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Article
Publication date: 21 June 2023

Syed Zulfiqar Ali Shah and Fangyi Wan

This study examines whether country-level financial integration affects firms' accounting choices and the quality of financial information.

Abstract

Purpose

This study examines whether country-level financial integration affects firms' accounting choices and the quality of financial information.

Design/methodology/approach

This study employs Propensity Score Matching (PSM), and panel regressions of a large sample of data from 20 emerging markets over the period 1987–2018.

Findings

This study finds evidence that increased level of financial integration is significantly positively associated with firms' accruals earnings management (AEM) and real earnings management (REM).

Research limitations/implications

Findings in the study have implications for standard-setting bodies that aim to enhance the usefulness of financial reporting quality. The study also has implications for various initiatives by governments in emerging markets aimed at raising investor confidence and fostering stock market development through greater financial integration.

Practical implications

Findings in the study have implications for standard-setting bodies that aim to enhance the usefulness and quality of financial reporting. The findings can be of interest to analysts, auditors and other monitoring institutions who play a crucial role in detecting earnings management and reducing information asymmetry. Finally, the study has implications for various initiatives by governments in emerging markets aimed at raising investor confidence and fostering stock market development through greater financial integration.

Originality/value

Findings in the study reveal how country-level financial integration affects accruals and real earnings management in a sample of firms from 20 emerging markets. Further, the study adds to the growing body of literature on emerging markets where capital markets mechanisms, regulatory environment and firm's corporate governance are distinct to developed markets.

Details

Journal of Applied Accounting Research, vol. 25 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 26 May 2023

David John Gilchrist, Dane Etheridge and Zhangxin (Frank) Liu

The purpose of this study is to investigate the prevalence of earnings management in the Australian not-for-profit (NFP) disability service providers sector, as well as to…

Abstract

Purpose

The purpose of this study is to investigate the prevalence of earnings management in the Australian not-for-profit (NFP) disability service providers sector, as well as to understand the motivations for and implications of such practices. This research is important for stakeholders, such as members and funders, as well as the broader Australian community, considering the significant financial resources allocated to these organizations from the public purse.

Design/methodology/approach

The authors employ a longitudinal dataset containing financial data from 154 Australian NFP disability service providers, collected over a two-year period (2015–2016). Through the analysis of detailed balance sheets and income statements, the authors seek to uncover evidence of earnings management practices in this sector. The study’s results provide valuable insights into the behaviour of the charitable human services sector.

Findings

The findings reveal that Australian NFP disability service providers engage in earnings management practices, primarily aimed at reducing reported profits to meet the normative financial expectations of stakeholders, such as public sector funders and philanthropists. The executives of these organizations strive to report profits close to zero, being cautious not to report a loss, which might raise concerns about their sustainability.

Originality/value

The authors contribute to the existing literature on earnings management in the NFP sector by focussing on Australian disability service providers, an area that has been under-researched due to a lack of suitable data. The results offer insights into the incentives and implications of earnings management practices in this sector and highlight the need for a revaluation of accounting standards, reporting requirements and audit arrangements applicable to the NFP sector.

Details

Journal of Accounting Literature, vol. 46 no. 2
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 8 December 2023

Ummya Salma and Md. Borhan Uddin Bhuiyan

This study aims to examine whether the presence of advisory directors affects firm discretionary accruals (DACC), a widely used proxy for financial reporting quality. The authors…

Abstract

Purpose

This study aims to examine whether the presence of advisory directors affects firm discretionary accruals (DACC), a widely used proxy for financial reporting quality. The authors argue that the advisory director weakens the board monitoring role and impairs the firm financial reporting quality by increasing DACC.

Design/methodology/approach

The sample consists of listed firms on the Australian Stock Exchange from 2001 to 2015 using 7,649 firm-year observations. The authors perform descriptive statistics, regression and propensity score matching analyses to examine the research hypothesis.

Findings

The research evidence that firms with a higher presence of advisory directors have more DACC, indicating poor financial reporting quality. Furthermore, the authors categorize the DACC and find that the firm has higher income-increasing DACC in the presence of higher advisory directors. The findings are robust concerning endogeneity issues.

Research limitations/implications

The research evidence that firms with a higher presence of advisory directors have more DACC, indicating poor financial reporting quality. Furthermore, the authors categorize the DACC and find that the firm has higher income-increasing DACC in the presence of higher advisory directors. The findings are robust concerning endogeneity issues.

Practical implications

The research contributes valuable insights for regulators and policymakers seeking to comprehend the implications of firms using more advisory directors. Additionally, the authors recognize the potential significance of the findings for the institution of directors, as they can provide a nuanced understanding of the specific roles played by advisory directors in organizational dynamics.

