Mental Accounting and Disaggregation Based on the Sign and Relative Magnitude of Income Statement Items

2014 ◽  
Vol 89 (6) ◽  
pp. 2087-2114 ◽  
Author(s):  
Sarah E. Bonner ◽  
Shana M. Clor-Proell ◽  
Lisa Koonce
Keyword(s):  
High Pressure ◽  
Financial Reporting ◽  
Relative Magnitude ◽  
Mental Accounting ◽  
Financial Instruments ◽  
Performance Information ◽  
Income Statement ◽  
Accounting Theory

ABSTRACT Current financial reporting guidance allows managers flexibility as to whether to disaggregate income statement items. Such flexibility is problematic if managers prefer to aggregate in some situations and disaggregate in others because we conjecture that investors' evaluations of firms will predictably differ depending on whether performance information is shown in an aggregated or disaggregated fashion. We conduct a series of related experiments within the context of compound financial instruments to investigate whether managers' preferences follow the predictions of mental accounting theory; specifically, that presentation preferences vary as a function of the sign and relative magnitude of the income statement items. Results reveal that managers' disaggregation preferences reflect mental accounting. Further, the effects of mental accounting are moderated only when managers feel high pressure to report transparently. Finally, and most importantly, the preferred presentations of managers result in the highest firm valuations from investors, indicating that investors also rely on mental accounting. Our study has implications for standard setters, regulators, and researchers.

scholarly journals Mental Accounting in Managers' Preferences Related to Aggregation Versus Disaggregation Income Statement Items

2016 ◽  
Vol 1 (1) ◽  
pp. 26-33
Author(s):  
Shanti Shanti
Keyword(s):  
Financial Reporting ◽  
Voluntary Disclosure ◽  
Mental Accounting ◽  
Group Discussions ◽  
Income Statement ◽  
Empowerment Model ◽  
Research Experiment ◽  
Gain Loss ◽  
Gains And Losses ◽  
Analytical Tools

Objective - The objective of this study is to observe the mental accounting of managers when choosing between aggregate or disaggregate items in income statements. Managers who experience mental accounting may behave opportunistically because they may consider cost-benefits based on which of the two has a higher utility. Methodology/Technique - The analytical tools used in this research include a descriptive statistical analysis and the Analytical Hierarchy Process (AHP) is used to determine aspects affecting the preparation of the empowerment model. In the Qualitative analysis of the implementation of the empowerment model, data will be drawn from focus group discussions and in-depth interviews. Findings - The test results of the research experiment using MANOVA Test (Factorial Design) with SPSS 23 found that overall, the managers will support the presentation of aggregate or disaggregate based on which one of the two has a higher utility. Therefore, managers' preferences related to items of gains and losses in the income statement are consistent with mental accounting. Novelty - The outcome of this study could be used to explain how the parties involved in external financial reporting and voluntary disclosure behave in accordance with the principles of the theory of mental accounting. Type of Paper: Empirical Keywords: Mental Accounting; Aggregation; Disaggregation; Gain; Loss.

Business Model Literature Overview

2014 ◽  
pp. 79-130 ◽  
Author(s):  
Ales Novak
Keyword(s):  
Business Model ◽  
Financial Reporting ◽  
Business Models ◽  
Potential Role ◽  
Financial Instruments ◽  
Business Logic ◽  
Literature Overview ◽  
Ifrs 9 ◽  
Definition Of

The term ?business model' has recently attracted increased attention in the context of financial reporting and was formally introduced into the IFRS literature when IFRS 9 Financial Instruments was published in November 2009. However, IFRS 9 did not fully define the term ‘business model'. Furthermore, the literature on business models is quite diverse. It has been conducted in largely isolated fashion; therefore, no generally accepted definition of ?business model' has emerged. Therefore, a better understanding of the notion itself should be developed before further investigating its potential role within financial reporting. The aim of this paper is to highlight some of the perceived key themes and to identify other bases for grouping/organizing the literature based on business models. The contributions this paper makes to the literature are twofold: first, it complements previous review papers on business models; second, it contains a clear position on the distinction between the notions of the business model and strategy, which many authors identify as a key element in better explaining and communicating the notion of the business model. In this author's opinion, the term ‘strategy' is a dynamic and forward-looking notion, a sort of directional roadmap for future courses of action, whereas, ‘business model' is a more static notion, reflecting the conceptualisation of the company's underlying core business logic. The conclusion contains the author's thoughts on the role of the business model in financial reporting.

Issues and challenges of IFRS 9 in Malaysian Islamic financial institutions: recognition criteria perspective

2021 ◽  
Vol 12 (2) ◽  
pp. 239-257
Author(s):  
Marziana Madah Marzuki ◽  
Abdul Rahim Abdul Rahman ◽  
Ainulashikin Marzuki ◽  
Nathasa Mazna Ramli ◽  
Wan Amalina Wan Abdullah
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Business Models ◽  
Fair Value ◽  
Financial Instruments ◽  
Structured Interviews ◽  
Content Type ◽  
Reporting Framework ◽  
Islamic Financial Institutions ◽  
Ifrs 9

