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Financial Statements (financial + statement)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	94%
Mathematics and Statistics	2%
2 Other Domains	4%

Distribution within Business, Economics, Finance and Accounting

Financial Accounting	27%
Corporate Finance	9%
General & Introductory Finance & Investments	5%
General & Introductory Economics	3%

Terms modified by Financial Statements

financial statement fraud

financial statement user

Selected Abstracts

Audit Reports on Financial Statements Prepared According to IASB Standards: Empirical Evidence from the European Union

INTERNATIONAL JOURNAL OF AUDITING, Issue 3 2004
Maria A. Garcia-Benau
This paper examines the audit report of 147 firms from the European Union that prepare their financial statements in compliance with the standards developed by the International Accounting Standards Board. Bearing in mind that the consolidated accounts of listed companies will follow IAS from 2005 onwards, the purpose of this paper is to provide some insight into the current outcome of the statutory audit on this information. Interesting conclusions are drawn from this empirical study with regard to the auditing standards applied, the wording used and the differences observed between reports produced by auditors from the big firms and reports from different European countries. The need to harmonise the auditing field is discussed under the results obtained, with the final aim to contribute to the standard-setting debate on the creation of a high quality financial reporting system in the European Union. [source]

Hyperlinking Audited Financial Statements to Unaudited Information in the Presence of the WebTrust Logo: Hodge's Model Revised

INTERNATIONAL JOURNAL OF AUDITING, Issue 2 2003
Ruth V. Pike
This paper identifies a possible relationship between WebTrust, initiated by the AICPA/CICA as an attestation service for web sites, and the potentially misleading effect of hyperlinking audited financial statements to unaudited information. We argue that firms hyperlinking such information increase the perceived credibility of the unaudited information, which may be exacerbated by the presence of a recognisable, symbolically trustworthy logo. We formulate testable hypotheses by modifying an existing theoretical framework which relates to hyperlinked materials and their effect on investor judgements. The amended model extends to all potential users of financial information and incorporates the web-based assurance logo of WebTrust. We anticipate that this model will become instrumental in determining the extent of any expectation gap regarding user perceptions, thus facilitating the process of recommending policies to eliminate the potentially misleading effects of web-based financial information and therefore limiting the risk of corporate fraud and the legal liability of auditors. [source]

Value Relevance of IAS 27 (2003) Revision on Presentation of Non-Controlling Interest: Evidence From Hong Kong

JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 2 2009
Stella So
This study investigates the value relevance of the IAS 27 Consolidated and Separate Financial Statements (2003) revision, which requires the presentation of non-controlling interest as components of equity and earnings. The investigation is carried out in the context of companies publicly listed in Hong Kong during 2004,2006 where IAS 27 (2003) is replaced by the local but word-for-word equivalent standard of HKAS 27 (2004). The results of this study provide strong evidence that the revision has significant value relevance in changing investors' perception about non-controlling interest, which is no longer perceived as liabilities. Investors have apparently not been confused by the revised presentation of non-controlling interest within equity and continue to associate company values only with the equity amount actually owned by the parent company's shareholders. The results of this study give support for the accounting regulator's first move towards the economic unit theory of consolidated financial statements. [source]

Reconciling Financial Information at Varied Levels of Aggregation,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2004
ANIL ARYA
Abstract Financial statements summarize a firm's fiscal position using only a limited number of accounts. Readers often interpret financial statements in conjunction with other information, some of which may be aggregated in a different way (or not at all). This paper exploits properties of the double-entry accounting system to provide a systematic approach to reconciling diverse financial data. The key is the ability to represent the double-entry system by network flows and, thereby, access well-recognized network optimization techniques. Two specific uses are investigated: the reconciliation of audit evidence with management-prepared financial statements, and the creation of transaction-level financial ratios. [source]