Originality/value

While the extensive body of literature on corporate governance and financial reporting quality has been well-established, a noticeable void exists in academic research delving into the relationship between advisory directors and DACC management. This study seeks to fill this gap, making a distinctive and original contribution to the existing literature on corporate governance.

Details

International Journal of Accounting & Information Management, vol. 32 no. 2
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 22 September 2023

Valerie Li and Yan Luo

The authors investigate how managers adapt their financial reporting and disclosure practices in response to the COVID-19 pandemic through changes in accounting estimates (CAEs).

Abstract

Purpose

The authors investigate how managers adapt their financial reporting and disclosure practices in response to the COVID-19 pandemic through changes in accounting estimates (CAEs).

Design/methodology/approach

The authors define the pandemic period as starting on March 1, 2020. The sample consists of 9,575 CAEs disclosed in quarterly (10-Qs) and annual (10-Ks) financial reports by US firms between January 1, 2004 and May 31, 2022. The authors perform multivariate analyses of the impact of the COVID-19 pandemic on the incidence of CAEs and on whether the impact of CAEs on firms' financial performance and reporting quality changes during the pandemic.

Findings

In the examination of the CAE footnote disclosures in the quarterly (10-Qs) and annual (10-Ks) reports of US companies, the authors find no evidence that the incidence of CAEs in 10-Ks or the number of firms reporting CAEs are significantly different in the pre-pandemic and pandemic periods, but the incidence of CAEs in 10-Qs is significantly higher in the pandemic period than in the pre-pandemic period. The authors also find that the number of CAEs related to revenue recognition increase significantly in the pandemic period, but CAEs in other categories decrease, with the sharpest drop seen in the liabilities category. Further investigation suggests that although the dollar impact of 10-K CAEs on current financial statements is higher during the pandemic period, firms with CAEs, especially positive CAEs, in either 10-Ks or 10-Qs are less likely to use CAEs to boost earnings in the pandemic period. However, the authors find evidence that firms tend to use CAEs to “big bath” current earnings and create reserve for future period. The authors have not observed any significant differences in how the various phases of the pandemic affect the reporting of CAEs. Additionally, there is no evidence to suggest that financially distressed firms report more or fewer CAEs during the pandemic.

Practical implications

The results are consistent with the notion that, during the pandemic, firms exercise greater caution in their CAE disclosures, refraining from using CAEs as a means of boosting earnings but as a strategy to create reserve for future period. The paper highlights the challenges that various stakeholders face when assessing a company's current and future financial performance based on management's accounting estimates.

Originality/value

This study captures the impact of the COVID-19 pandemic on the incidence of CAEs and CAEs' impact on the financial performance and financial reporting quality of firms during the pandemic.

Details

Asian Review of Accounting, vol. 32 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 5 April 2023

Yosra Mnif and Yosra Gafsi

This paper investigates to what extent public sector entities (PSEs) in developing countries (DCs) are compliant with IPSAS and examines the impact of the socioeconomic and…

Abstract

Purpose

This paper investigates to what extent public sector entities (PSEs) in developing countries (DCs) are compliant with IPSAS and examines the impact of the socioeconomic and politico-administrative environment on this compliance during the period 2015–2018.

Design/methodology/approach

This research develops a self-constructed checklist consisting of 116 disclosure items from five accrual-based IPSAS (IPSASs, 1, 2, 3, 14 and 24) and applies panel regressions for a sample of 500 entity-year observations of 125 PSEs.

Findings

The study results show a high level of disparity in the degree of compliance with IPSAS amongst DCs' governments, with an overall average level of 61%. They reveal that compliance with IPSAS is positively influenced by the level of citizen wealth, government political culture (degree of government openness) and the quality of public administration, whereas jurisdiction size, government financial condition and political competition are non-significant factors.

Practical implications

This research provides researchers and practitioners with a comprehensive framework for understanding the extent of New Public Management reforms in DCs with a focus on International Public Sector Accounting Standards implementation. It might assist policymakers in their accounting strategies and might be a signal for DCs with low compliance to tap lessons from governments with successful experience of IPSAS adoption.

Originality/value

Focusing on DCs' context, this paper brings new insights into the analysis of socioeconomic and politico-administrative incentives for government compliance with IPSAS. It is the first to investigate the impact of citizen wealth and political competition on IPSAS disclosures.

