Disclosure, Incentives, and Contingently Convertible Securities

2007 ◽  
Vol 21 (3) ◽  
pp. 281-294 ◽  
Author(s):  
Carol A. Marquardt ◽  
Christine I. Wiedman
Keyword(s):  
Capital Structure ◽  
Financial Reporting ◽  
Financial Instruments ◽  
Disclosure Quality ◽  
Convertible Securities ◽  
Earnings Per Share ◽  
Disclosure Requirements ◽  
Potential Impact ◽  
Disclosure Incentives

We present descriptive evidence on the quality of firms' disclosures related to contingently convertible securities (COCOs). We document evidence of inconsistent and inadequate disclosure of the information necessary to undo the financial reporting effects associated with COCOs prior to 2004, when only the general disclosure requirements on capital structure provided in SFAS 129 were in effect. Disclosure quality improved after the introduction of FASB Staff Position 129-a, which specifically required firms to disclose the terms of COCOs that would enable users to understand the conversion features of COCOs and their potential impact on earnings per share (EPS). However, we find evidence that managerial incentives significantly affect disclosure quality in both disclosure regimes. Our results underscore the difficulty that standard setters face in developing general disclosure guidelines that foster adequate disclosure and suggest that additional specific disclosure guidance may be necessary as new financial instruments and transactions evolve.

The Auditor as a Determining Factor on Derivative Financial Instrument Disclosures

2019 ◽  
pp. 70-93
Author(s):  
Kátia Lemos ◽  
Sara Serra ◽  
Amidel Barros
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Accounting Standards ◽  
Financial Instruments ◽  
Financial Instrument ◽  
Audit Firm ◽  
Academic Literature ◽  
Number Of Factors ◽  
Determining Factor

Based on the premise that the quality of the audit is related to the quality of the financial reporting, the purpose of this chapter is to verify if the audit is a determining factor in derivative financial instruments disclosures. However, the academic literature has revealed that audit quality is influenced by a number of factors, such as gender, experience, and auditor's fees, as well as the type of audit firm (Big4 or not Big4). In order to achieve the proposed objective, a disclosure index was prepared, based on the requirements of the International Accounting Standards Board (IASB), applied to companies listed on Euronext Lisbon, excluding the sports corporations. The results revealed that the level of disclosure is influenced by the size of the audited company and by the auditor's gender, being greater in the larger companies and in the companies audited by a male auditor.

Accelerating Corporate Performance: Stock Buybacks with Zip

2008 ◽  
Vol 23 (1) ◽  
pp. 119-128
Author(s):  
Paul D. Kimmel ◽  
Terry D. Warfield
Keyword(s):  
Financial Reporting ◽  
Banking Industry ◽  
Investment Banking ◽  
Share Repurchase ◽  
Open Market ◽  
Financial Instruments ◽  
Stock Repurchase ◽  
Earnings Per Share ◽  
Potential Risks ◽  
Stock Buybacks

Like many companies, Caravan International occasionally repurchases its shares in the open market. With a traditional stock repurchase program, Caravan and other companies sometimes are unable to maximize the financial reporting benefits of stock buybacks. However, the “Accelerated Share Repurchase” (ASR) agreement, recently introduced by the investment banking industry, allows companies to execute their treasury stock programs and take some of the uncertainty out of share repurchase transactions. This case provides a context for examining the specific benefits of these plans as well as the potential risks. It will help you understand earnings per share (EPS) calculations and the accounting for financial instruments used in ASRs. The case illustrates how managers sometimes structure transactions to take advantage of favorable accounting treatment, and thus achieve EPS targets.

scholarly journals Does Industry Specialist Auditor Provide More Insights in Their audit report? An Empirical Study of Key Audit Matters Section

2021 ◽  
pp. 69-94
Author(s):  
Li-Jen He
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
The United States ◽  
International Standards ◽  
Audit Report ◽  
Disclosure Quality ◽  
Industry Specialization ◽  
Audit Reports ◽  
Industry Specialist

