Christian Stadler

The Influence of Country, Industry, and Topic Factors on IFRS Policy Choice

This paper proposes a framework for understanding managements decision-making on observable accounting policy choices. The framework is used to hypothesize how country, industry, and topic factors influence policy choice under International Financial Reporting Standards (IFRS). The hypotheses are tested on the choices made by the largest firms from 10 jurisdictions on a comprehensive set of IFRS policy topics, which are hand-collected from the financial statements. The results are consistent with the framework: country factors are particularly influential when the choice does not affect an important accounting number; and industry and topic factors influence the choice on some topics. Overall, we find that country factors have the greatest influence on IFRS policy choice.

The qualitative characteristics of financial information, and managers' accounting decisions: evidence from IFRS policy changes

This is the first empirical study that uses publicly available data to provide direct evidence about the role of the qualitative characteristics (QCs) of financial information in managements’ accounting decisions. Based on 40,895 hand-collected IFRS (International Financial Reporting Standards) policy choices on 16 topics made by 514 large firms of 10 jurisdictions in the period 2005–2011, we identify 204 reasons for policy changes. The majority of these refer to QCs from the conceptual framework of the standard-setter, in particular to relevance, faithful representation, comparability and understandability. Firms also frequently refer to transparency, which is not directly mentioned in the framework. Furthermore, we analyse the circumstances under which firms explain their policy changes in terms of improved quality. We hypothesise and find that QCs are more often referred to if the change relates to measurement (i.e. to a more important accounting policy decision). We also find that references to QCs are positively associated both with firm size and with a measure of a jurisdictions transparency. This complements previous research by providing evidence that managers are, at the least, alert to QCs.

Conservatism and Pensions: Why Accounting Matters

Pension accounting is anything but conservative since earnings can be protected from actuarial gains and losses. This paper shows that therefore conservatism measures based on models of the asymmetric relationship between earnings and positive versus negative stock returns are biased downwards. This is because unrecognized actuarial gains and losses are reflected in returns and are also asymmetric. The pension effect can be documented and corrected by adjusting earnings or by extending conservatism models. This finding offers a partial explanation of why large firms are less conservative since firm size and having defined benefit plans are positively correlated. Furthermore, extending conservatism models with dummy interaction terms can be used to parsimoniously estimate a firm-year measure of conservatism which takes the pension and possible other effects into account.