Joël Branson

How to measure the comparability of financial statements

Since 2005, listed EU companies apply IFRS to prepare their consolidated financial statements. Users might get the impression that these financial statements are comparable now. However, differences in application of IFRS still exist. These differences can have a negative impact on the comparability of the financial statements. Therefore, the implementation of IFRS has not eliminated the need for research concerning the comparability of financial statements. The purpose of this article is to assist researchers in choosing the most appropriate method to measure this comparability. First the article discusses the concept of comparability. Second, important properties of measurement methods are discussed. Next, the H, C, I, V and T index and three statistical models are analysed. Finally, the article gives an illustration of choosing a method to measure the comparability of the consolidated financial statements of the EU listed companies.

Male and Female Auditors’ Overconfidence

Purpose - The purpose of this paper is to examine if there exists a gender difference in overconfidence within an auditor population. Studies outside the accounting domain have found that men are more overconfident than women. It would be worthwhile to know if such a gender difference in overconfidence also exists within the auditor population. Such a gender difference could have far-reaching consequences; among other things, it could explain why client firms with female audit partners have significantly higher audit fees. Because of substantial self-selection and socialization it could however be that female auditors are as overconfident as their male colleagues. Design/methodology/approach - As is common in the psychological literature, calibration tests were used to measure the degree of overconfidence of male and female auditors. Findings - The results provide no evidence for a gender difference in overconfidence within a population of auditors and warrant against generalizing findings from non-audit populations to auditors. Research limitations/implications - Consistent with previous research, overconfidence was treated as if it were a single construct. The different varieties of overconfidence may, however, not simply be interchangeable. It may be the case that one measure of overconfidence would produce a sex difference while the other would not. Practical implications - This study contributes to the growing literature that examines the effects of gender on audit judgment and decision making. An important implication is that the results clearly warrant against generalizing findings from non-audit populations to auditors. Originality/value - This is the first study to investigate if a gender difference in overconfidence exists within an auditor population.

Are Users of Financial Statements of Publicly and Non-Publicly Traded Companies Different or Not? An Empirical Study

In more than 100 countries worldwide, publicly traded, or listed companies must prepare their consolidated accounts using International Financial Reporting Standards (IFRS). For non-publicly traded, or non-listed companies, the situation is less harmonized. The European Union (EU), for example, does not require IFRS for non-listed companies. One of the arguments in favour of this distinct approach is that financial statements of listed and non-listed companies attract different end users. Empirical evidence to back up this assumption is, however, rare. This paper contributes by empirically exploring who the users of the different financial statements are. Our survey of 849 individuals who use financial statements reveals that not only investors and analysts, but also suppliers, competitors, customers and consultants are important user groups. We find some differences between users who consult financial statements of listed or non-listed companies, but we also find some interesting similarities. Almost half of the survey respondents are interested in both listed and non-listed companies and there are only limited differences in the desired information concerning both types of companies. Finally, our analysis shows that an average respondent spends less than 15 minutes per financial statement, does not look at the notes and is only interested in companies located in his own country.

Are Female Auditors Still Women? Analyzing the Sex Differences Affecting Audit Quality

Previous research has hinted a potential impact of auditor gender on audit quality. It appears that, for example, men are less risk-averse than women. Female auditors may, therefore, express more severe audit opinions than male auditors. This paper addresses a potential major bias underlying the gender auditing research as it is not obvious that stereotypical believes about men and women are true or that findings from literature about the general population can be interpolated to the specific context of auditors.