Abstract In 2015, International Auditing and Assurance Standards Board (IAASB) released new International Standards on Auditing 701 and required auditors to disclose key audit matters (KAM) in the audit report. Similar standards were also released in the United States in 2017 and the United Kingdom and Ireland Financial Reporting Council (FRC) in 2014. As KAM are expected to inform on matters of the greatest significance during an audit, before exploring the question regarding whether investors will obtain useful information from additional matter disclosures, the anterior consideration may be in regard to how audit quality affects the disclosure quality of KAM. This study use hand-collected data of the KAM disclosed in the audit reports of Taiwanese listed companies in 2016 to explore the association between auditor industry specialization and audit quality by the disclosure of KAM in new audit reports. The empirical results show that the association between the industrial specialist audit partner and the measurement of KAM quality is significantly positively related. The findings support our hypothesis that specialist auditors’ KAM are more informative than those issued by non-specialist auditors, and provide new evidence supporting prior studies about the superior auditing ability and disclosure quality of auditor industry specialist. Keywords: Key Audit Matters, KAM, International Standards on Auditing 701, International Auditing and Assurance Standards Board.

scholarly journals Fair value accounting and earning management: The impact of unobservable inputs on earning quality. Evidence from the US

2019 ◽  
Vol 16 (2) ◽  
pp. 8-18 ◽  
Author(s):  
Marco Pompili ◽  
Marco Tutino
Keyword(s):  
Financial Reporting ◽  
Negative Impact ◽  
Evaluation Process ◽  
Strong Relationship ◽  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting ◽  
Earning Quality ◽  
The Impact

Accounting standard boards (IASB and FASB) are aimed at designing high-quality standards able to increase transparency and comparability of financial reporting. They have chosen fair value accounting (FVA) approach to improve the quality of financial reporting and at the same time help financial reporting users in the decision-making process. During recent years, an intense debate has arisen about the trade-off between relevance and reliability of accounting information using this approach. Many authors outline problems related to the fair value hierarchy valuation of financial instruments, in particular, the discretionary use of unobservable inputs in financial instruments valuation process in support of earnings management. Tutino and Pompili (2018) have identified a general negative correlation between the extent of FVA and earning quality. Stating this, the main objective of the paper, using the same approach of the previous one, is to identify the specific impacts of unobservable inputs on earning quality. Theory and previous literature suggest a major negative impact of unobservable inputs than observable ones on the quality of information provided within financial reporting. Results show a negative and strong relationship between FVA and earning quality for US banks that do not depend on the hierarchy of input used in the evaluation process. These results suggest new considerations on the reliability of fair value concerning the possibilities of manipulation given to the management with this approach.

The Effect of Auditor Characteristics on the Value of Diversification

2017 ◽  
Vol 37 (1) ◽  
pp. 115-137 ◽  
Author(s):  
Shu-Miao Lai ◽  
Chih-Liang Liu
Keyword(s):  
Information Asymmetry ◽  
Financial Reporting ◽  
Agency Problems ◽  
Market Value ◽  
Disclosure Quality ◽  
Diversification Discount ◽  
Industry Specialization ◽  
Diversified Firms ◽  
Auditor Characteristics

SUMMARY This paper examines how auditor characteristics (size, tenure, and industry specialization) affect the valuation of diversification. As expected, we find that diversified firms have lower market value than single-segment firms, and the diversification discount is smaller when firms employ Big N auditors and auditors with longer tenure. We also find that the diversification discount is larger when companies hire auditors with industry specialization and speculate that an industry focus may limit auditors' ability to detect misreporting in diversified firms. Also, diversified firms have higher financial reporting and disclosure quality when they employ Big N auditors and auditors with longer tenure, but lower financial reporting and disclosure quality when they employ industry specialist auditors. Overall, our findings suggest that auditor characteristics matter to investors in diversified firms because they contribute to the quality of financial reporting and disclosure, which can mitigate agency problems and the information asymmetry associated with diversification.

