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Article
Publication date: 6 March 2017

Minyoung Noh, Hyunyoung Park and Moonkyung Cho

This paper aims to examine the effect of audit quality of consolidated financial statements on the accuracy of analysts’ earnings forecasts from the viewpoint of users of…

Abstract

Purpose

This paper aims to examine the effect of audit quality of consolidated financial statements on the accuracy of analysts’ earnings forecasts from the viewpoint of users of financial statements.

Design/methodology/approach

This paper investigates the effect of dependence on the work of other auditors on error in analysts’ earnings forecasts based on samples from 2011 to 2012 (the period since implementation of the International Financial Reporting Standards in Korea). In addition, this paper examines the effects of use of Big 4 auditors, use of auditors with industry expertise and the proportion of overseas subsidiaries in relation to all subsidiaries on the association between dependence on the work of other auditors and error in analysts’ earnings forecasts.

Findings

This paper finds a positive relation between dependence on the work of other auditors and error in analysts’ earnings forecasts, suggesting that more dependence on the work of other auditors decreases the quality of the audit of consolidated financial statements; thus, to the extent that low-quality audits decrease reporting reliability, analysts’ forecasts are less likely to be accurate. This paper also finds that the positive relationship between dependence on the work of other auditors and error in analysts’ earnings forecasts is weakened when the principal auditor is a Big 4 auditor or one with industry expertise, because such auditors provide higher-quality audit services. However, the positive relationship between dependence on the work of other auditors and error in analysts’ earnings forecasts is further strengthened in cases where the proportion of overseas subsidiaries to all subsidiaries is higher. These results suggest that the complexity of the consolidation process increases as the proportion of overseas subsidiaries increases.

Originality/value

The findings are useful in analyzing the effects of adoption of the New ISA, implemented in 2014, which does not allow the division of audit responsibilities between principal auditors and other auditors. This paper also provides insights for regulators and practitioners to improve the auditor appointment system in the future.

Details

International Journal of Accounting & Information Management, vol. 25 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 4 May 2012

Padmini Srinivasan and M.S. Narasimhan

India is one of the few countries where companies are required to give both consolidated financial statements (CFS) as well as parent‐only financial statements. While…

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Abstract

Purpose

India is one of the few countries where companies are required to give both consolidated financial statements (CFS) as well as parent‐only financial statements. While parent‐only statements have been in existence for a long time, CFS was introduced recently. The purpose of this paper is to examine the value relevance of CFS in India.

Design/methodology/approach

The value relevance of CFS is examined through an empirical study. The study examines the relationship between market values and consolidated earnings and parent‐only earnings is analysed. The study uses four years data of 59 companies whose subsidiary earnings are more than 20 per cent of consolidated revenue.

Findings

Initial results show that annual CFS are not value relevant, whereas annual parent‐only financial statements are value relevant. However, wherever quarterly financial statements are available, CFC are found to be value relevant and parent‐only financial statements are not value relevant.

Practical implications

While CFS and parent‐only financial statement on an annual basis are mandatory, companies have the option to publish parent‐only financial statement on a quarterly basis while not reporting quarterly consolidated financial statements. This inconsistency in the regulation causes confusion to investors who receive parent‐only quarterly financial statements for three quarters and suddenly consolidated financial statements at the end of the year. The paper shows how market reacts to such reporting practices.

Originality/value

In addition to examining the value relevance of CFS, the paper also examines the impact of incomplete regulations of financial reporting on asset pricing.

Article
Publication date: 31 May 2006

Frias Aceituno, José Valeriano, Rodriguez Bolivar and Manuel Pedro

The majority stockholders are not the same as parent company stockholders in a consolidated entity when one or more subsidiaries own parent company’s shares. In this…

Abstract

The majority stockholders are not the same as parent company stockholders in a consolidated entity when one or more subsidiaries own parent company’s shares. In this milieu, the allocation of income could be performed: a) among majority and minority stockholders; b) among parent company stockholders and minority stockholders. Considering minority interest as a component of the consolidated equity, this paper demonstrates how the criterion used to allocate income can influence on the consolidated financial statements and, thereby, analysis based these financial statements.

