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Open Access
Article
Publication date: 1 December 2023

Claudio Columbano, Lucia Biondi and Enrico Bracci

This paper aims to contribute to the debate over the desirability of introducing an accrual-based accounting system in the public sector by examining whether accrual-based…

Abstract

Purpose

This paper aims to contribute to the debate over the desirability of introducing an accrual-based accounting system in the public sector by examining whether accrual-based accounting information is superior to cash-based information in the context of public sector entities.

Design/methodology/approach

This paper applies a quantitative research method to assess the degree of smoothness and relevance of the accrual components of income recorded by 302 entities of the Italian National Health Service (INHS) over the period 2014–2020.

Findings

The analysis reveals that net income is smoother than cash flows as a summary measure of economic results and that accounting for accruals improves the predictability of future cash flows. However, the authors' novel disaggregation of accrual accounts reveals that those accounts that contribute the most to making income smoother than cash flows – noncurrent assets and liabilities – are also those that contribute the least to predicting future cash flows.

Originality/value

The disaggregation of accrual accounts allows to identify the sources of the informational benefits of accrual accounting, and to document the existence of an informational “trade-off” between smoothness and relevance in the context of public sector entities.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 35 no. 6
Type: Research Article
ISSN: 1096-3367

Keywords

Article
Publication date: 11 August 2022

Milan Čupić, Mirjana Todorović and Slađana Benković

The purpose of the study is to investigate the association of earnings and cash flows with stock prices and returns, and the impact of regulatory changes on the value relevance of…

Abstract

Purpose

The purpose of the study is to investigate the association of earnings and cash flows with stock prices and returns, and the impact of regulatory changes on the value relevance of accounting numbers.

Design/methodology/approach

The authors examine a sample of non-financial firms listed on the Belgrade Stock Exchange from 2005 to 2018 and use three regression models – price, return and differenced.

Findings

The authors find evidence that accounting earnings are more value relevant than cash flows. The authors also find negative relation of earnings changes with stock returns and argue that this is due to the lower persistence of negative earnings levels and changes. Finally, the authors find that the value relevance of accounting information in Serbia increases after the improvements in capital market regulation.

Research limitations/implications

Given the empirical focus on a transition economy, the widespread applicability of the study is limited. The findings, however, call for more research on transition economies to better understand the functioning of capital markets and the way information from financial statements is incorporated into stock prices.

Practical implications

The results imply that policymakers in transition economies should improve the accounting and capital market regulation to provide better investor protection and to improve the capital market conditions.

Originality/value

The authors add to knowledge about the value relevance of accounting information in emerging and transition economies. The results could be of interest to standard setters in their efforts to better understand and improve the quality of accounting information in emerging and transition economies.

Details

Journal of Accounting in Emerging Economies, vol. 13 no. 3
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 3 October 2023

Liangyu Zhu and Yulong Sun

The purpose of this study is to explore the continuity and stability of the impact of accounting information quality on cash holdings, and the moderating effect of this…

Abstract

Purpose

The purpose of this study is to explore the continuity and stability of the impact of accounting information quality on cash holdings, and the moderating effect of this relationship on state ownerships and local appointments.

Design/methodology/approach

Based on China's companies from 2011 to 2019, the authors divided cross-section and panel samples, adopted a linear and classification model and performed grouping regression.

Findings

The authors find that: first, the quality of corporate accounting information can significantly improve the level of cash holding, giving play to the strategic value effect of cash holding. But that boost is based on economies being able to solve agency problems. Second, the reduction of earnings management and the improvement of accounting information quality of NSOEs improve the level of cash holdings, while SOEs are on the contrary. Third, local appointments can play to the emotional strengths of their hometowns and play a synergistic role in this relationship, but the supervision effect of remote appointments is not obvious.

Originality/value

Through endogeneity and other tests, the conclusion is robust. Based on the agency and information asymmetry theory, the authors considered China's institutional and cultural factors, optimized accounting information's measurement and expanded the research boundary of the accounting field. The authors believe that applicable scenarios should be fully considered in the concluding relationship between accounting information quality and cash holdings. Enterprises should give full play to the advantages of cash holdings in strategic decision-making and financial efficiency, improve the quality of accounting information and also consider state ownerships and the differences in directors' emotions to reduce internal agency costs.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 18 July 2023

Arash Arianpoor and Somaye Efazati

The present study investigates the impact of accounting comparability on chief executive officer (CEO) incentive plans and the moderating role of board independence for companies…

Abstract

Purpose

The present study investigates the impact of accounting comparability on chief executive officer (CEO) incentive plans and the moderating role of board independence for companies listed in Tehran Stock Exchange (TSE).

Design/methodology/approach

The information about 177 companies in 2014–2021 was examined. In this study, equity-based compensation and cash-based compensation were used as the CEO incentive plans. The equity-based compensation was calculated through the ownership of the CEO shares.

