The Impact and Valuation of Off-Balance-Sheet Activities Concealed by Equity Method Accounting

2003 ◽  
Vol 17 (4) ◽  
pp. 303-314 ◽  
Author(s):  
Mark P. Bauman
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Empirical Finding ◽  
Valuation Effects ◽  
The Impact ◽  
Footnote Disclosures

This paper reports the results of a study of the financial reporting effects of off-balance-sheet activities concealed by the equity method of accounting. The study examines footnote disclosures relating to equity method investees, offers suggestions for improving the usefulness of those disclosures, and estimates the valuation effects of information in the disclosures. An important empirical finding is that the market places significant negative values on investor-guaranteed off-balance-sheet obligations.

Instructional Case: Worldwide Shipping Corporation Ltd: Early or Late Adoption of a New International Accounting Standard?

1999 ◽  
Vol 14 (2) ◽  
pp. 211-231
Author(s):  
Peter Lee ◽  
Pearl Tan
Keyword(s):  
Financial Reporting ◽  
Financial Analysis ◽  
Balance Sheet ◽  
Financial Statements ◽  
Economic Consequences ◽  
International Accounting ◽  
Accounting Choice ◽  
Accounting Standard ◽  
The Impact ◽  
International Accounting Standard

The management of Worldwide Shipping Corporation Ltd (hereafter “Worldwide Shipping”) is confronted with a dilemma when a new international accounting standard on leases is introduced which contains a transitional provision allowing firms to defer implementation for a period of four years. Students are required to put themselves in the position of managers who have to weigh the adverse impact of early adoption of the new accounting standard against a responsibility for fair financial reporting. Worldwide Shipping is a multifaceted case that can be used as an accounting case study or a financial analysis study. The objectives of the case are threefold. First, it aims to provide students with a better understanding of the impact of off-balance sheet transactions (in this case, sale-leaseback contracts) on a firm's financial statements. Second, it requires students to examine implications of accounting choice on management compensation and debt-contracting costs, as well as the perplexing problem of recognition in financial statements vs. footnote disclosures. By putting students in the position of managers, the case increases students' awareness of the possible economic consequences arising from accounting choice. Third, it provides students with a useful exercise in the mechanics of effecting a change in accounting method using the retroactive method.

scholarly journals Comparability of financial statements prepared according to IFRS and IFRS for SMEs in the field of intangible assets

2010 ◽  
Vol 58 (6) ◽  
pp. 67-78 ◽  
Author(s):  
Hana Bohušová ◽  
Patrik Svoboda
Keyword(s):  
Financial Reporting ◽  
Intangible Assets ◽  
Financial Analysis ◽  
Balance Sheet ◽  
Financial Statements ◽  
Important Field ◽  
Definition Of ◽  
The Impact

IFRS for SMEs were adopted in July 2009 as a result of efforts to harmonize financial reporting for SMEs. These standards are based on the same principles as full standards. The aim is, compared to full IFRS reporting of these businesses, to significantly simplify, mainly from the reason that the strict application of the principles of the full standards does not excessively financially and administratively burden smaller accounting entity. Field of identifying, recording and reporting of intangible assets except goodwill is an important field in which the methodology is substantially different. In the pre­sent paper there is documented on the example the impact of different methods for recording of internally generated intangible assets in the both systems into balance sheet and profit or loss and into the selected indicators of financial analysis. Definition of issues that may arise during the transition from the IFRS for SMEs to full IFRS and vice versa, in the context of drafting the opening balance sheet is another field to which the paper is dedicated.

scholarly journals The Value Relevance of Goodwill: IFRSs and Global Financial Crisis (GFC)

2018 ◽  
Vol 8 (2) ◽  
pp. 26
Author(s):  
Ng Shir Li ◽  
Dennis W Taylor
Keyword(s):  
Financial Crisis ◽  
Financial Reporting ◽  
Global Financial Crisis ◽  
Value Relevance ◽  
Explanatory Power ◽  
Balance Sheet ◽  
Share Price ◽  
Book Value ◽  
Income Statement ◽  
The Impact

This study contributes to the issue of accounting for goodwill by examining the impact of changing from the Australian Generally Accepted Accounting Principles (AGAAP) to Australian International Financial Reporting Standards (AIFRS) on goodwill, 3 years (2002 to 2004) before and 3 years (2006 to 2008) after AIFRS adoption. The sample is drawn from top 200 companies listed on the Australian Stock Exchange (ASX). This study applies multiple regressions. The dependent variable is the closing share price 3 months after the balance sheet date. The independent variables consist of earnings per share, book value per share, goodwill in the balance sheet, goodwill in the income statement (goodwill amortisation and goodwill impairment) and goodwill acquisition. The findings indicate that goodwill accounted for in the income statement and balance sheet do not provide increased explanatory power of market value under AIFRS compared to AGAAP. Moreover, the goodwill in the income statement does not show value relevance in year 2007, but became significant in year 2008 during the global financial crisis (GFC). Also, the age of goodwill recorded in the balance sheet does not affect the value relevance of earnings and book value in the post-adoption period. This study contributes new evidence on accounting for goodwill under pre and post-IFRS accounting regimes in Australia. This is also the first study to examine the separate effects of goodwill accounting on earnings and net assets, with special attention given to the period before and during the GFC in capital markets.

