Erlend Kvaal

IFRS Policy Changes and the Continuation of National Patterns of IFRS Practice

International Financial Reporting Standards (IFRS) contain several policy options. This paper examines the choices made in 2008/9 IFRS financial statements by large listed companies from five countries on all the options that are observable. We compare these choices with those that had been made by the same companies in 2005/6, which (except for the German companies) was the year of transition to IFRS. For Australian and UK companies, we find – as expected – that there were few policy changes. However, despite the constraints on policy change within IFRS, we find that French and Spanish companies not only made more changes than the other companies but that they also made more changes after transition than at transition. Further investigation reveals that these findings are largely driven by a small number of topics. One possible explanation for the pattern of these changes is a ‘learning’ process, which is supported by finding that nearly all the post-transition changes made by the French and Spanish companies were away from previous national requirements. However, we consider other possible explanations. We also present the profiles of IFRS practices for 2008/9. Despite the changes in policy from 2005/6, we find clear evidence that national patterns of IFRS practice continue through the period, so that international comparability remains in doubt.

Earnings Management Priorities of Private Family Firms

We use a unique database on family relationships between CEOs, board members and owners of private Norwegian firms to examine earnings management priorities of private family firms. Consistent with agency theory we find that private family firms generally manage earnings downward compared with non-family firms. However, tendencies to inflate earnings increase with leverage, and among highly leveraged private firms we find that those that are family controlled manage earnings upward more extensively than others. This result suggests that preservation of control may be more important for family shareholders than for other owners. Having a CEO who is a member of the controlling family amplifies both the general tendency of shrinking earnings and the conditional tendency of inflating them. Conversely, having an independent board member moderates both tendencies. The distinct earnings management tendencies of private family firms tend to weaken as the firm grows older. This result is consistent with the generational effects on family firm characteristics that have been reported in prior family business research.

International Variations in Tax Disclosures

Abstract We examine the tax disclosures of 161 large IFRS-reporting companies in five countries by studying in detail how they carry out two numerical reconciliations mandated by IAS 12. Using a variety of approaches, we conclude that there are systematic differences in IFRS reporting practice between companies from different countries. However, we also find varied reporting practices within certain industries such as the extractive industry. Based on our observations, we question whether the requirements of the present standard are sufficiently explicit and concise to lead to understandable and comparable tax disclosures. We identify a number of elements of IAS 12 that could be improved.

Determinants of Executive Compensation in Private Family Firms

We study patterns of CEO compensation in private family firms. We find that private family firms pay their CEO less than other private firms, and that the tendency of low CEO pay is stronger in family firms that have a family member as CEO. More than in other firms CEO pay in private family firms is positively associated with performance, which is contrary to some findings regarding public firms. Private family firms more than other private firms shield the CEO from business risk, in particular when the CEO is a member of the controlling family. We find that private family firms compensate their CEO for systematic risk, whereas non-family firms rather compensate for unsystematic risk.

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

Abstract Although not a EU member, Norway is required to implement the EU Accounting Directive through its obligations under the EEA agreement. An expert group has prepared a draft law that will be decided upon by the legislator, most likely during 2017. The draft law has a strong orientation towards IFRS, which is evidenced in particular by the choice of IFRS for SMEs as the basis for Norwegian accounting standards.

Discussion of ‘Making Deferred Taxes Relevant’

Abstract In this discussion of Brouwer and Naardings article ‘Making Deferred Taxes Relevant’, which is published in this issue of Accounting in Europe, I question several aspects of their proposal to change the tax accounting standard. I argue that a quest for more value relevance of individual balance sheet items is not a good guideline for accounting standard setting. The distinction between book-first and tax-first temporary differences may be helpful for some analytical purposes, but it is not sufficiently robust to serve as a basis for an accounting standard. However, I agree with the authors that the efforts to improve IAS 12 should not be abandoned.