The decision to finance account receivables: the factoring option

MANAGERIAL AND DECISION ECONOMICS, Issue 1 2002
Khaled Soufani
Factoring is a financial service enabling enterprises to sell their accounts receivable to a factoring company in exchange for cash. The market for factoring in the UK has been growing at substantial rates and most banking institutions are now actively involved in providing this service. Little research on the factoring market currently exists and so this paper'seeks to profile the determinants influencing decision making in the UK factoring industry. Using data from an interview-based survey, this paper establishes that the decision to purchase an enterprise's accounts receivable is influenced by the enterprise's size, type of product or service it offers, industry, sector, age, type of customers, financial statement, the management team, operational suitability, collectability and credit notes. Copyright © 2002 John Wiley & Sons, Ltd. [source]

Managing Stock Option Expense: The Manipulation of Option-Pricing Model Assumptions,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2006
Derek Johnston
Abstract This paper examines whether firms that voluntarily recognize stock option expense in their financial statements manage that expense downward more than firms that do not recognize the expense by adjusting option-pricing model assumptions. To examine this issue, I collect option-pricing model assumptions from fiscal year 2002 for both a sample of firms that voluntarily recognize stock option expense ("recognizing firms") and a sample of control firms that do not ("disclosing firms"). The empirical results suggest that recognizing firms manage the recognized stock-based compensation expense reported in their financial statements downward more than do firms that only disclose the expense. Additional analyses reveal that recognizing firms assume a lower level of volatility than disclosing firms in the option-pricing model calculations; however, I find no evidence that recognizing firms manage the dividend yield and risk-free interest rate assumptions more than disclosing firms. The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards No. 123(R), which requires the expensing of the fair value of stock options, so these results may be of interest to capital-market participants and the FASB as they assess the reliability of stock option expense as determined by option-pricing models. [source]

The Declining Value-relevance of Accounting Information and Non-Information-based Trading: An Empirical Analysis,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2004
ALEX DONTOH
Abstract Recently, a growing body of literature has suggested that financial statements have lost their value-relevance because of a shift from a traditional capital-intensive economy to a high-technology, service-oriented economy. These conclusions are based on studies that find a temporal decline in the association between stock prices and accounting information (earnings and book values). This paper empirically tests a theoretical prediction arising from the noisy rational expectations equilibrium model that suggests that the decline could be driven by non-information-based (NIB) trading activity, because such trading reduces the ability of stock prices to reflect accounting information. Specifically, Dontoh, Radhakrishnan, and Ronen (2004) show that when NIB trading increases, the R2s of a regression of stock price on accounting information declines. Our empirical tests confirm this prediction; that is, the decline in the association between stock prices and accounting information as measured by R2s is driven by an increase in NIB trading. [source]

Nonaudit Services and Earnings Management: UK Evidence,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2004
MICHAEL J. FERGUSON
Abstract Using a sample of UK firms for the period 1996-98, we provide empirical evidence on the relation between nonaudit services (NAS) purchase and three proxies for earnings management: (1) the likelihood that client firm accounting practices during the sample period were publicly criticized or subject to regulatory investigation; (2) the likelihood that client firms were required to restate prior financial statements or adjust current year results upon adoption of Financial Reporting Standard (FRS) No. 12, which was intended to curb opportunistic use of provisions; and (3) the mean absolute value of client discretionary working capital accruals over the sample period. The level of NAS purchase is measured, alternatively, as (1) the ratio of nonaudit to total auditor fees, (2) the natural log of NAS fees, and (3) the decile rank of a particular client's NAS fees given all NAS fees received by the audit firm practice office. With one exception, we find that all three measures of earnings management are positively and significantly associated with the three measures of NAS purchase. [source]