Disclosure Quality of Goodwill Impairment Testing: A Disclosure Index

2012 ◽  
pp. 5-30 ◽  
Author(s):  
Khairil Faizal Khairi ◽  
Nur Hidayah Laili ◽  
Dung Manh Tran
Keyword(s):  
Annual Reports ◽  
Mandatory Disclosure ◽  
Disclosure Quality ◽  
Quality Of Information ◽  
Listed Firms ◽  
Goodwill Impairment ◽  
Weighted Index ◽  
Disclosure Requirements ◽  
Compliance Level

This study sets out to offer proof of several important questions relating to the quality of information disclosed on goodwill impairment process under the new requirements of FRS 36. This study investigates the compliance level and disclosure quality of FRS 36 by top 20 of Singaporean listed firms in SGX at 2007 based on their market capitalization. In order to achieve the objective of this study, the weight- ed index is chosen because this index is able to differentiate the quality and impor- tance of each mandatory disclosure under FRS 36. The weighted index was developed by constructing a disclosure scoring sheet, obtaining annual reports of 20 sampled Singapore firms for particular year, complet- ing scoring sheet for each firms by assigned weighted for the disclosure items and calculating disclosure weighted index. The weighted index was analyzed to examine the firm’s compliance with the FRS 36 disclosure requirements. The results of this study revealed that 18 out of 20 (90%) firms in Singapore failed to comply with the most basic elements of the FRS 36 pertaining to goodwill impairment testing espe- cially in allocating goodwill into the CGUs and key assumptions used in determin- ing the recoverable amount of CGU assets.

scholarly journals Corporate Governance Score and the Quality of Financial Disclosures: Evidence from the French Context

2016 ◽  
Vol 6 (2) ◽  
pp. 217
Author(s):  
Mondher Kouki ◽  
Bilel Ben Attia
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Research Paper ◽  
Financial Disclosure ◽  
Disclosure Quality ◽  
Listed Firms ◽  
Financial Disclosures

This research paper examines how corporate governance is related to the quality of financial disclosures for a sample of French listed firms during the period 2003-2009. We find that the level of financial reporting is positively influenced by corporate governance score. Managers and blockholders are more likely to disclose less information. These results are consistent with the belief that effective corporate governance is associated with higher financial disclosure quality while entrenched insiders do not improve this effect.    

scholarly journals Analisis Pengaruh Tata Kelola Perusahaan terhadap Struktur Modal dengan Kualitas Laporan Keuangan sebagai Mediator pada Perusahaan yang Terdaftar di Bursa Efek Indonesia

2017 ◽  
Vol 16 (2) ◽  
pp. 187
Author(s):  
Johny Budiman ◽  
Helena Helena
Keyword(s):  
Corporate Governance ◽  
Capital Structure ◽  
Financial Reporting ◽  
Control Variable ◽  
Board Composition ◽  
Managerial Ownership ◽  
Debt Ratio ◽  
Financial Reports ◽  
Report Quality

This study aims to determine the effect of corporate governance on the capital structure with the quality of the financial reports as a mediator. Independent variables used in this research is the size of the board, independent board composition, concentration of ownership and managerial ownership. As a control variable is profitability and quality of the financial reports as a mediating variable. Thecapital structure is measured by the debt ratio. Samples from this study were 217 companies listed on the Indonesia Stock Exchange in the period 2011-2015 and were selected using purposive sampling method. Data have been obtained will be tested with mulitiple linear regressios with SPSS version 21.0. The results of this study indicate that there is a significant influence between board composition, concentration of ownership  and managerial ownership on capital structure mediated by financial report quality.  Keywords: Capital Structure; Corporate Governance; Debt Ratio; Quality of Financial Reporting

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