R&D Reporting Rule and Firm Efficiency

Critics opine that full expensing of research and development (R&D) depresses near-term profits and incentivizes myopic managers to under-invest in R&D, compromising firm efficiency. Advocates of the expensing rule argue that little rigorous research evidence supports the claimed adverse consequences. We examine the impact of the R&D expensing rule on firm efficiency by exploiting an exogenous shock: a shift in the accounting regime in Germany from full expensing to partial capitalization of R&D when it mandated International Financial Reporting Standard (IFRS) adoption in 2005. We employ Stochastic Frontier Analysis and Data Envelopment Analysis to estimate efficiency for the same German firms before and after the IFRS adoption. We find robust evidence of efficiency improvement in the post-period relative to the pre-period for German R&D firms that report R&D expenditures, and for both early adopters and timely adopters. We also document that financially constrained firms and firms experiencing rapid R&D growth prior to the IFRS adoption show greater efficiency improvement. Moreover, we conduct three falsification tests to make sure our results are not attributable to other accounting changes associated with the IFRS adoption, and find no efficiency improvement for the three control groups (German “no-R&D” sample, U.K. firms, and Australian firms), respectively. We conclude that the change in the R&D reporting rule is the likely catalyst for improvements in efficiency of German R&D firms.

Financial reporting by Small and Medium sized Entities in Mongolia and the International Financial Reporting Standard for Small and Medium sized Entities

<p>This study examines three important aspects of financial reporting practice of Small and Medium sized Entities (SMEs) in developing economy. First, the study investigates the existing reporting practices of SMEs in Mongolia. Second, the study considers the expected impact for Mongolian SMEs of adopting the International Financial Reporting Standard for Small and Medium sized Entities (IFRS for SMEs). Third, the study examines the relationships between the economic characteristics of SMEs and both their reporting practice and the expected impact of adoption of the IFRS for SMEs. The study adopts a mixed method approach with a quantitative survey questionnaire and qualitative semi-structured interviews. The study developed a survey questionnaire and obtained 102 responses: 67 responses from employee account preparers of SMEs and 35 responses from accounting practitioners of Public Accounting Firms (PAFs) engaged with SMEs. The results of the survey were analysed using a range of non-parametric tests and Ordinary Least Squares (OLS). The qualitative semi-structured interviews were carried out with eight standard-setters, educators and information users and analysed using Nvivo. Overall, the research findings suggest that in Mongolia there is a low level of compliance with international financial reporting standards. It appears that preparers and users perceive a low level of net benefits from compliance. Surprisingly, the results indicate that the economic characteristics of SMEs do not appear to influence their reporting practice. Adoption of the IFRS for SMEs is expected to increase the level of compliance by SMEs.</p>

Financial reporting by Small and Medium sized Entities in Mongolia and the International Financial Reporting Standard for Small and Medium sized Entities

<p>This study examines three important aspects of financial reporting practice of Small and Medium sized Entities (SMEs) in developing economy. First, the study investigates the existing reporting practices of SMEs in Mongolia. Second, the study considers the expected impact for Mongolian SMEs of adopting the International Financial Reporting Standard for Small and Medium sized Entities (IFRS for SMEs). Third, the study examines the relationships between the economic characteristics of SMEs and both their reporting practice and the expected impact of adoption of the IFRS for SMEs. The study adopts a mixed method approach with a quantitative survey questionnaire and qualitative semi-structured interviews. The study developed a survey questionnaire and obtained 102 responses: 67 responses from employee account preparers of SMEs and 35 responses from accounting practitioners of Public Accounting Firms (PAFs) engaged with SMEs. The results of the survey were analysed using a range of non-parametric tests and Ordinary Least Squares (OLS). The qualitative semi-structured interviews were carried out with eight standard-setters, educators and information users and analysed using Nvivo. Overall, the research findings suggest that in Mongolia there is a low level of compliance with international financial reporting standards. It appears that preparers and users perceive a low level of net benefits from compliance. Surprisingly, the results indicate that the economic characteristics of SMEs do not appear to influence their reporting practice. Adoption of the IFRS for SMEs is expected to increase the level of compliance by SMEs.</p>