Reconciling Financial Information at Varied Levels of Aggregation,

Internal Capital Markets and Capital Structure: Bank Versus Internal Debt

EUROPEAN FINANCIAL MANAGEMENT, Issue 3 2010
Nico Dewaelheyns
G32; G21 Abstract We argue that domestic business groups are able to actively optimise the internal/external debt mix across their subsidiaries. Novel to the literature, we use bi-level data (i.e. data from both individual subsidiary financial statements and consolidated group level financial statements) to model the bank and internal debt concentration of non-financial Belgian private business group affiliates. As a benchmark, we construct a size and industry matched sample of non-group affiliated (stand-alone) companies. We find support for a pecking order of internal debt over bank debt at the subsidiary level which leads to a substantially lower bank debt concentration for group affiliates as compared to stand-alone companies. The internal debt concentration of a subsidiary is mainly driven by the characteristics of the group's internal capital market. The larger its available resources, the more intra-group debt is used while bank debt financing at the subsidiary level decreases. However, as the group's overall debt level mounts, groups increasingly locate bank borrowing in subsidiaries with low costs of external financing (i.e. large subsidiaries with important collateral assets) to limit moral hazard and dissipative costs. Overall, our results are consistent with the existence of a complex group wide optimisation process of financing costs. [source]

CRAS-CBR: Internal control risk assessment system using case-based reasoning

EXPERT SYSTEMS, Issue 1 2004
Sung-Sik Hwang
Abstract: Information technology and the Internet have been major drivers for changes in all aspects of business processes and activities. They have brought major changes to the financial statements audit environment as well, which in turn has required modifications in audit procedures. There exist certain difficulties, however, with current audit procedures especially for the assessment of the level of control risk. This assessment is primarily based on the auditors' professional judgment and experiences, not on objective rules or criteria. To overcome these difficulties, we propose a prototype decision support model named CRAS-CBR using case-based reasoning to support auditors in making their professional judgment on the assessment of the level of control risk of the general accounting system in the manufacturing industry. To validate the performance, we compare our proposed model with benchmark performances in terms of classification accuracy for the level of control risk. Our experimental results show that CRAS-CBR outperforms a statistical model and staff auditor performance in average hit ratio. [source]

AN EXAMINATION OF THE CONTENT OF COMMUNITY FINANCIAL REPORTS IN QUEENSLAND LOCAL GOVERNMENT AUTHORITIES

FINANCIAL ACCOUNTABILITY & MANAGEMENT, Issue 4 2008
Trevor Stanley
Annual reports, including general purpose financial statements, have been adopted as a key mechanism by which public sector entities discharge their accountability. However, there is concern about the complexity of public sector general purpose financial statements and consequently their effectiveness as an accountability mechanism. In Australia, the Queensland government has moved to address this issue in local government authorities by introducing a Community Financial Report as a means of simplifying the financial statements. A feature of this initiative was the lack of prescription given to local government authorities in the preparation of this report. This paper examines the form and content included in Community Financial Reports and also uses a disclosure index to determine the level of disclosure in the reports. The results of this research show that the form and content of the Community Financial Reports varied considerably. There was no definitive style, with each report being unique. The disclosure index revealed low levels of disclosure by local government authorities in the first year of the report as well as a lack of analysis of the Statements of Financial Performance, Position and Cash Flows. As well, there was a significant difference in the disclosures made by rural local government authorities compared with urban local government authorities. The results of this research will be of interest to local government authorities and local government regulators as they aim to provide useful, understandable information for stakeholders. [source]

Not-for-Profit Annual Reports: What do Museum Managers Communicate?

FINANCIAL ACCOUNTABILITY & MANAGEMENT, Issue 2 2003
Anne L. Christensen
This study addresses: (1) What disclosures are provided in annual reports of not-for-profit entities?(2) What characteristics of the reporting entities explain variations in the quantity of financial disclosure?(3) How do not-for-profit disclosures compare with those in for-profit corporate reports? The annual reports of 170 not-for-profit museums were examined. The reports were highly variable. Some contained no financial data and only 22 percent included complete financial statements with footnotes. Regression analysis indicated that the amount of museum financial data was positively associated with museum size, a larger number of pages of donor disclosures, and museum type (art and history, but not science, natural history, or general). [source]

The Construction and Presentation of Performance Indicators in executive Agency External Reports