The uniformity-flexibility dilemma when comparing financial statements: Views of auditors, analysts and other users

Purpose - The introduction of the IFRS in the European Union, and many other countries, has not eliminated the need for research concerning the comparability of financial statements. The IFRS still offers many options. Extensive theoretical literature exists concerning the definition of comparable financial statements and the factors that influence this comparability. This paper aims to investigate this issue. Design/methodology/approach - The paper uses a survey of 426 individuals who use European IFRS financial statements. Findings - This study shows that most of the respondents (67 per cent) interpret comparability as uniformity, that is, that all companies using the same accounting methods. Comparability of financial statements over time and of companies operating within the same industry are considered to be the most important types of comparability. Both types are jeopardised because of continuous changes in IFRS and the lack of industry specific guidance. Only 41 per cent of the respondents believe that all IFRS financial statements are comparable. Not only accounting methods used, but also judgements made by preparers and interpretation differences are viewed as important factors influencing the comparability of financial statements. Research limitations/implications - As surveys are uncommon in accounting literature, often because of sampling problems, the validity of this research should be further improved by additional surveys or other empirical research approaches. Originality/value - This study contributes to the research by determining which factors influence the comparability of financial statements according to the auditors, analysts and other users and what their view is on the comparability of financial statements.

Determinants Influencing the De Facto Comparability of European IFRS Financial Statements

This paper investigates whether or not European listed companies make use of the options offered by the IFRS and if so, which determinants influence these choices. In order to do this, the choices of 79 companies from Belgium, Germany, the Netherlands and the UK operating in the industries industrial goods and services or technology were manually collected and analyzed. The determinants investigated were: country, industry, company size, capital structure, profitability, stock exchange and auditor. The contribution of the paper is threefold. If the results reveal that options are not used differently, this shows that European IFRS financial statements are de facto comparable. Furthermore, options that are not used can be removed in order to simplify the IFRS. If the results reveal that options are used differently, having insight into the determinants affecting choices made by companies, can also be of interest to the IASB in the further development of her standard setting process. Of the 34 investigated options, 14 are rarely used differently and four of these options could be easily removed. The majority of the 34 options are, however, used differently and thus negatively affect the de facto comparability of European IFRS financial statements. The country is the most important determinant influencing accounting choices. Also, the type of auditor has an important impact on the format of financial statements and the disclosures.

Determinants Influencing the IFRS Accounting Policy Choices of European Listed Companies

In this paper we investigated whether or not European listed companies make use of the options offered by the IFRS and if so, which determinants influence these choices and how this affects the de facto comparability of European IFRS financial statements. We analysed the choices of 197 companies from Belgium, Denmark, Finland, France, Germany, the Netherlands and the UK operating in the industries industrial goods and services, financials or technology. We investigated the effect of country, industry, company size, capital structure and the type of auditor on 31 options offered within the IFRS. We found that nine options are rarely used differently. Most options (22 out of 31), however, are used differently. The accounting choices are predominantly influenced by the country of origin, followed by industry and type of auditor. Company size and capital structure do not seem to play an important role. Overall, we found that the European IFRS financial statements are not de facto comparable yet. The contribution of the study is threefold: we identify the options that are not or rarely used and thus could be removed in order to simplify the IFRS, we offer insight into the determinants affecting accounting policy choices made by companies, and we mitigate the idea of de facto comparability of European IFRS financial statements.

Gender Inequality in Small and Large Audit Firms

Women are still a minority in the audit profession, especially at the partner level. An increasing amount of literature has explored the sources of this gender inequality. Past studies have, however, neglected the possibility that the processes that lead to the (re)production of gender differences and hierarchies may differ between audit firms of different sizes. In this article, we combine quantitative with qualitative data to explore how gender inequalities regarding promotion and access to resources of power (at the partner level) might differ between audit firms of different sizes. Our data show that women who achieve partnership in large firms (but not in some smaller firms) are confronted with a second-level glass ceiling, as they do not play leading roles within their firms. This can be explained by the higher demands of commitment large firms place upon (prospective) partners and these firms’ greater focus on the commercial side of auditing.

Voluntary Disclosure of Sales and the Extent of Trade Credit in Small Private Companies

We examine the association between voluntary financial disclosure and the amount of obtained trade credit in a sample of small private Belgian companies. We argue that voluntary disclosure can help small private companies in mitigating information asymmetries that arise between the company and their suppliers. Using a propensity score matching procedure to control for selection bias, we find that voluntary financial disclosure by small and private companies is positively related to the level of trade credit. This is in line with the traditional view that asymmetric or incomplete information restricts access to external funds.