Approaches to Building Default Probability Models for Financial Instruments of Project Financing at Long Time Horizons

Project financing is one of the priority tools for stimulating the country's economic growth around the world, which allows the implementation of large-scale and capital-intensive projects, providing favorable credit conditions with insufficient creditworthiness of the project beneficiaries [1]. As a rule, project financing instruments are long-term (10-30 years, depending on the type of transaction), so this asset class is interesting for the implementation of the task of building long-term models for assessing credit risk associated with the introduction in 2018 of the new international financial reporting standard IFRS 9 "Financial Instruments". The new standard requires financial institutions to calculate their expected credit loss (ECL) at the time of granting loans and other banking products exposed to credit risk [2], taking into account different time horizons, which significantly changes the traditional approaches to assessing credit risk by commercial banks [3], [4]. As part of this work, a model was built to assess the long-term probability of default for the portfolio of assets of a Russian commercial bank belonging to the project finance segment in accordance with the requirements of the International Financial Reporting standard IFRS 9 "Financial Instruments". At present, the topic of this work is extremely relevant and may be of interest both for commercial banks that are faced with the problem of improving credit risk assessment models

Impact of COVID-19 on the Robustness of the Probability of Default Estimation Model

Probability of default (PD) estimation is essential to the calculation of expected credit loss under the Basel III framework and the International Financial Reporting Standard 9. Gross domestic product (GDP) growth has been adopted as a key determinant in PD estimation models. However, PD models with a GDP covariate may not perform well under aberrant (i.e., outlier) conditions such as the COVID-19 pandemic. This study explored the robustness of a PD model with a GDP determinant (the test model) in comparison with that of a PD model with a credit default swap index (CDX) determinant (the alternative model). The test model had a significantly greater ratio of increase in Akaike information criterion than the alternative model in comparisons of the fit performance of models including 2020 data with that of models excluding 2020 data (i.e., that do not cover the COVID-19 pandemic). Furthermore, the Cook’s distance of the 2020 data of the test model was significantly greater than that of the alternative model. Therefore, the test model exhibited a serious robustness issue in outlier scenarios, such as the COVID-19 pandemic, whereas the alternative model was more robust. This finding opens the prospect for the CDX to potentially serve as an alternative to GDP in PD estimation models.

Akuntansi Aset Biologis – Studi Kasus PT. Bibit Indonesia

Latar belakang: Setiap negara memiliki sistem akuntansi berbeda yang disesuaikan dengan kebutuhan negara tersebut. Untuk meningkatkan komparabilitas dan kualitas laporan keuangan secara global, International Accounting Standard Board (IASB) mengembangkan dan mengeluarkan International Financial Reporting Standard (IFRS) dengan tujuan untuk mengurangi peraturan pelaporan yang berbeda antar negara, mengurangi biaya pelaporan keuangan perusahaan multinasional dan mengurangi biaya analisis laporan keuangan. Tujuan penelitian: Untuk mengatahui menganalisis perlakuan akuntansi aset biologis perusahaan, menganalisis klasifikasi aset biologis, nilai pasar aktif dan metode penilian aset biologis berdasarkan PSAK 69. Metode penelitian: Metode penelitian ini mengunakan metode kualitatif. Objek penelitian dilakukan pada PT. Bibit Indonesia. Hasil penelitian: Hasil penelitian menjukkan perusahaan sudah melakukan perlakuan akuntansi aset biologis sesuai dengan PSAK 69. Namun, masih terdapat beberapa perbedaan dimana perusahaan tidak melalukan pengukuran kembali nilai aset biologis pada setiap akhir periode pelaporan. Pengukuran kembali nilai wajar aset biologis diproyeksikan untuk laporan keuangan tiga bulan ke depan. Kesimpulan: Klasifikasi aset biologis perusahaan terbagi atas ayam pembibit induk nenek dan telur tetas. Masih belum terdapat pasar aktif atas aset biologis perusahaan. Jika ingin mengukur nilai pasar sebagai salah satu aspek pengukuran nilai wajar aset biologis, perusahaan mengambil dari nilai penjualan Parent Stock Daily On Chick (PS DOC), penjualan dari final stock broiler dan penjualan culled/infertile egg. Penilaian aset biologis perusahaan menggunakan metode hybrid, yaitu untuk ayam yang masih dalam masa pertumbuhan nilai ayam diukur berdasarkan biaya. Metode perusahaan dalam menilai aset biologis telah mengikuti langkah-langkah yang dijelaskan PSAK 69. Selisih menggunakan metode proyeksi nilai wajar dengan aktual nilai wajar menyebabkan selisih yang cukup besar.