FINANCIAL ACCOUNTABILITY & MANAGEMENT, Issue 3 2000
Brian A. Rutherford
For a variety of reasons, factors affecting the understandability and comparability of performance indicators, and perceptions of their status, may differ from those applying in the case of profit-seeking sector financial statements. This study examines the construction and presentation of performance indicators from the perspective of understandability, comparability and perceived importance. It identifies a number of aspects of reporting practice which may undermine these qualities. [source]

Creating Early Success in Financial Accounting: Improving Performance on Adjusting Journal Entries,

ACCOUNTING PERSPECTIVES, Issue 2 2010
FRED PHILLIPS
cognition; écritures comptables; formation; intervention Abstract Adjusting journal entries constitute a necessary component of accrual basis accounting and are critical to the accuracy of financial statements. However, accounting students often struggle to comprehend these accounting entries, which is a concern given that failure to understand early topics in accounting courses has been found to impact course performance and selection of undergraduate major. Perceiving accounting as a language, we utilize psycholinguistic theory to understand how an instructor may improve coherence of students' mental structures of accounting problems. We conduct an experiment to investigate the extent to which a simple instructor intervention, requiring that the initial deferral transaction be recorded, is able to improve student performance on the subsequent deferral adjustments, and whether this improvement is consistent across problem sets that differ in task difficulty. Consistent with our theoretical prediction, we find that this intervention results in improved performance. The beneficial effect of the intervention is found to differ across problem-set task difficulty. Implications for accounting education are discussed. Favoriser dès le départ la réussite en comptabilité générale en améliorant la qualité des écritures de régularisation Résumé Les écritures de régularisation font partie intégrante de la comptabilité d'exercice et sont indispensables à l'exactitude des états financiers. Or, les étudiants en comptabilitééprouvent souvent de la difficultéà comprendre ces écritures comptables, observation préoccupante puisque la méconnaissance de notions élémentaires des cours de comptabilité influe, a-t-on constaté, sur la réussite des cours et le choix d'une majeure au premier cycle. Envisageant la comptabilité comme un langage, les auteurs ont recours à la théorie de la psycholinguistique pour déterminer comment un enseignant peut améliorer la cohérence des structures mentales avec lesquelles les étudiants abordent des problèmes comptables. Ils se livrent à une expérience dans laquelle ils analysent dans quelle mesure la simple intervention de l'enseignant, exigeant la comptabilisation initiale d'une opération de report, peut améliorer la performance de l'étudiant en ce qui a trait aux ajustements de report subséquents, et si cette amélioration demeure constante dans des problématiques où la difficulté de la tâche diffère. Conformément à leur prévision théorique, les auteurs constatent que cette intervention entraîne une amélioration de la performance. Ils observent que l'effet bénéfique de cette intervention diffère selon la difficulté de la tâche associée à la problématique. Enfin, ils analysent les conséquences de ces observations pour la formation comptable. [source]

Fair Trade Community Café

ACCOUNTING PERSPECTIVES, Issue 2 2010
KAREN LIGHTSTONE
capitaux propres; erreurs comptables; petite entreprise; rentabilité Abstract This case concerns the real operations of a café in a small town in Nova Scotia, Canada. It is a second location of a theme restaurant, with the first location successfully operating for a number of years. The owner of the first location, and senior partner of the second café, is available for advice but does not participate in the day-to-day operations of the second location; there are two junior partners who run the business. The focus is on the financial statements generated by an external bookkeeping service. The income statement reports a significant loss, and some of the accounts on the balance sheet and income statement do not make sense for this type of business. Simple ratio and variance analysis provides information for students to determine where problems lie. The case presents a good opportunity for students who have a basic understanding of financial statements to read a set of real statements generated by a bookkeeping service. Not all transactions are logical for a small café, although the financial information is from a real café in operation. The case also contains industry information on the operations of small food and drinking businesses located in Nova Scotia. Fair Trade Community Café Résumé Le cas exposé par l'auteure a trait à l'exploitation d'un véritable café situé dans une petite ville de Nouvelle-Écosse, au Canada. Il s'agit du second établissement d'un restaurant à thème dont le premier établissement exerce ses activités avec succès depuis plusieurs années. Le propriétaire du premier établissement, et associé majoritaire du second, est disposéà prodiguer des conseils mais ne participe pas à l'exploitation quotidienne du second café, que dirigent deux associés minoritaires. Le cas porte sur les états financiers produits par un service externe de tenue des comptes. Le compte de résultat fait état d'une perte importante, et certains des comptes du bilan et des postes du compte de résultat ne conviennent pas à ce type d'entreprise. Une simple analyse des ratios et des écarts fournit de l'information permettant aux étudiants de diagnostiquer les problèmes qui se posent. Le cas offre aux étudiants possédant une connaissance de base de la façon dont les états financiers sont établis une excellente occasion de lire un jeu d'états financiers véritables, produits par un service de tenue des comptes. Toutes les opérations ne sont pas logiquement celles d'un petit café, bien que les données financières proviennent d'un établissement authentique. Le cas contient également des informations sectorielles sur les activités de petites entreprises du secteur de l'alimentation établies en Nouvelle-Écosse. [source]

