Araceli Mora

The Relationship Between the Comprehensiveness of Corporate Annual Reports and Firm Characteristics in Spain

Abstract Not much information exists in the international accounting literature on Spanish accounting. Spain is selected as a subject of study because it is different from those countries that are subjects of the research concerned with investigating the multivariate impact of firm characteristics on disclosure in annual reports and accounts. The conceptual model underlying our empirical tests is based on economic and political incentives for providing greater detail in corporate annual reports and accounts. The paper provides evidence that the amount of detail in Spanish corporate annual reports and accounts is increasing in firm size and stock exchange listing, and decreasing in liquidity.

Evaluating the statistical significance of de facto accounting harmonization: a study of European global players

Two different forces are involved in the international harmonization of accounting: institutional endeavours to harmonize accounting internationally by developing common accounting rules and reporting standards, and spontaneous efforts by ‘global players’ to adopt accounting methods that will improve communication with users in other countries. These two developments are proceeding side by side, generally reinforcing one another but occasionally moving independently. This paper is primarily concerned with the process of harmonization of financial accounting within the European Union. The hypothesis we want to test is that, in spite of the obstacles to the harmonization of regulations in the European Union, there has been greater conformity in recent years in the accounting practices of companies which operate on the international stage. If so, the implications for the harmonization strategies of the international bodies are important. In this study, we first carry out a critical analysis of previous research on accounting harmonization, summarizing the methods used in empirical studies of de facto harmonization and the results obtained. We note that the major deficiency in the index-based methods of measuring harmonization is that no test of significance has been included in prior research. In this paper, we propose a bootstrapping test of the C index as a way of measuring the significance of the change in its value. We consider a sample of eighty-five ‘global players’ from thirteen countries and we analyse their financial statements with regard to four accounting issues (deferred taxation, goodwill, leasing and foreign currency translation), providing estimates of the significance of de facto accounting harmonization for the periods from 1991–2 to 1996–7.

Empirical evidence of the effect of European accounting differences on the stock market valuation of earnings and book value

Recently, a new dimension has been added to research in accounting harmonization by studying the effects of accounting practices and regulations on share price and return movements. Although there is an agreement of mutual recognition in the European stock markets of financial statements adapted to the directives, the differences between the European countries are still great. The objective of this study is to investigate the value relevance of alternative accounting measures (earnings and book value) constructed under different accounting systems in Europe. We investigate the differences in accounting practices through the relationship between earnings and book value, and the stock market value of the firm. The aim of the study is to answer the following three questions: (1) Are there systematic differences in value relevance between earnings and book value across the different European accounting systems? (2) Do book value and earnings convey different information to stock valuation? (3) Are accounting numbers more value relevant in those countries traditionally orientated to market investors? The sample consists of listed firms from eight European countries (Belgium, France, Germany, Italy, The Netherlands, Switzerland, Spain and the UK). The results obtained could be helpful for the decisions of institutional regulatory bodies since we find evidence of significant differences in the stock market valuation of accounting data not explained by the composition of the sample or macroeconomic factors, but mainly by the differences in reporting philosophies across Europe.

Problems and Opportunities of an International Financial Reporting Standard for Small and Medium-sized Entities. The EAA FRSC's Comment on the IASB's Discussion Paper

Abstract In June 2004 the IASB issued the Discussion Paper ‘Preliminary Views on Accounting Standards for Small and Medium-Sized Entities’. This invited comments on the central question of whether the IASB should develop separate standards for small and medium-sized enterprises (SMEs), and on further issues and questions arising from this. This paper briefly introduces the background to the publication of the Discussion Paper. This is followed by a review of prior literature on SME financial reporting implications, prepared by the European Accounting Associations Financial Reporting Standards Committee as the basis of its response to the Discussion Paper. The paper concludes with a brief summary of events and issues arising since the end of the consultation period.

The implications of research on accounting conservatism for accounting standard setting

This paper provides a commentary on the academic literature on accounting conservatism with a view to highlighting the insights of that literature that are potentially useful for accounting standard setters. We begin by introducing the basic concepts of conservatism focusing on the distinction between conditional and unconditional conservatism. We then briefly discuss the objectives of financial reporting and the economics of information, paying particular attention to the role of stewardship in the Conceptual Framework, and the economic concepts of adverse selection and moral hazard. The two middle sections of the paper provide overviews of, respectively, the theoretical and empirical literatures on accounting conservatism. Having summarised the theoretical and empirical literatures, we then try to synthesis the implications of the literature for standard setters, paying particular attention to understanding the costs and benefits of conservatism, implications for the Conceptual Framework, highlighting the particular demands of public debt markets for conservatism, and explaining how accounting standards might be adapted to allow some degree of flexibility in conservative accounting choice. The final section discusses the limitations of the academic literature from the practical point of view of standard setters, and highlights areas for new research that may be of more direct value for policy-making.