Findings

The results suggest that the higher accounting comparability increases not only CEO equity-based compensation, but also cash-based compensation. Board independence also strengthens the relationship between accounting comparability and CEO compensation. Hypothesis testing based on robustness checks confirmed these results.

Originality/value

The paper is pioneering, to the authors' knowledge, in identifying how board independence moderates the impact of accounting comparability on CEO compensation. The findings provide insights into economic consequences to the firm related to accounting comparability and board monitoring. The results have important practical implications for international investors to evaluate accounting comparability, corporate governance mechanisms and CEO incentives.

Details

Asian Review of Accounting, vol. 32 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 12 January 2024

Ioanna Malkogianni

This study examines specific budget execution items (as proxies of vulnerability and sustainability) along with political factors to identify earnings management (EM) practices in…

Abstract

Purpose

This study examines specific budget execution items (as proxies of vulnerability and sustainability) along with political factors to identify earnings management (EM) practices in Greek municipalities.

Design/methodology/approach

The study employs a sample of 1,831 financial and budget execution statements for the period 2011–2019. EM is proxied by unsigned discretionary accruals that are assessed through the performance-matched modified-Jones model and the modified-Jones model.

Findings

The findings provide evidence that the municipality’s dependence on subsidies (or its self-sufficiency) affects EM, especially during the pre-election year. Municipalities that maintain their financial autonomy engage less in EM in pre-election years. Lastly, it is proven that electoral cycles, weak opposition and other variables exert an effect on the size of EM. Sensitivity analysis confirms the results.

Originality/value

This paper contributes to the literature on EM by analyzing for the first time budget execution items (as proxies of vulnerability and sustainability) and their impact on the size of unsigned discretionary accruals.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1096-3367

Keywords

Article
Publication date: 5 December 2023

Justyna Fijałkowska, Dominika Hadro, Enrico Supino and Karol M. Klimczak

This study aims to explore the intelligibility of communication with stakeholders as a result of accrual accounting adoption. It focuses on changes in the use of visual forms and…

Abstract

Purpose

This study aims to explore the intelligibility of communication with stakeholders as a result of accrual accounting adoption. It focuses on changes in the use of visual forms and the readability of text that occurred immediately after the adoption of accrual accounting in performance reports of Italian public universities.

Design/methodology/approach

The authors collect the stakeholder section of performance reports published before and after accrual accounting adoption. Then, the authors use manual and computer-assisted textual analysis. Finally, the authors explore the data using principal component analysis and qualitative comparative analysis.

Findings

This study demonstrates that switching from cash to accrual accounting provokes immediate changes in communication patterns. It confirms the significant reduction of readability and increase in visual forms after accruals accounting adoption. The results indicate that smaller universities especially put effort into increasing intelligibility while implementing a more complex accounting system. This study also finds a relation between the change in readability and the change in visual forms that are complementary, with the exception of several very large universities.

Practical implications

The findings underline the possibility of neutralising the adverse effects of accounting reform associated with its complexity and difficulties in understanding by the use of visual forms and attention to the document’s readability.

Originality/value

This paper adds a new dimension to the study of public sector accounting from the external stakeholder perspective. It provides further insight into the link between accrual accounting adoption and readability, together with the use of visual forms by universities.

Details

Meditari Accountancy Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2049-372X

Keywords

Open Access
Article
Publication date: 19 December 2022

Elisa Bonollo

Since the 1980s, governments worldwide have been implementing the move from cash to accrual accounting. Scholars initially considered the appropriateness of this accounting reform…

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Abstract

Purpose

Since the 1980s, governments worldwide have been implementing the move from cash to accrual accounting. Scholars initially considered the appropriateness of this accounting reform to be self-evident, but later they have expressed critical views. This paper systematises the existing literature intending to reflect on the adverse effects of adopting accrual accounting in the public sector and identify implications for future research.

Design/methodology/approach

The present study builds on a systematic literature review of 106 academic articles published between 1980 and 2021. It is based on the “preferred reporting items for systematic reviews and meta-analyses” (PRISMA) method. Synthesising research through a transparent, rigorous and replicable process makes it possible to identify and discuss the adverse effects of adopting public sector accrual accounting.

Findings

Significant issues are linked to organisational impacts and accountability. Resistance to change is the main negative consequence and is more likely in countries that have chosen to adopt accrual accounting without maintaining cash accounting. The new accounting rules make accounting information more complex and arbitrary for citizens and politicians. How these criticalities should be addressed deserves further investigation.

Originality/value

This paper offers a comprehensive literature review on the drawbacks of adopting accrual accounting in the public sector. It could provide a general lesson to be applied to policymakers of other jurisdictions currently considering this transition to prevent the adverse effects and act proactively.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 35 no. 6
Type: Research Article
ISSN: 1096-3367

Keywords

Article
Publication date: 17 January 2022

Suhaiza Ismail

The objective of this study is to examine the perceived usefulness of accrual accounting-based financial information for accountability and for supporting decision-making in…

Abstract

Purpose

The objective of this study is to examine the perceived usefulness of accrual accounting-based financial information for accountability and for supporting decision-making in public sector organisations.