Preliminary impact of IFRS 9 implementation on the Lebanese banking sector

Research Question: What is the impact of the new requirements of the expected credit loss (ECL) model on the Lebanese banking sector? Motivation: In spite the expansion of research in respect of International Financial Reporting Standard N0. 9 (IFRS 9) in the past few years, it is still in its infancy in developing countries. Meanwhile, empirical IFRS 9 studies for banks is yet considered little as compared to the theoretical aspect. Our study seeks to fill this gap by testing the impact of IFRS 9 on the Lebanese banking sector. This paper is the first comprehensive attempt to empirically assess the estimated impact of IFRS 9 as disclosed in the 2017 financial statements. Idea: This study examines if the increase in provision based on the new ECL is strongly positively related to the average credit losses for the last 5 years, the current provisions level for the loans portfolio, the portfolio of investment securities, and the portfolio of liquid assets. Data: The data were collected from 19 consolidated banks representing 91% of the total consolidated balance sheet of all Lebanese banks. Tools: To test study’s hypotheses, we applied linear regression using SPSS. Findings: Two main results can be derived: First, we found that the impact of the new ECL model is not material to the banks’ equity if we consider the excess regulatory provisions booked in anticipation of IFRS 9. Second, we found that the increase in provision based on the ECL model is strongly positively related to the portfolio of investments securities and negatively related to the historical credit loss ratio. Contribution: Empirical IFRS 9 studies for banks is yet considered little as compared to the theoretical aspect. Our study seeks to fill this gap by testing the impact of IFRS 9 on the Lebanese banking sector. The Lebanese banks are an interesting case because they play a key role in the Lebanese economy, acting as the main channel for capital inflows into the country and financing the largest part of the government’s current account deficit.

Disclosure of Debt Instruments in Accordance With The Requirements of The Seventh International Financial Reporting Standard (IFRS7)

The research sought to discover the application and disclosure extent of the debt instruments within the Iraqi’s commercial private banks in accordance with the seventh international financial reporting standard, by using the descriptive analytical approach building a questionnaire form with the aim of testing the research hypothesis. The research hypothesized that the private Iraqi commercial banks did not apply the principles of the international reporting standard, specifically the Seventh financial standard regarding debt instruments disclosure. The research reached a main conclusion, which is that the Iraqi private commercial banks disclose the amounts recorded in the statement of financial position or the notes for loans and investments held to maturity, and this conclusion was met with a recommendation for the Iraqi commercial private banks to disclose the loans and investments held to maturity and to expand the disclosure of them and their subsidiaries, if any, due to the transparency it provides in the presentation of the financial position statement.

Catch the Heterogeneity: The New Bank-Tailored Integrated Rating

The purpose of this article is to develop a bank-oriented rating approach, tailored by incorporating the various heterogeneity dimensions characterizing financial institutions, named “Bank-Tailored Integrated Rating” (BTIR). BTIR is able to catch the financial cycle, including the pandemic crisis, and the ongoing change in banking normative from a microeconomic perspective, and it is inherently coherent with the challenging frontier of forecasting tail risk in financial markets in similar ways as in De Nicolò and Lucchetta (2017), although their approach is macroeconomic) since it considers the downside risk in the theoretical framework. The method employed was an innovative integrated rating (IR) statistical and econometrical panel pre-selection analysis that takes into account the characteristics of risk and the greater heterogeneity of the banks. The result is a challenge rating procedure delivering forward-looking preselection requested by the new International Financial Reporting Standard (IFRS-9). The future direction is extremely promising given the increase in idiosyncratic and systemic risks in financial markets.