Hervé Stolowy

International accounting disharmony: the case of intangibles

IAS 1 (“Presentation of financial statements”) requires that application of all international standards is necessary in order to comply officially with International Accounting Standards. This appears to be a key statement for the move towards accounting harmonization. The feasibility of this kind of harmonization could be jeopardized if even one standard is “rejected” by companies. In this context, in the wake of the publication of IAS 38 “Intangible assets”, examines the ways that 21 national and two international accounting standards approach intangibles, both in terms of definition and treatment. Shows that there is no conceptual framework commonly accepted and that there is a considerable lack of consistency both inter‐country and intra‐country. This challenges the principle of the acceptability of all international accounting standards by companies that wish to or are required to apply IASs. The disharmony highlighted by the advent of IAS 38 could be a sign of the failure of international accounting harmonization.

Analyst coverage, earnings management and financial development: An international study

Abstract Using data from 21 countries, this paper analyzes the relation among analyst coverage, earnings management and financial development in an international context. We document that the effectiveness of financial analysts as monitors increases with a country’s financial development (FD). We find that in high-FD countries, increased within-firm analyst coverage results in less earnings management. Such is not the case in low-FD countries. Our results are economically significant and robust to reverse causality checks. Our findings illustrate one mechanism through which financial development mitigates the cost of monitoring firms and curbs earnings management.

Accounting for brands in France and Germany compared with IAS 38 (intangible assets): An illustration of the difficulty of international harmonization

Abstract This paper compares the positions taken by IAS 38 over brands and the related treatments in France and Germany. Despite many points of convergence, the paper shows that these two countries, often to be found in the same cluster of national accounting systems (the “Continental-European” model), have adopted very different solutions in relation to each other and to IAS 38. The results of the study highlight the difficulty of international harmonization. They also show that as far as the qualitative characteristics of accounting are concerned, the frequently made association between Anglo-American accounting philosophy and “relevance,” and between Continental-European accounting philosophy and “reliability,” may not apply when it comes to brand accounting. To resolve this international “disharmony,” our paper militates in favor of disclosure of additional information.

The construction of a trustworthy investment opportunity: : insights from the Madoff Fraud

In this paper, we use the investment fraud of Bernard Madoff to inquire into the production of trust in the context of financial markets. Drawing upon empirical data related to U.S. individual investors (interviews and letters) as well as documentary material, we investigate the mechanisms through which investing with Madoff came to be seen as a trustworthy investment opportunity. We show how different types of information contributed to construct Bernard Madoff as a trustworthy investment manager and how Madoff avoided meeting demands for accountability by manipulating investors in face-to-face encounters. We shed particular light on the role of institution-based forms of trust which play a critical role in facilitating economic exchanges. More specifically, we suggest that the Madoff case illuminates how the provision of information can lead to an “illusion of trustworthiness” that is difficult to escape for investors. An element of such illusion, we suggest, is inherent to the functioning of financial markets more generally.

Regulatory flexibility and management opportunism in the choice of alternative accounting standards: an illustration based on large French groups

Abstract Due to the flexibility of domestic accounting regulations, French groups are entitled to refer to international or American standards for their consolidation. The objective of this research paper is to focus on the choices made by the 100 largest French companies during the last 16 years (1985–2000). In practice, apart from the French rules, three “alternative” sets of standards are used: the International Accounting Standards (IAS), “international principles,” and the U.S. GAAP. The percentage of companies referring to alternative (i.e., non-French) standards rose in the first part of the period, then fell. Additionally, while the number of companies choosing U.S. GAAP increased over the period as a whole, the number preferring IAS or “international principles” has been in sharp decline since 1994–1995. Our results show that in this voluntary move towards international accounting harmonization, the choices made by French companies have clearly varied according to developments in French accounting regulations and the changing power balance between the International Accounting Standards Committee (IASC) and the SEC-FASB. This indicates a certain degree of opportunism by the management, who clearly keeps one eye constantly on the cost-benefit trade-off.

