In value relevance literature, there are two basic types of valuation model that have extensively used by prior studies. Price model testing how firm`s market value relate to accounting earnings and equity book value. As seen in equation 1, based on Ohlson (1995), the model expresses the firm value as a function of its earnings and equity book value. The other type of value relevance valuation model is return model, which describes relation between stock returns and accounting earnings. The value relevance of accounting information studies using returns-earnings association is motivated by the seminal work of Ball and Brown (1968). Then, Easton and Harris (1991) popularized a specific version of annual return model including both earnings levels and earnings changes. The return model used in this study, based on Easton and Harris (1991), is provided in equation 2.
Chen et al. (2001) discuss two advantages of price models compare to return models. When stock markets anticipate any components of accounting earnings and incorporate the anticipation in the beginning stock price, i.e. prices leading earnings, return models will bias earnings coefficients towards zero. On the other hand, Kothari and Zimmerman (1995) argue that price models yield unbiased earnings coefficients because stock prices reflect the cumulative effect of earnings information. Return models only assess the value relevance of accounting earnings, whereas price models based on Ohlson (1995) show how a firm`s market value is related both accounting earnings and equity book value. In addition, the use of Ohlson model will expand the scope of assessing value relevance into both income statement and balance sheet.
However, Kothari and Zimmerman (1995) argue that retur...
... middle of paper ...
...ernal/NP/rosc/rosc.aspx
Samarasekera, N., C. Milicent, and T. Ann. 2012. IFRS and Accounting Quality: The Impact of Enforcement. Working paper at Business School, University of Western Australia.
Tsalavoutas, I., A. Paul, and L. Evans. 2012. The Transition to IFRS and the Value relevance of Financial Statements in Greece. The British Accounting Review 44: 262-277.
Wan Ismail, A. W., A. K. Khairul, T. Zijl, and K. Dunstan. 2013. Earnings Quality and the Adoption of IFRS-based Accounting Standards: Evidence from an Emerging Market. Asian Review of Accounting, 21 (1): 53-73.
Widodo Lo, E. 2012. The Value Relevance of Accounting Information in Transition to IAS/IFRS: the Case of Indonesia. Jurnal Akuntansi & Manajemen 23 (2): 139-151.
Van Tendeloo, B. and A. Vanstraelen. 2005. Earnings Management under German GAAP and IFRS. European Accounting Review, 14 (1): 155-180.
U.S. GAAP and International Financial Reporting Standards (IFRS), formerly known as iGAAP, are two accounting standards used in today’s world of financial reporting. These standards have differences as well as similarities in reporting requirements. Organizations in the United States are required to follow GAAP principles in preparing financial statements and other financial reports. Whereas, organizations outside of the United States may follow IFRS. Balance sheet reporting and formatting is an area in which GAAP and IFRS may differ, yet be similar in many respects. The balance sheet is a financial statement of what a company owns and what it owes at a given date and time (Spiceland, Sepe, & Nelson, 2013). This paper will address differences and similarities in respect to balance sheet reporting and formatting as it relates to fixed assets and liabilities, inventory, and goodwill.
A dramatic increase in the demand of the financial statements by external users made the reporting entities’ annual reports to meet the objective of general purpose financial reporting and qualitative characteristics of useful financial. According to the IASB Conceptual Framework, it superseded the Framework for the Preparation and Presentation of Financial Statements. As a result, this report could discuss the conceptual framework for financial statements and compare with Bega’ current accounting practice of Property, Plant and Equipment under Accounting Standard AASB116. Then, this report will suggest some actions for Bega to improve its current accountin...
One of the most debatable topics in the accounting industry today is the extent in which we should make the financial statements understandable to the general population. The FASB currently gears its reporting standards toward...
In the world of international finance there are two major accounting systems; GAAP, which stands for Generally Accepted Accounting Principles, and IFRS, which stands for International Financial Reporting Standards. The United States prefers GAAP while the European market, as well as many other countries, prefers IFRS. By 2015 the Securities Exchange Commission is anticipating a total transfer to IFRS in the United States. Though the differences between GAAP and IFRS are few, they could affect accuracy of financial reporting throughout the world. It is important to understand the differences and similarities between both GAAP and IFRS if one is to globalize ones market (Logue).
Hoggett, J., Edwards, L., Medlin, J. (2008). Accounting, 6th Edition. John Wiley & Sons Australia Limited.
Financial statements provide useful information to a wide range of users. These users include shareholders, owners, investors, suppliers, managers, government and creditors etc. Many users rely on the information from financial statements to make decisions. Therefore, financial statements should be relevant, provide faithful representation, comparability, verifiability, timeliness and understandability. However, there are different evidences of managers manipulating the earnings for various reasons. “Earnings management is the choice by a manager of accounting policies, or real actions, affecting earnings so as to achieve some specific reported earnings objective” (Scott, 2012, p. 423). Managers play an important role in the company because they have control over the accounting policies, thus, the managers can manipulate the income. There are different viewpoints about earnings management. Some people think it will protect the company’s interests to allow the managers to manage the earnings, and others oppose it.