scholarly journals Financial Reporting Impact Of The Operating Lease Classification

2012 ◽  
Vol 28 (6) ◽  
pp. 1509 ◽  
Author(s):  
John Kostolansky ◽  
Dora Altschuler ◽  
Brian B. Stanko
Keyword(s):  
North America ◽  
Financial Reporting ◽  
Balance Sheet ◽  
Accounting Standards ◽  
Financial Statements ◽  
Financial Accounting ◽  
International Accounting Standards ◽  
Financial Accounting Standards Board ◽  
Operating Leases ◽  
The Impact

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are preparing to make changes to accounting standards for leasing that will have a significant impact on the financial statements of a large number of companies. The proposed standard will eliminate the operating lease classification, and if passed, companies using this classification will be required to report additional assets and liabilities on the balance sheet. This study estimates the impact of this change in accounting standards on the financial statements and several key financial ratios for an extensive sample of companies and industries from the Compustat North America database. It is important that users of financial statements understand and are prepared for these changes prior to implementation, particularly for industries in which operating leases are heavily utilized.

scholarly journals The Impact of Climate Change in the Valuation of Production Assets via the IFRS Framework

2019 ◽  
Vol 0 (0) ◽  
Author(s):  
Rebecca Scholten ◽  
Tineke Lambooy ◽  
Remko Renes ◽  
Wim Bartels
Keyword(s):  
Climate Change ◽  
Renewable Energy ◽  
Financial Reporting ◽  
Energy Demand ◽  
Task Force ◽  
Balance Sheet ◽  
Climate Change Impacts ◽  
Comparative Case Study ◽  
Energy Companies ◽  
The Impact

Abstract An interesting relatively new development in the field of corporate climate change disclosures is the Task force on Climate-related Financial Disclosures (TCFD). The TCFD aims to help identify the information needed by financial stakeholders to appropriately assess and price climate change related risks and opportunities. In its first Report (2016), the TCFD recommends that companies provide climate change related disclosures specifying the impact thereof on their financial performance through mainstream (i. e. public) financial filings. In this paper, we look at the financial accounting standards as an institutional framework, and in particular pose the question to what extent this framework supports companies to disclose how climate change impacts their operations and the value of the production assets. To test to what extent companies make disclosures in relation to climate change, we selected four energy companies and conducted a comparative case study analysis. Our focus is on the valuation of production assets, more specifically, drilling platforms, windmill platforms, heavy equipment and transport means used to support the production, and pipes and cables to transport the energy units produced. Interesting findings were: (i) in all four cases, potential future changes (caused by climate change) concerning the valuation of the production assets are not (yet) accounted for in their Balance Sheet Annex. This is remarkable because climate change is likely to have an effect on the future value of the production assets employed in the two types of industries, among others caused by the development that renewable energy demand increases at the expense of non-renewable energy demand; and (ii) the current financial reporting system does not support renewable energy companies to provide meaningful and quantitative insights in expected increases of their future cash inflows and their financial and innovation potential. This impedes financiers and investors to accurately and meaningfully assess the value of a renewable energy company’s business compared with a non-renewable company’s business.

Impact of IFRS: evidence from Spanish listed companies

2014 ◽  
Vol 22 (2) ◽  
pp. 157-172 ◽  
Author(s):  
Mariano González ◽  
Juan M. Nave ◽  
David Toscano
Keyword(s):  
Panel Data ◽  
Financial Reporting ◽  
Structural Breaks ◽  
Balance Sheet ◽  
Generalized Least Squares ◽  
Listed Companies ◽  
Content Type ◽  
Data Framework ◽  
Using Data ◽  
The Impact

Purpose – In this paper, the authors aim to analyze the impact of International Financial Reporting Standards' (IFRS) mandatory adoption on the financial statements of Spanish listed companies. Design/methodology/approach – The authors estimate a panel data model by generalized least squares' within-between in order to contrast the possible structural breaks in the relations between income statement items and balance sheet items, using data from the 35 largest listed companies. Findings – The results show significant changes on these relations, but with different signs and degrees of intensity depending on the balance sheet item analyzed. Research limitations/implications – The data choice introduces a size bias that could be taken into account in the generalization of the results to other listed companies. Originality/value – This work is developed using a mandatory, local, accounting and panel data framework for first time using Spanish listed companies in order to measure the impact of the IFRS adoption.

scholarly journals Impact of the Accounting Standards Applied on the Assessment of the Financial Situation of a Company from the Mining Sector

2018 ◽  
Vol 28 (6) ◽  
pp. 25-38
Author(s):  
Michał Wierzbięta
Keyword(s):  
Financial Reporting ◽  
Research Method ◽  
Financial Analysis ◽  
Balance Sheet ◽  
Mining Industry ◽  
Accounting Standards ◽  
Financial Data ◽  
Financial Reporting Standards ◽  
The Impact ◽  
A Company