Performance Reporting – The IASB's Proposed Formats of Financial Statements in the Exposure Draft of IAS 1

ABSTRACT This paper is a response to the exposure draft of proposed amendments to IAS 1 Presentation of Financial Statements published by the International Accounting Standards Board (IASB) in March 2006. The objective is to bring to the standard setters attention research that is relevant to the issues raised in the exposure draft. We review analytic, empirical and experimental research that addresses the presentation of income and the format of the income statement. Overall, there is some support for a single statement of (total) recognised income and expense. However, net income is on average more relevant than comprehensive income, which may favour a two-statement approach. While this result is in line with the IASBs option of the two formats, it does not support the IASBs preference for a single statement.

The early adoption of consolidated accounting in Spain

Consolidated accounting for corporations in Spain was rare before the Seventh European Directive, adopted by the European Union in 1983, and only became compulsory in 1991. During the intervening years a number of firms elected to adopt consolidated accounting even though they were not required to do so. These circumstances provide a useful insight into the early adoption of accounting practices as, in contrast with most previous studies of early adoption, (a) many firms adopted the accounting techniques well in advance of the required date, (b) consolidation makes a substantial impact on reported financial statements, and (c) the effect of consolidation can be beneficial or adverse. We find that those firms which adopted consolidated accounting early reported a significantly better change in reported performance at the time of adoption than those firms which only consolidated when required to do so. Firms that are subject to government regulation also tended to adopt early but the impact of consolidation on reported performance was not beneficial for regulated early adopters.

Understanding the Consequences of Accounting Standards in Europe: The Role of EFRAG

The global financial crisis has accelerated the need for standard-setters to demonstrate that they understand the effects of the accounting standards they are setting. Within a European context, the endorsement process and the ultimate adoption of new and amended International Financial Reporting Standards into European Union law demand that there is evidence to support the assertion that such standards will improve financial reporting. Our analysis is anchored in the ideology theory of regulation which provides a compelling case for effect analysis to underpin the standard-setting process. For that process to work effectively, a number of key actors need to engage in the process. Accordingly, the aim of this paper is to analyse the potential role of those actors in the standard-setters analysis of effects. It is argued that there is a significant role for academic research to play in that process and that intermediaries, such as European Financial Reporting Advisory Group, can serve to bring research to the attention of the standard-setter. However, addressing the current disconnect between standard-setters and accounting researchers is not straightforward and we propose various strategies for how that relationship could be improved. We argue that these changes may lead to an improvement in the efficiency and effectiveness of the standard-setting process.

Strategic Accounting Choice Around Firm-Level Labor Negotiations

Prior literature argues that managers make opportunistic income-decreasing accounting choices to limit the concessions made to trade unions. However, empirical research to date presents mixed evidence, potentially due to a common theoretical approach that views labor bargaining as a one-shot game in nature. Using a sample of U.S. firms that engage in firm-level labor collective agreement negotiations, we study whether managers act strategically to reduce the transfer of wealth to employees, and its consequences over investment efficiency. We expect that the repeated nature of this negotiation leads to cooperation among the parties and limits the incentives for earnings manipulation, particularly, over long windows. Our findings suggest that managers take both real and accounting actions, but that these choices are informative rather than opportunistic. In particular, we find evidence consistent with strategic timing of the negotiation and with increased conditional conservatism in the year when the agreement is signed. We do not find evidence of earnings manipulation through discretionary accruals or of decreased investment efficiency around labor bargaining.

The Role and the Current Status of IFRS in the Completion of National Accounting Rules – Evidence from Spain

Abstract The way Spain adapted the legislation to the Accounting Directives as well as a brief analysis of the Spanish standard setting process is followed by a description of the influence of International Financial Reporting Standards (IFRS) is the Spanish legislation and the different stakeholders’ position on IFRS. We show and explain why the local General Accepted Accounting Principles (GAAP) are clearly inspired by IFRS principles, even for Small- and Medium-Size entities, while at the same time there is no direct application of IFRS and no mention of IFRS as a complementary source of interpretation. We explain the influence of different stakeholders in the standard setting process and highlight the mostly positive attitude towards IFRS principles. We also show the major differences between the IFRS and local GAAP.