Search results

The purpose of this study is to assess the pricing effects of financial reporting decision usefulness in terms of its constituent elements of relevance and reliability. Although it has long been intuitively appealing to believe in the decision usefulness of more relevant and reliable disclosures, they have been troublesome to demonstrate empirically. The mixed results have often been attributed to the richness of operating company settings.

This study addresses that problem by using 363 firm years of data from US market‐priced mutual funds (termed closed end funds in some countries and investment trusts in others), whose assets are comprised almost entirely of investment securities.

The results are consistent with the principal hypotheses – both relevance and reliability are valued by the market.

Overall, these findings provide a basis not only for reconciling prior, conflicting results, but in adding to our understanding of how disclosure characteristics are valued by investors, a particularly pertinent topic given the IASB's and the FASB's projects in this area.

The simplicity and elegance of the market‐priced mutual fund setting facilitates development of a model that simultaneously distinguishes between the relevance and reliability. Cost (less relevant) and fair‐value (more relevant) disclosures are gathered for both restricted (less reliable) and unrestricted (more reliable) securities for each firm year. Both levels and returns type methods are used to assess the effects of these separate elements of decision usefulness on securities valuation.

The objectives of financial reporting encompass a decision usefulness role for accounting information. Information is decision useful when it assists users to make decisions about investing in or doing business with an entity. Decision usefulness is therefore an essential part of the framework within which financial reporting standards are developed. The aim of this research is to assess the decision usefulness of the recently promulgated Financial Reporting Standard 15 (FRS15). To this purpose a random sample of 48 Chartered Accountants and Financial Controllers completed a self‐administered survey regarding various aspects of FRS15 and other factors related to the concept of decision usefulness. Statistical analysis of the responses indicates that respondents agree that overall FRS15 has a positive impact on providing decision useful information. There is strong support for the balance sheet approach on which the standard is based but respondents consider taht the matching approach also provides decision useful information, particularly in respect of allowing the recognition of provisions that do not meet the definition of a liability. The research also considers what respopndents intend to do with current provisions and future provisions following the implementation of FRS15. Although the respondents support consistency, they indicate that, in the case of contingencies, prudence should override consistency. The findings provide an important contribution to the knowledge pertaining to provisions and contingencies.

The International Accounting Standards Board (IASB) has justified the simplification of International Financial Reporting Standards (IFRS) for small- and medium-sized enterprises (SMEs) in several ways, but no effective justification for this simplification has been made based on the information needs of users. This study aims to provide empirical evidence of the decision usefulness of IFRS for SMEs from a prominent user group of SME financial statements – the banks.

This study uses a mixed-method approach. First, a survey was conducted on commercial bank lending officers to assess the usefulness of different disclosure items included in the SME financial statements. Second, semi-structured interviews were conducted with commercial bank lending officers to gain an in-depth insight into the appropriateness and economic consequences of the requirements of IFRS for SMEs on their lending decisions.

The findings show that commercial bank lending officers did not consider all the disclosure requirements presented to them to be equally important. Hence, to facilitate the actual needs of the users’ decision usefulness, it is imperative that when given the opportunity, users participate in the development of accounting standards.

The findings of this study will be of interest to accounting regulators for evaluating the successful implementation of IFRS for SMEs and planning the next review of IFRS for SMEs. The IASB and SME Implementation Group are presently considering ways to increase user involvement for the next review of IFRS for SMEs, and the findings of this study signify the need for user involvement in the standard setting process.

The purpose of this paper is to explore the social value of information in virtual investment communities and compare its effects with objective information value. A model including information quality, social comparison, and herding orientation, and their effects on decision usefulness and member satisfaction, is proposed and tested.

An online survey with a sample of 215 members of investment communities was conducted to test the proposed model.

The opinion comparison orientation of members and information credibility are positively related to their perceived decision usefulness and satisfaction. Consistency is positively related to decision usefulness, but not to member satisfaction. Members' herding tendency moderates the effect of opinion comparison orientation on decision usefulness and the effect of ability comparison orientation on satisfaction.

The sample is small and not random. The proportion of students in the sample seems to be higher than it should be among virtual investment community members.

Investors should be careful regarding the social influences of their communities; the effects may not always be good for investment decisions.

Virtual communities provide members with social comparison information, which may yield positive effects for members in inspiration, self‐improvement, and self‐enhancement.

The virtual community can be a forum where people gain information regarding others to satisfy their needs for social comparison. Virtual communities provide special social value for their members, even for those who do not interact with others by posting in the communities.

