be achieved by the reduction in over-investment. Further analyses show that amongst the affected firms, firms consolidating off-balance sheet special purpose entities (SPEs) improve investment efficiency mainly by reducing over-investment, whereas firms avoiding the consolidation of SPEs do not display such tendency. Originality/value This study contributes to the literature on the relation between financial reporting and investment efficiency, as well as the literature on the impact of FIN 46. To the best of the authors’ knowledge, this study is the first to examine the relation between the consolidation of off-balance sheet entities and investment efficiency.

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.

GASB No. 34's Governmental Financial Reporting Model: Evidence on Its Information Relevance

2007 ◽  
Vol 82 (1) ◽  
pp. 205-240 ◽  
Author(s):  
Elizabeth Plummer ◽  
Paul D. Hutchison ◽  
Terry K. Patton
Keyword(s):  
School Districts ◽  
Financial Reporting ◽  
Default Risk ◽  
Balance Sheet ◽  
Cash Flows ◽  
Working Capital ◽  
Information Relevance ◽  
Net Assets ◽  
Accrual Basis ◽  
The Government

This study uses a sample of 530 Texas school districts to investigate the information relevance of governmental financial statements published under Governmental Accounting Standards Board Statement No. 34 (GASB No. 34). Specifically, we examine whether the new government-wide statements provide information relevant for assessing a government's default risk, and if this information is incremental to that provided by the governmental funds statements. GASB No. 34 requires governments to publish governmental funds statements prepared on a modified accrual basis, and government-wide statements prepared on an accrual basis. We find that GASB No. 34's Statement of Net Assets (similar to a corporation's balance sheet) provides information relevant for assessing default risk, and this information is incremental to that provided by the governmental funds statements. However, GASB No. 34's Statement of Activities (similar to a corporation's income statement) does not provide information relevant for assessing default risk. The accrual “earnings” measure is not more informative than the modified-accrual “earnings” measure. A government's modified accrual earnings measure can be thought of as a type of measure of changes in working capital. Therefore, our results are consistent with research on corporate entities that attributes the superiority of earnings over cash flows primarily to working capital accruals and not long-term accruals. For our sample of school districts, evidence suggests that total net assets from the government-wide Statement of Net Assets, along with a measure of modified-accrual “earnings” from the governmental funds statement, provide the best information for explaining default risk.

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