Purpose The purpose of this paper is to investigate the effects and challenges of the new amendment of International Financial Reporting Standards (IFRS) 9 in Malaysia from the perspectives of regulators, auditors, accountants and academicians in Malaysian Islamic financial institutions. For the purpose of this study, this paper focuses on the recognition criteria perspective of the standard, which provides a basic understanding of the financial reporting framework. Design/methodology/approach Using 10 series of semi-structured interviews undertaken with key individuals in regulatory bodies, audit companies, full-fledged Malaysian Islamic Banks and Malaysian higher learning institutions. Findings The findings revealed that IFRS 9 strengthens International Accounting Standards 39 in terms of relevance and reliability, recognition of financial instruments and identification of business models. Nevertheless, Islamic financial institutions face challenges in terms of a faithful representation of fair value, substance over form, identification of financial instruments before recognition criteria and the extent of the role of risk management in reducing manipulation in identifying business models. Research limitations/implications This study provides implications to regulators and standard setters in Malaysia to enhance the quality of financial reporting framework and practices in Islamic financial institutions in this country using IFRS 9. Practical implications Practically, the findings of this study can be used by the regulators to resolve the issues that arise in adopting IFRS 9 among Islamic financial institutions to further enhance financial reporting quality. Originality/value The findings of this study are very important to ensure that the adoption of IFRS among Islamic financial institutions are in line with Sharīʿah principles. To date, no studies have been done on the challenges of adopting IFRS 9 among Islamic financial institutions in Malaysia.

scholarly journals FINANCIAL REPORTING CONSEQUENCES OF CAPITAL XENOPHOBIA

2019 ◽  
Vol 13 (3) ◽  
Author(s):  
David Godsell
Keyword(s):  
National Security ◽  
Financial Reporting ◽  
Foreign Capital ◽  
Important Determinant ◽  
The Political ◽  
Extant Literature ◽  
Political Cost ◽  
Accounting Theory ◽  
Positive Accounting Theory

The purpose of this editorial is to describe financial protectionism as a potentially important determinant of financial reporting outcomes. Fear of foreign capital, or capital xenophobia, spurs financial protectionism. Examining the effects of financial protectionism on financial reporting outcomes potentially permits an expansion of positive accounting theory and, in particular, the political cost hypothesis. I first describe extant literature examining the political cost hypothesis. I then describe national-security related drivers of capital xenophobia. Next, I examine settings in which we can observe variation in financial protectionism. I conclude by positing varied paths by which financial protectionism can affect financial reporting outcomes.

scholarly journals Pelatihan Pembuatan Laporan Keuangan Bagi UMKM Sebagai Informasi Untuk Pengambilan Keputusan

2018 ◽  
Vol 2 (1) ◽  
pp. 63-82
Author(s):  
Sila Ninin Wisnantiasri ◽  
Irma Paramita Sofia ◽  
Fitriyah Nurhidayah ◽  
Karsam Sunaryo
Keyword(s):  
Financial Reporting ◽  
Business Performance ◽  
Financial Analysis ◽  
Financial Statements ◽  
Financial Statement ◽  
Educational Game ◽  
Financial Report ◽  
Study Approach ◽  
Income Statement ◽  
The Impact

The purpose of this dedication for Pisangan Village Community through financial statement training for small business in collaboration with partners of Citra Kencana Community is to improve the understanding of partners in making financial report especially income statement. The problem facing partners is not mastering how to create a correct financial statement. The financial statements can be used by partners as a benchmark of business performance and business financial analysis tools. Therefore, the methods used in this activity are: (1) convey material about basic concepts of accounting, (2) convey material about components of income statement, (3) provide business simulation and recording financial statements through educational game business accounting (4) the practice of preparing the business income statement and analysis by the entrepreneur, (5) advising / consulting the profit-loss statement. Besides, regression test is done through event study approach to know the impact of training for knowledge of financial report objectives and understanding of financial reporting from the community after getting the training. The result of this activity is increasing both knowledge and understanding of society in making financial report. This is shown by the direction of a positive and significant relationship between training with community knowledge and understanding. Keywords: Financial statement, Small entrepreneurship, Business analysis

Articulating accounting principles

2016 ◽  
Vol 17 (2) ◽  
pp. 118-135 ◽  
Author(s):  
Brian A. Rutherford
Keyword(s):  
Financial Reporting ◽  
Standard Setting ◽  
Financial Accounting ◽  
Accounting Standard ◽  
Content Type ◽  
Accounting Research ◽  
Accounting Principles ◽  
Accounting Theory ◽  
Social Scientific ◽  
Accounting Standard Setting

Purpose – The purpose of this paper is to provide a soundly based epistemological underpinning for the kind of theorisation in which many classical financial accounting researchers engaged and thus to support a renewal of this programme. Design/methodology/approach – The paper draws on pragmatist philosophy and, in particular, on Jules Coleman’s theory of “explanation by embodiment”. The applicability of this theory to the world of financial reporting is discussed. Various theorists and schools within classical accounting theory are examined from the perspective of Coleman’s ideas, focusing particularly on A.C. Littleton’s Structure of Accounting Theory. Findings – The paper finds that classical accounting research works such as Structure of Accounting Theory can be interpreted as the search for Colemanian explanation by embodiment and that this provides them with a soundly based pragmatist underpinning for their theorisation. Research limitations/implications – This paper supports the resumption by academics, qua academics, of work to contribute to accounting standard-setting by offering argumentation that addresses accounting principles and methods directly, rather than only via the social scientific investigation of behaviour in the accounting arena. Practical implications – Such a resumption would contribute positively to future standard-setting. Originality/value – This paper contributes to the defence of classical financial accounting research from the charge of lacking theoretical rigour.

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