Design/methodology/approach

A questionnaire survey adapted from Kober et al. (2010) was used to survey Malaysian Federal Government accountants to ascertain their views on the usefulness of accrual accounting information across 12 situations regarding accountability and decision-making. Mean scores and mean score ranking were computed on a total of 165 usable responses received. The independent t-test was conducted to investigate the differences in the perception between “accountants with” and the “accountants without” prior work experience in the private sector.

Findings

The study provides evidence that Malaysian Federal Government accountants consider accrual accounting information as very useful for decision-making. The three most important decision-usefulness indicators in the survey are “To assist in managing the department’s assets and liabilities”, “To assess cash flow needs of a department” and “For departmental resource allocation decisions”. The least useful accrual accounting information as perceived by the Malaysian public sector accountants is “To assist in discharging the department’s accountability obligations”.

Originality/value

The study provides valuable insights into the extent to which accrual accounting information is considered useful for accountability and decision-making, lending support to the Malaysian Government’s reform agenda of moving towards using accrual accounting in public sector organisations at the federal level.

Details

Meditari Accountancy Research, vol. 31 no. 3
Type: Research Article
ISSN: 2049-372X

Keywords

Article
Publication date: 28 February 2023

Andrea Bernardi and Brian Hilton

This paper analyses public sector accounting and organisation reforms, focusing on the departments in charge of defence, military procurement and war between 1850 and 2000 in…

Abstract

Purpose

This paper analyses public sector accounting and organisation reforms, focusing on the departments in charge of defence, military procurement and war between 1850 and 2000 in Britain. Over this period, three parliamentary acts, resulting from a power struggle between the Treasury and Parliament, produced the shift between two institutional logics: probity (spending properly) and performance (spending well). The purpose of this paper is to describe how the acts produced a shift between two institutional logics.

Design/methodology/approach

The authors adopt Quattrone’s (2015) procedural notion of institutional logics and the consequent concept of “unfolding rationality”. Using documents from the National Archives, the authors analyse three reforms: The Exchequer and Audit Departments Act 1866 (towards probity), The Exchequer and Audit Departments Act 1921 (towards performance) and the National Audit Office Act of 1983 (towards performance and probity).

Findings

For a long time, the actors narrated in this story argued and acted as if probity and performance were incompatible. The two are now treated as compatible and equally important. Before that, the “incompatibility” was a rhetorical, or “procedural”, device. The authors argue that a procedural rather than substantive notion of institutional logics is more suitable to explain the trajectory that was the result of constant negotiation among actors.

Practical implications

The study might contribute to the understanding of the increase in national defence-spending at continental level and the call for a common European Union (EU) military procurement strategy that followed the invasion of Ukraine. The war could produce changes in what is a traditional tension between two logics: sovereignty or efficiency.

Originality/value

The originality of this paper stands in highlighting the link between the institutional logic of public-administration accounting and military history. This link emerges also thanks to a very long time-horizon. Additionally, from a theoretical viewpoint, the authors have put Quattrone’s approach to the test in a context very different from the original one (the Jesuit order).

Article
Publication date: 12 April 2023

Heba Abou-El-Sood

This paper is motivated by the ongoing debate on the value relevance of cash flow statement (CFS) between bank regulators, on one hand, and accounting standard setters, on the…

Abstract

Purpose

This paper is motivated by the ongoing debate on the value relevance of cash flow statement (CFS) between bank regulators, on one hand, and accounting standard setters, on the other hand. The importance and usefulness of cash flows during economic turmoil exacerbated by the Covid-19 pandemic has recently gained attention. Hence, this paper investigates the impact of Covid-19 pandemic on the value relevance of cash flows (CF) beyond accounting earnings and book equity.

Design/methodology/approach

A panel of 236 bank-year observations is examined for value relevance in emerging capital markets of Gulf Cooperation Council (GCC) countries. Using value relevance regression, operating and non-operating CF items are tested for value relevance beyond earnings and book value of equity during the periods 2018–2019 (pre-pandemic) and 2020–2021 (pandemic).

Findings

There is limited value relevance of CF beyond accounting earnings and the book value of equity. The distinction between operating and non-operating CF is not informative. However, the value relevance is significant during the pandemic, indicating that investors rely on CF for valuation purposes at times of uncertainty, corroborating further research on CF distress predictive ability.

Originality/value

This paper provides novel evidence on value relevance of CF and its superiority to accounting earnings and equity values during times of uncertainty. It extends a small body of research in the banking sector in emerging markets. Hence, it complements prior literature and has practical implications to accounting standard setters and bank regulators in emerging markets.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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