Details

Journal of Accounting in Emerging Economies, vol. 14 no. 2
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 2 June 2023

Emmanuel C. Mamatzakis, Lorenzo Neri and Antonella Russo

This study aims to examine the impact of national culture on classification shifting in Eastern European Member States of EU Eastern European countries (EEU) vis-à-vis the Western…

Abstract

Purpose

This study aims to examine the impact of national culture on classification shifting in Eastern European Member States of EU Eastern European countries (EEU) vis-à-vis the Western Member States of EU (WEU). The EEU provides a unique sample to study the quality of financial reporting that the authors measure with classification shifting given that for more than five decades they were following the model of a centrally planned economy, where market-based financial reporting was absent. Yet, the EEU transitioned to a market-based economy and completed its accession to the EU.

Design/methodology/approach

This study uses a panel data set of firm year observations from 1996 and 2020 that covers the full transition of EEU. This empirical analysis is based on fixed effects panel regression analysis where the authors report a plethora of identifications.

Findings

This study finds classification shifting in the EEU countries since their transition to the market-based economy, though they have no long record of market-based financial reporting. This study also notices that cultural factors are associated with classification shifting across all Member States of the EU. This study further examines the impact of interactions between cultural characteristics and special items and reveal variability between WEU and EEU. As part of the robustness analysis, this study also tests the impact of culture on real earnings management measures for both WEU vs EEU, confirming the variability of the impact of culture on earnings management.

Research limitations/implications

Future research could explore the role of religion differences in WEU vis-à-vis EEU states, as they are also subject to cultural differences.

Practical implications

The findings are important for regulators, external monitors and investors, as they show that cultural factors affect earnings management with some variability across countries in the EU, and they should be acknowledged in policymaking.

Social implications

The findings show that cultural differences between EEU and the “old” Member States of the EU could explain classification shifting.

Originality/value

To the best of the authors’ knowledge, this is the first study that sheds light on the impact of national culture on classification shifting in EEU of EU vis-à-vis the “old” WEU of EU.

Details

Journal of Accounting & Organizational Change, vol. 20 no. 2
Type: Research Article
ISSN: 1832-5912

Keywords

Article
Publication date: 21 December 2023

Meena Subedi

The current study uses an advanced machine learning method and aims to investigate whether auditors perceive financial statements that are principles-based as less risky. More…

Abstract

Purpose

The current study uses an advanced machine learning method and aims to investigate whether auditors perceive financial statements that are principles-based as less risky. More specifically, this study aims to explore the association between principles-based accounting standards and audit pricing and between principles-based accounting standards and the likelihood of receiving a going concern opinion.

Design/methodology/approach

The study uses an advanced machine-learning method to understand the role of principles-based accounting standards in predicting audit fees and going concern opinion. The study also uses multiple regression models defining audit fees and the probability of receiving going concern opinion. The analyses are complemented by additional tests such as economic significance, firm fixed effects, propensity score matching, entropy balancing, change analysis, yearly regression results and controlling for managerial risk-taking incentives and governance variables.

Findings

The paper provides empirical evidence that auditors charge less audit fees to clients whose financial statements are more principles-based. The finding suggests that auditors perceive financial statements that are principles-based less risky. The study also provides evidence that the probability of receiving a going-concern opinion reduces as firms rely more on principles-based standards. The finding further suggests that auditors discount the financial numbers supplied by the managers using rules-based standards. The study also reveals that the degree of reliance by a US firm on principles-based accounting standards has a negative impact on accounting conservatism, the risk of financial statement misstatement, accruals and the difficulty in predicting future earnings. This suggests potential mechanisms through which principles-based accounting standards influence auditors’ risk assessments.

Research limitations/implications

The authors recognize the limitation of this study regarding the sample period. Prior studies compare rules vs principles-based standards by focusing on the differences between US generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) or pre- and post-IFRS adoption, which raises questions about differences in cross-country settings and institutional environment and other confounding factors such as transition costs. This study addresses these issues by comparing rules vs principles-based standards within the US GAAP setting. However, this limits the sample period to the year 2006 because the measure of the relative extent to which a US firm is reliant upon principles-based standards is available until 2006.

Practical implications

The study has major public policy suggestions as it responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US Securities and Exchange Commission (SEC), to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the International Accounting Standards Board (IASB) Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks such as climate change.

Originality/value

The study has major public policy suggestions because it demonstrates the value of principles-based standards. The study responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US SEC, to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information as business transactions and investor needs continue to evolve globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the IASB Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks like climate change. The study fills the gap in the literature that auditors perceive principles-based financial statements as less risky and further expands the literature by providing empirical evidence that the likelihood of receiving a going concern opinion is increasing in the degree of rules-based standards.

Article
Publication date: 31 May 2023

Md Jahidur Rahman, Hongtao Zhu and Xinyi Jiang

This study aims to investigate whether auditors compromise their independence for economically important clients in family business settings.