The discrepancies between the Polish balance sheet law and the International Financial Reporting Standards (IFRS) with regard to the recognition and presentation of economic events may in some cases have a significant impact on the financial data of the entities applying selected standards. Having regard to the Polish legal system, which imposes the obligation to apply IFRS on listed entities, at the same time excluding this possibility for other entities, it is interesting to attempt to verify the potential comparability of specific companies with a similar profile, operating in the same industry. The aim of the paper is to identify and assess the impact of the accounting standards applied on the key financial ratios and data of an entity operating in the mining industry. The research method used in the paper is financial analysis. The data used for the analyses cover the years 2007–2015.

scholarly journals CEO Power and Auditor Choice

2015 ◽  
Vol 4 (4) ◽  
pp. 44-51
Author(s):  
Bo Ouyang ◽  
Zenghui Liu ◽  
Christine Sun
Keyword(s):  
Financial Reporting ◽  
Empirical Finding ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Ceo Power ◽  
High Quality ◽  
Auditor Choice ◽  
Reporting Incentives ◽  
The Impact

In this paper, we examine the impact of CEO power on auditor choice. We are motivated by the competing financial reporting incentives arising from CEO power. Our empirical finding suggests that powerful CEOs are more likely to hire high-quality auditors as a signal of superior financial reporting quality. We contribute to the literature of auditor switch and extend the research on the links between CEO power and firm behaviors.

Is the balance sheet method of deferred tax informative?

2019 ◽  
Vol 32 (1) ◽  
pp. 20-31
Author(s):  
Kim Mear ◽  
Michael Bradbury ◽  
Jill Hooks
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
Balance Sheet ◽  
Accounting Standards ◽  
Share Price ◽  
Advisory Group ◽  
International Accounting ◽  
Content Type ◽  
Deferred Tax ◽  
Footnote Disclosures

Purpose This study aims to compare the value relevance of the recognised deferred tax elements under International Accounting Standard 12 (IAS 12): Income Taxes (balance sheet method) relative to the taxes payable (flow through) method. It also investigates the value relevance of the IAS 12 deferred tax disclosures. Design/methodology/approach This study used standard valuation models to examine the association between share price and the recognised amounts and footnote disclosures of IAS 12. The Vuong (1989) test is then used to assess which information set is more value relevant. The sample includes 440 firm years over the period 2008-2012. Findings The results show that deferred tax amounts recognised under the balance sheet method provide no more information to investors than the taxes payable method (TPM). Deferred tax footnote disclosures, however, are more relevant than the amounts recognised under the balance sheet method. This study investigates potential reasons for the relevance of footnote disclosures. Research limitations/implications This study has not addressed whether the deferral method of deferred tax is relevant. In addition, while footnote disclosures look promising, further research is necessary. Practical implications The results suggest, given the complexity and cost of compliance with IAS 12, that the International Accounting Standards Board (IASB) should undertake a comprehensive re-think on the relevance of the balance sheet method in IAS 12 and revert to the TPM. Originality/value The IASB and the European Financial Reporting Advisory Group have expressed concerns over the balance sheet method under IAS 12. The IASB and the Financial Accounting Standards Board also have concerns over the cost and complexity of the deferred tax disclosures. The study’s results offer a perspective by examining whether the balance sheet method is value relevant. Prior research has addressed this issue using local data (i.e. pre-International Financial Reporting Standards). This study also provides suggestions for future research into deferred tax footnote disclosures.

scholarly journals The Effect of the New Lease Accounting Rules under IFRS 16 on the Financial Reporting of Russian Companies

2021 ◽  
pp. 4-11
Author(s):  
K.O. Zotova ◽  
◽  
S.N. Karelskaia ◽  
Keyword(s):  
Financial Reporting ◽  
Power Plants ◽  
Balance Sheet ◽  
Retail Stores ◽  
Financial Reports ◽  
Accounting Rules ◽  
The Right ◽  
Almost All ◽  
The Impact ◽  
Lease Accounting

Renting is an important and widely used financial solution. Many companies rent a significant number of expensive objects, including cars, offices, power plants, retail stores and airplanes. In 2016 the IASB issued a new standard, IFRS 16 «Leases», replacing the old standard on leases, which entered into force on January 1, 2019. The standard did not make significant changes to the method of accounting for landlords, while tenants experienced a serious impact of the new standard. They now recognize almost all leases in the balance sheet by reflecting an asset that represents the right to use it for a certain period of time, and a financial liability. The article presents the results of the analysis of the financial reports prepared according to IFRS of Russian companies, revealing the impact of the introduction into force from 2019. IFRS 16 «Lease». According to the results of the study, it was revealed that the new rules for reporting leased property had a significant impact on the reporting indicators of tenants, reducing their liquidity. In addition, it was found that some companies, based on the specifics of the terms of lease agreements, reflected additional items in the balance sheet asset that disclosed the amounts of deposits and insurance payments.

Sign in / Sign up

Export Citation Format

Share Document