Changing the Concepts to Justify the Standards,

ACCOUNTING PERSPECTIVES, Issue 4 2009
Patricia C. O'brien
ABSTRACT In this paper, I discuss the current project to converge the IASB and FASB conceptual frameworks, specifically efforts to purge the converged framework of concepts that hinder the promotion of balance sheet valuation using fair values. I discuss why I believe these efforts to be misguided, based on how investors who analyze financial statements employ accounting information. I focus on stewardship, reliability, and earnings , terms either demoted in importance or at risk of being eliminated in the framework convergence project. I explain their salience to financial statement users and argue against their deletion or demotion. [source]

Great Galway Goslings: Organizational Context of Managerial Accounting,

ACCOUNTING PERSPECTIVES, Issue 3 2009
Wagdy Abdallah
ABSTRACT This case seeks to enhance student understanding of the relationship between accounting information and the order fulfllment and production activities of a manufacturing frm, Great Galway Goslings. Great Galway Goslings manufactures goose sculptures and has been suffering losses in recent years. Students draw on the skills they learned in financial accounting to analyze the company's order fulfllment activities, identify economic transactions, and prepare journal entries. The case provides a link to managerial accounting topics as students use segment financial statements to create contribution margin income statements, perform break-even analyses, and recommend whether Great Galway Goslings should keep its retail business segment. Students will become familiar with the key features of business process management (BPM) and the extensive, real-world activities that a manufacturing entity engages in to fll an order. Students will analyze the company's existing order fulfllment process and apply their knowledge of BPM to recommend process improvements for Great Galway. This case contributes to the accounting case literature by serving as a bridge from financial accounting to managerial accounting, intertwining many topics from managerial accounting into one cohesive case, and providing real-world business process knowledge. Student feedback indicates that, overall, the case met its stated learning objectives. Great Galway Goslings is appropriate for an undergraduate introductory managerial accounting course but can be adapted to the equivalent graduate-level course or an accounting information systems course. [source]

Financial Reporting for Private Companies: The Canadian Experience,

ACCOUNTING PERSPECTIVES, Issue 1 2009
Morina D. Rennie
ABSTRACT The issue of whether small and/or private companies should be allowed to use simplified accounting standards in financial reports has concerned the accounting profession for decades. It has been argued that preparing financial reports in accordance with the large volume of promulgated standards contained in generally accepted accounting principles (GAAP), some of which are relatively complex, has put a significant strain on the resources of small/private business. Moreover, information produced and presented in accordance with at least some accounting standards within GAAP may not be relevant for the users of small/private companies' financial statements. In this paper we look at differential reporting in Canadian GAAP, which gives nonpublicly accountable enterprises the ability to opt out of certain CICA Handbook requirements with unanimous consent of the shareholders. We look at lobbying activity in response to the proposed differential reporting standard and at nonpublicly accountable company experience with the differential reporting opportunity in the period since the standard was promulgated. [source]