Abstract

Purpose

This study aims to investigate whether auditors compromise their independence for economically important clients in family business settings.

Design/methodology/approach

The authors empirically examine the research question based on China for the years 2011 to 2020. The dependent variable is the auditors’ propensity to issue modified audit opinions, which is a proxy for auditor independence. The authors use relative client audit fees as a proxy for client importance. To address endogeneity issues in the selection of family firms, the authors use the two-stage least squares regression model and, subsequently, the propensity score matching and Hausman firm fixed effect modeling.

Findings

This study reveals that the propensity to issue modified audit opinions is positively correlated with client importance. Big-N auditors are more likely to issue modified audit opinions for their economically important family firm clients, whereas such evidence is not found for non-Big-N auditors. Results are consistent and robust to endogeneity test and sensitivity analysis.

Originality/value

This study enriches the literature on auditor independence and the effect of family firms’ ownership structure factors on audit reporting behavior for their economically important clients. Findings may prove useful for managers and practitioners interested in family business.

Details

Meditari Accountancy Research, vol. 32 no. 2
Type: Research Article
ISSN: 2049-372X

Keywords

Open Access
Article
Publication date: 29 February 2024

Olfa Ben Salah and Anis Jarboui

The objective of this paper is to investigate the direction of the causal relationship between dividend policy (DP) and earnings management (EM).

Abstract

Purpose

The objective of this paper is to investigate the direction of the causal relationship between dividend policy (DP) and earnings management (EM).

Design/methodology/approach

This research utilizes the panel data analysis to investigate the causal relationship between EM and DP. It provides empirical insights based on a sample of 280 French nonfinancial companies listed on the CAC All-Tradable index during the period of 2008–2015. The study initiates with a Granger causality examination on the unbalanced panel data and employs a dynamic panel approach with the generalized method of moments (GMM). It further estimates the empirical models simultaneously using the three-stage least squares (3SLS) method and the iterative triple least squares (iterative 3SLS) method.

Findings

The estimation of our various empirical models confirms the presence of a bidirectional causal relationship between DP and EM.

Practical implications

Our study highlights the prevalence of EM in the French context, particularly within DP. It underscores the need for regulatory bodies, the Ministry of Finance, external auditors and stock exchange organizers to prioritize governance mechanisms for improving the quality of financial information disclosed by companies.

Originality/value

This research is, to the best of our knowledge, the first is to extensively investigate the reciprocal causal relationship between DP and EM in France. Previous studies have not placed a significant emphasis on exploring this bidirectional link between these two variables.

Details

Journal of Economics, Finance and Administrative Science, vol. 29 no. 57
Type: Research Article
ISSN: 2077-1886

Keywords

Article
Publication date: 1 December 2023

Paula Gomes dos Santos and Fábio Albuquerque

This paper aims to assess the factors that may explain the International Public Sector Accounting Standards (IPSAS) convergence, considering Hofstede’s cultural dimensions as the…

Abstract

Purpose

This paper aims to assess the factors that may explain the International Public Sector Accounting Standards (IPSAS) convergence, considering Hofstede’s cultural dimensions as the theoretical reference for the cultural approach proposed. Additional factors include countries’ contextual and macroeconomic characteristics.

Design/methodology/approach

Logistic and probit regression models were used to identify the factors that may explain the IPSAS (fully or adapted) use by countries, including 166 countries in this assessment (59 for those whose cultural dimensions are available).

Findings

The findings consistently indicate collectivism and indebtedness levels as explanatory factors, providing insights into cultural dimensions along with macroeconomic characteristics as a relevant factor of countries’ convergence to IPSAS.

Research limitations/implications

There are different levels of IPSAS convergence by countries that were not considered. This aspect may hide different countries’ characteristics that may explain those options, which could not be distinguished in this paper.

Practical implications

As a result of this paper, the International Public Sector Accounting Standards Board may gain insights that can be applied within the IPSAS due process to overcome the main challenges when collaborating with national authorities to achieve a high level of convergence. This analysis may include how to accommodate countries’ cultural differences as well as their contextual and macroeconomic characteristics.

Social implications

There is a trend of moving toward accrual-based accounting standards by countries. Because the public sector embraces a new culture following the IPSAS path, it is relevant to assess if there are cultural factors, besides contextual and macroeconomic characteristics, that may explain the countries’ convergence to those standards.

Originality/value

To the best of the authors’ knowledge, this is the first cross-country analysis on the likely influence of cultural dimensions on IPSAS convergence as far as the authors’ knowledge.

Details

International Journal of Accounting & Information Management, vol. 32 no. 2
Type: Research Article
ISSN: 1834-7649

Keywords

1 – 10 of 53