'Shopping Around' for Accounting Practices: The Financial Statement Presentation of French Groups

This article illustrates the progressive move away from traditional accounting practices through a study of the presentation of financial statements. Based on a sample of one hundred large French industrial and commercial groups over a ten-year period, and applying a logistic regression method, our survey confirms a trend among French companies, which are increasingly turning their backs on traditional national practices as regards the balance sheet format, the income statement format, the voluntary disclosure of a statement of changes in shareholders’ equity and the cash flow statement format. This move towards ‘alternative’ practices is made possible by the flexibility of French regulation, and can probably be explained by the desire of French firms to attract more investment on international capital markets. However, this trend shows no signs of a clear orientation towards any particular accounting model (IAS, U.S. or U.K.). The behaviour of the French firms observed in our study can be considered as a kind of ‘shopping around’ for accounting practices.

Timeliness and conservatism: Changes over time in the properties of accounting income in France

Purpose – This paper aims to investigate the changes in the properties of accounting income published by French listed companies during the 1990s. It also analyzes the impact of certain corporate characteristics such as size, international financing, and audit firm, on such changes. Design/methodology/approach – Multivariate regression is used. Findings – In French companies, good news has a delayed impact on earnings, as accountants only allow the effect of such news to be recognized gradually in the earnings measure. Conversely, bad news is reflected rapidly in earnings. The results confirm a general upward trend in the degree of conservatism of accounting earnings over the period as a whole. However, except for firm size, none of the corporate characteristics examined can predict a companys accounting earnings properties. Research limitations/implications – In future studies, it will be interesting to develop and test other possible corporate and/or institutional factors relating to accounting earnings properties. Practical implications – The paper provides an insight analysis on the evolution of institutional environment in France and its impact on accounting. Originality/value – First study on properties of accounting income in France.

INTERNATIONAL DIFFERENCES IN RESEARCH AND DEVELOPMENT REPORTING PRACTICES: A FRENCH AND CANADIAN COMPARISON

Abstract This paper compares the research and development (R&D) disclosure practices in France and Canada, as evidenced in the annual reports of 76 French and 110 Canadian listed companies. It finds that Canadian high-tech companies (hardware, software, and biotechnology) disclose significantly more information on their R&D activities than their French counterparts. It also finds a strong link between R&D intensity and R&D disclosure among Canadian high-tech companies. Canadian companies overall are also found to be more likely to use non-financial disclosure as a means to resolve any R&D information asymmetry, while French firms disclose more traditional financial and accounting information. Canadian companies are also more willing than French firms to provide information concerning their future R&D expenditures. These results are consistent with inherent cultural and capital market differences between France and Canada. In contrast, the study does not find any significant difference in R&D expenditure capitalization policies between French and Canadian firms.

The Economic Consequences of Increasing the International Visibility of Financial Reports

Authors abstract. We investigate the economic consequences of increasing financial report visibility, measured by the use of english as a reporting language for firms from non-English-speaking countries. We sample 113 firms that started publishing their annual report in English (in addition to their local language) during 2004-2007 while not cross listing, not joining a major stock index or a stock index that requires external reporting in English and not engaging in major M&A activity. Taking into account the endogeneity of the reporting language, with a difference-in-differences setting and propensity score matching, and controlling for confounding factors, we find that adoption of English in the annual report is associated with lower information asymmetry, greater analyst following and more foreign investors. This suggests that language per se is an attribute of the firm’s visibility.

Letter from the Incoming Editor of the European Accounting Review

It is with some emotion that I address this first letter to you, only a short time before the start of my mandate as Editor of the European Accounting Review. First of all I would like to most sincerely thank the Members of the EAA Publications Committee and the EAA Management Committee who have shown their great trust in me by assigning me this noble task. This task is also challenging because EAR has an excellent international reputation and is known to be an open-minded generalist accounting publication outlet. I am following in the footsteps of prestigious Editors (Ann Jorissen, Anne Loft, Peter Walton, Kari Lukka, Salvador Carmona and Laurence van Lent) who have all been working to the successful development of the journal, resulting in its current enviable position of being highly regarded and well respected in the academic community. The journal has been included in the Social Sciences Citation Index (SSCI) for several years now and it is more and more frequently classified in the best category. From a practical point of view, the journal is very well managed with very “reasonable” 2 response times to the authors, as can be seen in the statistics provided by all successive Editors. The statistics presented each year during the annual congress of the Association also show a wide thematic and epistemological variety as well as a geographic diversity of the authors. In this letter I would therefore like to share with you some ideas that are close to my heart and that will guide my actions during the four years of my mandate in order to maintain and, if possible, to reinforce these established strengths, such as maintaining the high quality level of the journal, and hopefully even increase its reputation and renown worldwide.