Financial Reporting Regulation: The Case of Converging Canadian and International Accounting and Auditing Standards,/LA RÉGLEMENTATION DE L'INFORMATION FINANCIÈRE: LA CONVERGENCE DES NORMES CANADIENNES ET INTERNATIONALES DE COMPTABILITÉ ET DE VÉRIFICATION

ACCOUNTING PERSPECTIVES, Issue 1 2008
Kathryn Bewley
ABSTRACT This paper provides a descriptive analysis of the differences between existing Canadian accounting and auditing standards and the corresponding international standards that Canadian standard-setters have decided to converge them with, at the time of the decisions to converge. The descriptive analysis is based on two reconciliation documents published by the standard-setting boards of the Canadian Institute of Chartered Accountants. The main contributions of the paper are to outline and analyze the differences systematically in the context of prior research on financial reporting regulation and the impact of internationalization of accounting and auditing standards, and to identify key areas of difference that are likely to have the greatest impact on preparers, auditors, and users of Canadian financial statements. The results do not indicate that Canada is moving to a significantly more or less restrictive accounting measurement regime, but it appears that there will be greater disclosure detail required under international accounting standards than under existing Canadian standards. The key accounting difference relates to appraisal values for tangible and intangible assets that are permitted in international standards but not currently in their Canadian counterparts. The findings for auditing standards suggest that international and Canadian auditing standards impose a similar set of requirements on the audit function, and provide a similar degree of detailed application guidance. Differences in standards for the auditor's report and for management's written representations to the auditor are the most significant changes for audit practice in Canada. RÉSUMÉ L'auteure présente une analyse descriptive des éléments qui différencient les normes canadiennes de comptabilité et de vérification existantes et les normes internationales correspondantes vers lesquelles les normes canadiennes devraient converger, selon la position adoptée par les normalisateurs canadiens au moment de trancher la question. L'analyse descriptive se fonde sur deux documents de conciliation publiés par les conseils de normalisation de l'Institut Canadien des Comptables Agréés. Le principal apport de la présente étude est double: elle propose une description et une analyse systématiques des différences entre les normes dans le contexte des recherches précédentes sur la réglementation de l'information financière et l'incidence de l'internationalisation des normes de comptabilité et de vérification, et elle recense les principales sphères dans lesquelles les normes présentent des différences susceptibles d'avoir les conséquences les plus importantes pour les auteurs de l'information, les vérificateurs et les utilisateurs des états financiers canadiens. Selon les résultats de l'étude, le régime de mesure comptable vers lequel s'oriente le Canada ne présente pas un caractère qui serait plus ou moins restrictif, mais tout indique que les exigences en ce qui a trait au détail de l'information à fournir seront plus grandes sous le régime des normes comptables internationales que sous celui des normes canadiennes existantes. La principale différence relevée au chapitre de la comptabilité se rapporte aux valeurs d'expertise des actifs corporels et incorporels qui sont permises dans les normes internationales mais ne le sont pas dans les normes canadiennes actuelles. Quant à la vérification, il semble que les normes internationales et canadiennes imposent à la fonction de vérification un ensemble d'exigences similaires et contiennent des directives d'application d'une précision analogue. Les différences dans les normes relatives au rapport du vérificateur et aux déclarations écrites de la direction sont les changements les plus importants pour l'exercice de la vérification au Canada. [source]

A comparison of nearest neighbours, discriminant and logit models for auditing decisions

INTELLIGENT SYSTEMS IN ACCOUNTING, FINANCE & MANAGEMENT, Issue 1-2 2007
Chrysovalantis Gaganis
This study investigates the efficiency of k -nearest neighbours (k -NN) in developing models for estimating auditors' opinions, as opposed to models developed with discriminant and logit analyses. The sample consists of 5276 financial statements, out of which 980 received a qualified audit opinion, obtained from 1455 private and public UK companies operating in the manufacturing and trade sectors. We develop two industry-specific models and a general one using data from the period 1998,2001, which are then tested over the period 2002,2003. In each case, two versions of the models are developed. The first includes only financial variables. The second includes both financial and non-financial variables. The results indicate that the inclusion of credit rating in the models results in a considerable increase both in terms of goodness of fit and classification accuracies. The comparison of the methods reveals that the k -NN models can be more efficient, in terms of average classification accuracy, than the discriminant and logit models. Finally, the results are mixed concerning the development of industry-specific models, as opposed to general models. Copyright © 2007 John Wiley & Sons, Ltd. [source]