Details

International Journal of Commerce and Management, vol. 16 no. 2
Type: Research Article
ISSN: 1056-9219

Keywords

Article
Publication date: 29 January 2020

Mondher Fakhfakh

The purpose of this paper is to examine the level of harmonization of consolidated auditors’ reports issued by the independent auditors of Islamic banks.

Abstract

Purpose

The purpose of this paper is to examine the level of harmonization of consolidated auditors’ reports issued by the independent auditors of Islamic banks.

Design/methodology/approach

A statistical measurement of the homogenization of the consolidated auditors’ reports of Islamic banks. International and Islamic auditing standards on consolidated auditors’ reports are used as the control (ISA 700 and AAOIFI standard-IAS2).

Findings

The results show a lack of harmonization among the Islamic bank’s groups in several elements related to the form of the consolidated auditor’s report and in all elements related to the independent auditor’s report.

Originality/value

This paper provides new empirical evidence about the measurement of harmonization in the form and content of the consolidated auditors’ reports of Islamic banks groups. It discusses the level of compliance with the consolidated elements enumerated by the standards issued by the International Federation of Accountants and the Accounting and Auditing Organization for Islamic Financial Institutions.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

Book part
Publication date: 30 March 2022

Tatyana Y. Druzhilovskaya, Emilia S. Druzhilovskaya, Tatyana V. Stozharova, Evgeniya V. Vilkova and Irina P. Denisova

The purpose of this article is to identify problems and opportunities for improving the formation of financial statements (FS) in accordance with International Standards…

Abstract

Purpose

The purpose of this article is to identify problems and opportunities for improving the formation of financial statements (FS) in accordance with International Standards, which is the most important instrument for international economic integration.

Design/Methodology/Approach

In carrying out the research, we used the FS of the modern organizations, prepared in accordance with International Standards (IASs and IFRSs), posted on the official websites of these organizations. At the same time, we researched the FS of both Russian and foreign organizations in order to draw conclusions about the problems of preparing FS in accordance with International Standards, which are typical for most modern organizations in different countries. When conducting research, we used methods such as comparison, analysis and synthesis.

Findings/Results

We identified the main problems that arise in practice when preparing FS in accordance with International Standards, which are typical for both Russian and foreign organizations. We also analysed the project of the IASB (the organization that develops these standards) to improve the requirements for the preparation of FS in accordance with International Standards. Based on the analysis carried out, we identified the main problems arising from the planned requirements of this project. As a result of the research carried out, we made proposals for solving the identified problems of the formation of FS in accordance with International Standards.

Conclusions/Recommendations/Value

Our proposals can be used to improve the regulations of International Standards for the formation of FS, and can also be applied in the practical work of modern organizations.

Details

Current Problems of the World Economy and International Trade
Type: Book
ISBN: 978-1-80262-090-0

Keywords

Article
Publication date: 1 March 2000

W.R. Singleton

An issue related to the strategic choice of organizational form for affiliated businesses is how the financial information of the affiliate will be reported. A question…

Abstract

An issue related to the strategic choice of organizational form for affiliated businesses is how the financial information of the affiliate will be reported. A question arises as to whether alternative methods of reporting influence user decisions. The purpose of this study was to investigate whether alternative consolidation accounting methods affected the financial decisions of users in selected countries. An experiment was conducted with student subjects in Australia, Canada and the U.S. Alternative consolidation techniques and country were the independent variables. Results indicated user responses were affected by the consolidation method. Country effects were also noted.

Details

International Journal of Commerce and Management, vol. 10 no. 3/4
Type: Research Article
ISSN: 1056-9219

Article
Publication date: 7 January 2019

Ana Isabel Lopes and Mariana Lopes

The purpose of this paper is to investigate how the adoption of IFRS 10 and IFRS 11 affected consolidated financial statements. Specifically, the paper explores whether…

Abstract

Purpose

The purpose of this paper is to investigate how the adoption of IFRS 10 and IFRS 11 affected consolidated financial statements. Specifically, the paper explores whether entities adopted mandatorily or voluntarily both IFRS, whether expressly declared effects, whether considered those effects as material and whether those effects had impacts on selected items of financial statements and on selected financial ratios.

Design/methodology/approach

The research is an exploratory study using public entities from Germany, France and the UK. The majority of the data is manually collected from financial statements.