So it appears that there would be some advantages for many aspects, such as accounting quality, when applying IFRS into various countries. Because IFRS would be able to exclude different options of accounting from national accounting standards which could reduce the divergence of management.[ Ahmed, A. S., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), 1344-1372.](Ahmed, Neel & Wang, 2013) This change is likely to be more advantageous for more users, preparers and auditors to make their economic decisions. (Ramanna & Sletten, 2009)[ Ramanna, K., & Sletten, E. (2009). Why do countries adopt international financial reporting standards?. Harvard Business School Accounting & Management Unit Working Paper, (09-102).] Therefore, these expectations of changes would be beneficial for their local economic
Generally accepted accounting principles (GAAP) were first established in the 1930s in response to the historical stock market crash in 1929. Nowadays GAAP is influenced by several organizations including the Financial Accounting Standards Advisory Council (FASAC), Securities and Exchange Commission (SEC), American Institute of Certified Public Accountants (AICPA) and the Internal Revenue Service (IRS). Publicly trade companies are required to follow GAAP in the United States. Many other countries have their own set of accounting principles. In today’s global business climate, many businesses need to grow in order to survive. A small business may choose to merge with a bigger another company, and a large company may want to acquire a small company in order to expand in certain condition. More and more international mergers and acquisitions are happening nowadays. But how would they adapt to the ever-changing accounting standards in different countries? There are complications of consolidation of the financial statements when companies make merger/acquisition deal. To be able to adapt to the new business environment, GAAP is also making changes. International Financial Reporting Standards (IFRS) were first developed by the International Accounting Standard Board in 1973. IFRS gained its popularity quickly. Nowadays, over 100 countries recognize IFRS. As the biggest economy in the world, United States (United Nations 2012); however, did not plan to implement IFRSs until 2011. In this paper, we will discuss the possibilities of future of convergence between U.S GAAP and IFRS.
Spohr, J. (2002). The quality of accounting and earnings: The role of accrual estimation errors. Swedish school of economics and business administration dept of accounting. Vol. 7, p. 3-19.
NTU, 2011, Framework for the preparation and presentation of financial statements. [Online] Accessed on 21/10/2011, available at: https://now.ntu.ac.uk/d2l/lms/content/viewer/main_frame.d2l?ou=130510&tId=611855
Schroeder, Richard G., Myrtle Clark, and Jack M. Cathey. Financial Accounting Theory and Analysis: Text and Cases. 10th ed. Hoboken, NJ: John Wiley & Sons, 2009. 97. Print.
I have applied the IFRS to audit half-year income statement and statement of finical position from domestic sub-company or oversea branches. This allows me to understand the difficultly of dealing with accounting report form different nations. For example, we have to negotiate each report from the U.S. with their reporter by phone. It would take incredibly long time to explain the difference in order to adjust the figures in the reports. During the stuff training, we have been taught that to be professional at everywhere and anytime. Moreover, I realise that the most important feature to be a professional accountancy is responsibility. This is because that a unit of misallocation will cost other team number a huge amount of work to correct it. The experience of taking notes of weekly conferences between senior managers and PWC partner has indicates that how does change in financial policy influence the accounting treatment. For instant, since vice-perminster Mr Le Ke Qiang who visited China Construction Bank at earlier May. He point out that the Rate of Non-Performing Loans could not exceed 7% in the “BIG Four” Chinese bank. This has led Chinese bank to relax its accounting standard of credit rating. It allows me to understand the relationship between government and financial
International Financial Reporting Standards (IFRSs) is a set of accounting standards developed by an independent, non-profit making organization popularly known as International Accounting Standard Board (IASB) which was created under the laws of state of Delaware, United States of America, on 8 March, 2001 (IFRS foundation) (IFRS.org, 2017) The objective of the IFRS is to present a unique and comparable accounting framework on how to prepare and disclose their financial statements globally. (Cotter, D., 2012) The most important change that occurred in the history of accounting was the adoption of International Financial reporting standards all around the world.
Marshall, D., McManus, W., & Viele, D. (2004). Accounting: What the numbers mean. [University of Phoenix Custom Edition e-text]. New York, NY: McGraw-Hill Companies.
As for example, Simon (2001) report that cultural differences influence the behavioural attitude of the managers of various countries. He finds that in sharp contrast to the Western managers, the management of the Thai firms do not favour the idea of disclosing their earnings management activities. Guan, Pourjalali, Sengupta and Teruya (2005) also document the idea that besides country-wise differences, there may be many other factors that can influence earnings management of a company. In a study, Eldenburg, Gunny, Hee and Soderstrom (2007) have shown that where the companies do not have publicly shared funds, the managers are prone to minimize the cost of debt capital and are in a way compelled to manipulate accruals with a view to maintain their outward reputation and