Explaining qualifications in audit reports using a support vector machine methodology

INTELLIGENT SYSTEMS IN ACCOUNTING, FINANCE & MANAGEMENT, Issue 4 2005
Michael Doumpos
The verification of whether the financial statements of a firm represent its actual position is of major importance for auditors, who should provide a qualified report if they conclude that the financial statements fail to meet this requirement. This paper implements support vector machines (SVMs) to develop models that may support auditors in this task. Linear and non-linear models are developed and their performance is analysed using training samples of different size and out-of-sample/out-of-time data. The results show that all SVM models are capable of distinguishing between qualified and unqualified financial statements with satisfactory accuracy. The performance of the models over time is also explored. Copyright © 2005 John Wiley & Sons, Ltd. [source]

Market Valuation of Research and Development Spending under Canadian GAAP,

ACCOUNTING PERSPECTIVES, Issue 1 2004
ANTONELLO CALLIMACI
ABSTRACT Section 3450 of the Canadian Institute of Chartered Accountants (CICA) Handbook requires Canadian firms to capitalize development costs that meet certain criteria and to expense those that relate to research. International Accounting Standard (IAS) No. 38 favours a similar approach. In the United States, Statement of Financial Accounting Standard (SFAS) No. 2 recommends the immediate expensing of all research and development (R&D) spending. The only exception is SFAS No. 86, which requires software development costs to be capitalized when a product successfully passes a technological feasibility test. Consequently, the Canadian financial disclosure regime provides a rich setting for testing the market valuation of capitalized R&D. Our primary research question asks whether capitalized R&D provides useful information to market participants investing in Canadian firms. We use price-level and return models to assess the value relevance of capitalized R&D disclosed in the financial statements under Canadian GAAP. In line with expectations, using a price-level model, we find that capitalized R&D and R&D expense as disclosed in the financial statements provide information that is value relevant to market participants. However, we find that R&D capitalized during the year helps explain returns while R&D expense does not. Thus we conclude that the application of section 3450 of the CICA Handbook produces value-relevant information. [source]

Perceived Audit Quality, Modified Audit Opinions and the Likelihood of Liquidating Bankruptcy among Financially Weak Firms

INTERNATIONAL JOURNAL OF AUDITING, Issue 3 2009
Stefan Sundgren
The paper examines the relationship between audit quality, modified audit opinions and the likelihood of liquidating bankruptcy among financially weak firms. The sample consists of 27,999 Finnish companies. It is argued that the choice of a high-quality auditor signals managers' credibility and that creditors would be more inclined to prefer liquidating bankruptcy as the resolution of financial difficulties if the firm is audited by a low-quality auditor. The results show that liquidating bankruptcy is less common among Big 4 audited firms. A positive association between the likelihood of bankruptcy and different types of modified audit opinions, including opinions with remarks related to the quality and presentation of financial statements, is also found. [source]

Audit Reports on Financial Statements Prepared According to IASB Standards: Empirical Evidence from the European Union

The Role and Functions of Audit Committees in the Indian Corporate Governance: Empirical Findings