Findings

The results suggest that the adoption of the new IFRS 10 affected the composition of a large number of entity groups but that their financial information and economic-financial indicators do not present material changes. There is also evidence of a large and material impact on the changes in the classification and accounting for interests in arrangements under joint control through the new IFRS 11. The evidence thus suggests unequal effects of the adoption of IFRS 10 and IFRS 11 on the proportion of entities declaring materiality of effects, on the quantitative effects on selected items of financial statements, and on financial ratios. A comparison between the pre-adoption and post-adoption periods reveals that the majority of the effects are driven by the adoption of IFRS 11.

Originality/value

As far as is known this exploratory paper is the first presenting the effectiveness of adopting the most important standards under the “consolidation package” and opens an avenue for future research by academics, for future post-implementation reviews by IASB, and for analysis of peer reviews between accounting practitioners.

Details

Meditari Accountancy Research, vol. 27 no. 1
Type: Research Article
ISSN: 2049-372X

Keywords

Article
Publication date: 1 March 2014

Silvia Gardini and Giuseppe Grossi

The paper focuses on the potential benefits of fair value accounting (FVA) in the public sector and the shift towards the entity theory of consolidation supported by…

Abstract

The paper focuses on the potential benefits of fair value accounting (FVA) in the public sector and the shift towards the entity theory of consolidation supported by international accounting standards. The analysis of the Italian cases shows neither adjustments of the assets to their fair value, nor any recognition of intangibles other than goodwill in consolidated financial statement (CFS), maintaining the configuration of a municipal corporate group based on historical costs. These findings suggest a lack of focus on FVA by local governments (LGs), which is in contrast with international accounting standards. Using a combination of sources (such as annual reports and interviews), part of this paper is based on multiple-case studies of Italian LGs on the voluntary adoption of CFS.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 26 no. 2
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 11 September 2019

Pier Luigi Marchini, Paolo Andrei and Alice Medioli

In the light of the risks involved in related party transactions, transparent disclosure is particularly important. The impact of related party transactions is relevant…

Abstract

Purpose

In the light of the risks involved in related party transactions, transparent disclosure is particularly important. The impact of related party transactions is relevant for all types of company, but there is greater complexity in business groups where they can be easier to hide. Focusing on business groups, this study aims to analyze the accuracy and transparency of related party transaction information, its understandability, compliance with legislation and comparability. It also examines whether shareholders can be fully informed of all related party transactions by reading only the consolidated financial statement.

Design/methodology/approach

Three case studies are used. The units of analysis are three corporate groups in which the parent company is listed on the Milan Stock Exchange as of 1 July 2015. The authors use two different sets of information. The first is secondary data from company procedures, annual reports and other official documents. They analyzed the separate financial statement of each firm, including the separate financial statement of the parent company and compared all relevant information from the consolidated financial statement and the separate financial statement. The second set is primary data from face-to-face semi-structured interviews and observation.

Findings

This study underlines that there is no requirement for a specific classification of related party transactions disclosure, and as a consequence, it is not possible to compare information. An unambiguous framework for disclosure, established by regulation or legislation, for use by companies supplying related party transactions information would be useful.

Originality/value

The results offer possible recommendations for regulators to improve presentation of related party transaction information without increasing the amount of information required.

Details

Corporate Governance: The International Journal of Business in Society, vol. 19 no. 6
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 1 March 2006

Thomas E. McKee, Linda J Bradley and Robert W. Rouse

This article provides an analysis of the economic incentives and financial reporting for Special Purpose Entities (SPEs) over the last four decades. The analysis explains…

Abstract

This article provides an analysis of the economic incentives and financial reporting for Special Purpose Entities (SPEs) over the last four decades. The analysis explains economic factors motivating business use of SPEs and the origins of SPEs in lease accounting and securitization transactions. Related financial reporting standards are identified and discussed, including the historical shift from a traditional control viewpoint to a primary beneficiary viewpoint for financial reporting for consolidation for SPEs (recently renamed Variable Interest Entities (VIEs) in U.S. Financial Accounting Interpretation 46R). The article also includes illustrative journal entries explaining SPE transactions from both the viewpoint of the creating company(s) and the SPE. Actual financial reporting examples and/or journal entries for SPEs created by Bank of America, General Motors Acceptance Corporation, Lucent Technologies and Alza Pharmaceuticals Corporation are also provided.

Details

Journal of Applied Accounting Research, vol. 8 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

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