The effect on the BTD of IFRS adoption and the end of the Transitional Tax Regime (RTT) in Brazil

ABSTRACT This paper aimed to evaluate the moderation by variables related to incentives for earnings management (indebtedness, profitability, and size) over the effect of the change in standards (accounting or tax) on the book-tax differences (BTD). The end of the Transitional Tax Regime (RTT) enables us to evaluate the symmetry between the divergence and reconvergence of the accounting and tax standards, helping to identify the moderating effect of characteristics such as size, leverage, and profitability over the use of the discretion allowed by the International Financial Reporting Standards (IFRS). Studying the effects of changes in the standards contributes to understanding how they affect accounting information quality, particularly when we observe symmetrical movements of divergence of the accounting and tax standards, such as IFRS adoption, and of reconvergence, with the end of the RTT. The analysis conducted enables us to separate effects of divergence between the tax and accounting standards from the innovations introduced by the IFRS. An understanding of the effect of the standard over accounting information quality contributes to the quality of the work of financial analysts, tax authorities, and regulators. Event studies are conducted to evaluate the effect of IFRS adoption, as well as the end of the RTT, over the BTD (a proxy for earnings management), in cross sections of companies. We use explanatory variables related to incentives to manage book and taxable income (indebtedness, profitability, and size), which could explain the ambiguity of the results in the literature. The article provides evidence that the indebtedness and size of companies influence the effect of IFRS adoption, as well as of the end of the RTT. We observed a negative relationship of indebtedness and size with the impact of changes in standards over differences between book and taxable income (BTD).

An analytical study on impact of international financial reporting standards on financial statements and ratios of Indian companies

India is one of the emerging economies in the world. For economic development, foreign direct investment (FDI) is needed, to facilitate the investment climate. There is a need to integrate its financial reporting with rest of the economies of the globe so that investors from outside will appreciate the financial results and financial positions of the companies. This will provide uniformity and comparability of financial statements with the financial statements prepared in other countries. At present, Indian companies are preparing their financial statements as per Generally Accepted Accounting Principles in India (Indian GAAP). These Principles are based on IFRS issued by International Accounting Standard Board (IASB). However, these principles were modified substantially as per Indian laws and practices.

Adjusting Financial Reporting in the Perspective of Transferring Financial Transactions to the Cryptocurrency Market

The regulation of the cryptocurrency market is becoming an increasingly debated topic in the context of the transition to the digital economy and the health security procedures adopted by the authorities in this period dominated by the pandemic and economic crisis. In this context, we propose a prospective analysis of the effects of legislative regulation and the shift to the cryptocurrency market as a unit supporting digitization. The methods and procedures used in the analysis aim to obtain the staging of the interaction between the accounting system and the cryptocurrency trading processes. Thus, we will address the issue of the digital economy and the effects produced by it, and the result of this approach will be to identify viable solutions that will prevent certain effects on financial reporting and limit tax evasion or other money laundering techniques as a result of the widespread transition to this trading system. The results obtained will be useful to economic decision-makers and tax authorities concerned with these aspects of economic development.

Audit partner workload, gender and audit quality

PurposeThe paper aims to investigate the relation between the auditor's workload (LogAPW) and audit quality. Further, it explores whether the presence of a female audit partner (hereafter FEM) influences the LogAPW effect on audit quality.Design/methodology/approachA dataset of 1,629 firm-year observations from 181 companies listed in the NASDAQ OMX Stockholm for the years 2010–2018 has been analyzed. The testable hypotheses have been tested using least squares regressions clustered at the Swedish public-listed companies (client-firm) level.FindingsThe research findings first indicate that overburdened audit partners (APS) are associated with lower-quality audits, consistent with the “busyness hypothesis.” Nevertheless, the adverse association turns to be positive for FEMs, supporting the thesis that FEMs have more tendency, as compared to their male counterparts, to preserve their partnership's position in the public-audit firms. Collectively, these results seem sound, as the results hold unchanged after controlling for the endogeneity concerns and provide the same conclusion for a host of additional measures for both the client-firms' discretionary accruals and the LogAPW.Research limitations/implicationsEven though a lower magnitude of the client-firms' discretionary accruals corresponds to a lower-opportunistic behavior of managers, the research is limited to by which lower values of earnings management reflect a better-quality financial reporting. Given that the empirical analysis has been confined to the Swedish Corporation, the regression results might not be generalizable for other countries with different contextual features.Practical implicationsThe study might participate to the ongoing debate about the introduction of more women to the public-audit firms' elite positions (e.g. partnership) by providing evidence for the favorable female auditor effect on the quality of the client-firms' financial reporting.Originality/valueThe regression results provide a preliminary evidence on how does the presence of a FEM mitigate the inverse relation between the LogAPW and audit quality, which is an issue that has not been examined before.