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2004
Jawaher Al-Mudhaki
This paper examines the composition, focus and functions of audit committees (ACs), the effects of meetings and the criteria used in the selection of members by Indian listed companies from 73 questionnaire responses. The survey was carried out during February,March, 2002. The study reveals that so far only 56.2% of companies have established an AC despite the fact that it is now mandatory. Of those companies which have ACs, 68.3% have between three and six members on ACs. However, only 14.6% of companies have independent non-executive directors on the committee, while 90.2% have non-executive directors. This shows a lack of independent representation on the committees. The functions of ACs are quite diverse and are classified in three areas: financial statements and reporting, audit planning, and internal control and evaluation. The review of annual audited financial statements, discussion and recommendations of audit fees and review of the effectiveness of internal control were rated very highly by the respondents. The review of note disclosure and scope of external audit work are other important functions performed by ACs. The most important areas for focus are compliance with the standards and regulatory bodies, probing material items and undisclosed liabilities. However, there are statistical differences between medium and large sized companies in the performance of their role. The main criteria used for membership of an AC are: experience and knowledge of business, experience of holding similar positions and accounting and finance expertise. Ownership in the company was not perceived as an important criterion. The majority of companies' AC meetings are held monthly or quarterly. MANOVA analysis reveals that the frequency of AC meetings has an effect on the internal control functions. The study concludes that the concept of an AC is not new in India but their formation is slow and their composition lacks independence. AC functions are still concentrated in the traditional areas of accounting and their role is not changing fast enough to make the corporate governance more effective. [source]

The Impact of Generating Initial Hypothesis Sets of Different Sizes on the Quality of the Initial Set, and the Resulting Time Efficiency and Final Judgment Accuracy

INTERNATIONAL JOURNAL OF AUDITING, Issue 1 2004
Sudip Bhattacharjee
This study examines the impact of generating initial hypothesis sets of different sizes on the quality of the hypotheses generated (i.e., the ability to consider both the direction and accounts that are over- or understated). We also examine the time efficiency, information search effectiveness, and the final judgment accuracy, conditional on the quality of the initial hypothesis set. Sixty auditors performed an analytical procedures task where they were asked to generate and test either a specific number of initial hypotheses (one, three, or six), or any number of hypotheses desired in order to uncover an error seeded in the financial statements. The results indicate that the three hypotheses group initially generated hypotheses of the highest quality and maintained the hypothesis quality after efficiently searching information and generating additional causes. The one hypothesis group improved the quality of their hypotheses only after generating and testing several causes. However, auditors who generated six hypotheses or any number desired (as in audit practice) considered hypotheses of lower quality in the initial set, and did not improve the hypotheses quality after going through the information search stage. These results suggest that the size of the initial hypothesis set can lead to differences in the gains that accrue from the hypothesis generation and information search stages of diagnostic decisions. [source]

Hyperlinking Audited Financial Statements to Unaudited Information in the Presence of the WebTrust Logo: Hodge's Model Revised

Some Empirical Evidence to Support the Relationship Between Audit Reports and Stock Prices , The French Case

INTERNATIONAL JOURNAL OF AUDITING, Issue 3 2000
Bahram Soltani
Acting as an independent intermediary, the auditor facilitates market transactions by providing an ,opinion' on financial statements which should help to reduce the information asymmetry between the company and its potential investors. Whether audit qualifications have informational value to investors is a question that needs further investigation, as previous empirical studies on this issue yield mixed results. Moreover, a majority of the research papers in this area have been conducted in Anglo-Saxon countries, in contrast to continental European countries where very little attention has been paid to the auditors' role in stock markets. The present study is based on a large sample of qualified opinions (543 for the period 1986,1995), using different expected event dates and market models. The results of the study demonstrate the significant negative abnormal returns around the announcement dates of audit opinions. The empirical part of this study was carried out in the French market which has some significant differences from the UK and the USA markets. The author believes that the differences, in the area of reporting, level of disclosure, and accounting and auditing practices, can play an important role in the research field of event studies. [source]

Microeconomic effects of capital controls: The chilean experience during the 1990s

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2003
Francisco A. Gallego
Abstract This paper provides empirical evidence on some of the microeconomic effects of the capital controls introduced in Chile during the 1990s, in particular, the unremunerated reserve requirement (URR). By looking at financial statements for a group of 73 Chilean firms during 1986,2001, the paper attempts to identify the effects of the URR on the firms' costs and ways of financing. Results show that the effects of the URR are firm specific; for instance, there are striking differences in the response to the URR among firms of different size and those with or without access to international capital markets. Copyright © 2003 John Wiley & Sons, Ltd. [source]