Aligning Financial and Management Accounting Policies: What Drives Integration? – Empirical Evidence from German IFRS 8 Segment Reports
Advances in Management Accounting
ISBN: 978-1-78714-530-6, eISBN: 978-1-78714-529-0
Publication date: 3 July 2017
This paper analyzes what factors drive a company’s decision to align financial and management accounting policies as a measure of integration of management accounting and financial accounting at the highest hierarchy levels of a company.
Research hypotheses for six different determinants are developed: company size, number of operating segments and subsidiaries, internationality of the business, business strategy, company life cycle stage, and leverage. The hypotheses are tested using International Financial Reporting Standards 8 (IFRS 8) segment report data from a large sample of 175 German publicly listed companies.
A higher internationality of the business causes companies to choose a lower degree of integration. Companies with a prospector (defender) strategy choose a lower (higher) degree of integration. Companies in later life cycle stages and with higher leverage choose a lower degree of integration as well. Company size does not impact integration.
Companies have to decide whether, and to what extent, to integrate financial and management accounting and align the two sets of accounting policies. German companies have traditionally kept the two sets separate. As the research reported in this paper sheds light on when companies do not consider integration to be beneficial, it is useful for practitioners.
The legal reporting requirements in Germany as well as German accounting traditions make the German setting particularly suited for examining the integration of management accounting and financial accounting. Using the number of adjustments to financial accounting policies made for management accounting purposes is a novel approach, and the number of adjustments is a more fine-grained measure of integration at the highest hierarchy levels of a company than the measures used in prior literature.
I appreciate the feedback received from participants of the 2014 International Association for Accounting Education and Research (IAAER) conference in Venice, the 2015 workshop on European Financial Reporting in Paris, and the 2015 Trends in Accounting Research Conference at Uniwersytet Łódzki. I also thank the two anonymous reviewers for constructive comments. The assistance of Nora-Sophie Jedwabski and Marie Nicot in collecting the data on the subsidiaries’ countries of incorporation is gratefully acknowledged.
Schmidt, M. (2017), "Aligning Financial and Management Accounting Policies: What Drives Integration? – Empirical Evidence from German IFRS 8 Segment Reports", Advances in Management Accounting (Advances in Management Accounting, Vol. 28), Emerald Publishing Limited, Bingley, pp. 155-189. https://doi.org/10.1108/S1474-787120170000028006
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