Earnings management and investor protection during the COVID-19 pandemic: evidence from G-12 countries

Purpose The purpose of this paper is to examine the inter-relations among the strength of investor protection institutions, earnings management (EM) and the COVID-19 pandemic. Design/methodology/approach As a proxy for EM, the authors use discretionary accruals measure, estimated using the modified Jones model (1991). As a proxy for the strength of investor protection institutions, the study uses the Investor Protection Index, extracted from the Global Competitiveness Reports. The sample consists of 5,519 firms listed in the Group of Twelve countries during 2015–2020. Findings The study shows that firms tend to engage less in EM during the pandemic period. The authors also find a significantly negative relation between the strength of investor protection institutions and EM practices, and interestingly, this negative relation was found to be more pronounced during the pandemic period. Research limitations/implications For investors and practitioners, the findings help get insights into the behavior of firms in response of the pandemic shock in countries with solid institutional and legal protection. For policymakers, the findings reaffirm the critical role that institutional incentives and reforms can play, in influencing firms to exert more efforts to promote their financial reporting quality. Originality/value To the best of our knowledge, the study is one of the first attempts to examine the link between EM practices and investor protection during the COVID-19 pandemic. The findings extend both the literature on the role of institutional factors in promoting the earnings quality and the literature on COVID-19’s effect on firm performance and practices.

The effect of audit firm attributes on audit delay in the presence of financial reporting complexity

Purpose This study aims to examine the effects of audit firm attributes on audit delay associated with financial reporting complexity (FRC). Design/methodology/approach The authors use regression models with a sample of public firms with distinct monetary eXtensible Business Reporting Language tags to test the research hypotheses. Findings The authors find that two audit firm attributes (audit firm tenure and non-audit services performance) moderate the effect of FRC on audit delay. Practical implications The study provides insights to regulators, practitioners and investors into how firms may reduce audit delay from FRC by keeping their long-tenured auditors and allowing their auditors to gain more knowledge about the firms by providing non-audit services. The results, therefore, have implications for mandatory audit firm rotation. Originality/value To the best of the knowledge, this study conducts the first comprehensive analysis of this topic, exploring the impact of three audit firm attributes on audit delay caused by FRC. It attempts to illustrate the impact of external audit firms on reducing the adverse consequences of FRC.

The phenomenon of NFT (non-fungible tokens) as an accounting entity

The emergence of the digital economy and increased activity in cyberspace have led to the creation of new technologies and digital products such, as non-fungible tokens (NFT). The article presents the arguments that justify the need to study NFT as an object of legal relations and an object of accounting. A brief description of these items has been given; their types and market of circulation have been studied, and, also the current legal provisions, Russian accounting standards and international financial reporting standards have been analysed. To define NFT as an accounting object, the types of accounting objects enshrined in Federal Law No. 402-FZ “On Accounting” have been considered and the criteria for their attribution in relation to NFT have been analysed. The legal and accounting problems associated with the emergence of a new object have been highlighted and the ways for further research in the field of creating an accounting methodology for NFT as a specific and highly promising digital product have been defined.

The non-financial reporting practices of Hungarian listed public interest entities considering the 2014/95/EU Directive

PurposeThis paper aims to investigate the non-financial reporting (NFR) practices of Hungarian listed public interest entities for 2016–2018 in terms of the required disclosure content based on the 2014/95/EU Directive (ED).Design/methodology/approach The authors apply content analysis methodology on Hungarian firms subject to mandatory reporting under the ED. The target variable in the multivariate model is the reporting quality (Qi) measured by a combined index.Findings The authors find that the ED had a moderate impact on Hungary's reporting quality because the overall disclosure of the sample only increased from low to medium level. The authors found that the value of intangible assets is a determinant of the reporting quality before and after the implementation of the ED. The findings support the effect of coercive isomorphism on Hungarian NFR practices.Research limitations/implications The limitation of the research is the number of firms examined. However, the authors covered the entire (non-bank) community of the Hungarian firms subject to the ED.Practical implications The authors suggest that reporting entities build upon the synergy between intellectual capital disclosure and NFR when elaborating their reporting strategies. The authors recommend the integration of ethical matters into corporate strategies and policies. Policymakers may consider the revision of the Hungarian regulations. The authors suggest academics embrace these topics in teaching.Originality/value To the best of the authors’ knowledge, this is the first study that investigates the impact of ED in the context of Hungary. The authors contribute to the existing literature by adding the results of the ridge regression model, highlighting the importance of intangible assets.

Fundamental analysis and the use of financial statement information to separate winners and losers in frontier markets: evidence from Vietnam

PurposeThe pupose of the paper is to study the usefulness of Piotroski (2000)'s F-score in separating winners and losers in Vietnam.Design/methodology/approachThe authors adopt a portfolio analysis and regression analysis on a sample of 501 of listed firms between 2009 and 2019 in Vietnam.FindingsThe authors find that a hedge strategy that buys high-F-score firms and sells low-F-score firms yield market-adjusted return of over 30 percent annually, which is statistically and economically significant. The hedge strategy based on F-score is not only profitable for value (high book-to-market [BM]) firms but also earn abnormal returns in a sample of growth (low BM) firms, suggesting that the usefulness of F-score strategy is not just a phenomenon in value firms as documented in previous literature.Research limitations/implicationsWhilst the authors' paper documents economically significant returns obtained from the F-score strategy, the authors do not examine what drives the abnormal returns.Practical implicationsThe results provide supporting evidence for the use of financial statement analysis as a screening tool to improve the performance of value investment in Vietnam stock market and for the training of financial reporting and fundamental analysis in universities.Originality/valueThe authors' research is the first study examining the F-score strategy in Vietnam that provides insights about the usefulness of fundamental analysis in separating winners and losers in a frontier market and contributes to the literature on fundamental analysis and market efficiency in emerging and frontier markets.