This study examines (1) the extent of key audit matters (KAMs) reported by auditors is related to accounting estimates, (2) whether measurement uncertainty and management bias affect auditors to do so and (3) whether the use of accounting estimates, given the measurement uncertainty and management bias reported in KAMs adversely affects the decision usefulness of accounting information.

Data on key audit matters, accounting estimates, measurement uncertainty, management bias, etc. were collected from the auditor's reports of 351 sample Chinese listed firms. It employs regression analyses to assess the hypotheses on issues affecting the report of these key audit matters and the impacts on the decision usefulness of accounting information.

Fair value and impairment loss estimations make up of 2.6 and 44.1% of the 606 KAMs identified, respectively. Measurement uncertainty is positively, while management bias is negatively, affecting auditors report KAMs related to accounting estimates. The use of accounting estimates in firms where their auditors reported the KAMs related to accounting estimates does not enhance the value and predictive relevance of reported earnings. The assurance works on, and reporting of, KAMs served as a “red flag” about the accounting estimates.

The use of accounting estimates does not always lead to enhanced decision-useful accounting information. Auditors, in their stewardship role, shall ensure that the measurement uncertainty issue is appropriately identified, addressed and verified. In addition, they shall provide an effective check-and-balance to the accounting discretion managers have in providing decision-useful information from opportunistic reporting.

This study examines the proposition that while the use of estimates can enhance the decision usefulness of accounting information, it can also induce measurement uncertainty and management bias into financial reporting.

This paper aims to analyse the character and strength of the claims made in an emerging literature offering a sociology of financial reporting principles.

The analysis evaluates exemplary works in the literature against the characteristics of the paranoid style first identified by Richard Hofstadter: overheated claims of a far-reaching, malign and collusive machinery of influence; a reductive, rationalistic and dualistic reading of events; weak empirics; and weak theorisation.

A significant stream within the literature is coming to be constructed in the paranoid style. Paranoid stylistics, used as a diagnostic tool, alerts us here to distorted judgement.

Alternative ways of avoiding the dangers of paranoid-style readings are suggested, ranging from resisting the temptations towards such readings to a radical re-working of the epistemics of “socio-accounting”.

The danger of allowing the conclusions advanced in the literature to go unchallenged is that they may influence society’s attitude to accounting, public policy-making and scholars’ willingness to contribute to the crafting of reporting principles and standards.

Although paranoid style analysis has been widely used to examine narratives in other academic fields, to the best of the author’s knowledge, this is the first study to apply it to scholarly accounting.

The Financial Accounting Standards Board has issued an Exposure Draft (ED) that would eliminate the use of the pooling method of accounting for business combinations (FASB 1999a, 2001). The Exposure Draft provides several rationales for the proposed changes to the accounting treatment of business combinations. This paper examines these rationales from two perspectives, namely, decision-usefulness and accountability. Decision-usefulness is currently the basis for standard setting under the FASB's Conceptual Framework. The concept of accountability, as defined in Ijiri (1983) and Williams (1987), forms an alternative basis for providing direction for financial reporting.The paper provides an empirical evaluation of the two methods used to account for business combinations (pooling-of-interests and purchase) from the decision-usefulness perspective. The results of this study suggest that the purchase method provides information that may be more useful to the investor in determining firm value. The analysis from the accountability perspective provides important insights because it considers the viewpoint of the variety of constituents that may be impacted by the accounting standard, and illustrates how this perspective may enable standard setters to gain insights that may not be evident from the decision-usefulness perspective.

Accounting theorists agree that no comprehensive theory of accounting has yet been developed. In the absence of such a theory, the question arises whether sufficient accounting principles are created through accounting research. This article acknowledges that accounting principles are not solely the result of academic research and that current accounting practice through its standard‐setting process contributes far more to the development of accounting principles. Hence the role that accounting theory and research should play in developing accounting principles is a vital academic question. The discussion in the article focuses on the normative and descriptive (or the more modern positivistic) approach to the development of accounting theory, the positivistic nature of mainstream accounting research, a possible decision‐useful theory of accounting and the role of interpretative and critical research. All of these developments are beneficial to accounting since they open up accounting to a diversity of research approaches that will collectively improve the status of accounting research and possibly accounting theory. The role that these developments fulfil in creating appropriate accounting principles, however, is debatable.

The purpose of this study is to evaluate the impact of ASU 2016–01 on the predictive value, the confirmatory value and the value relevance of earnings. One of the key provisions of ASU 2016–01 is the requirement that all changes in unrealized gains and losses on all equity securities are recognized in income instead of other comprehensive income (OCI) as under prior guidance (SFAS 115). Because many companies in the insurance industry are large holders of equity securities, the sample for this study consists of firms from the insurance industry.

The author compares the change in earnings volatility and analysts’ forecast error for the periods before and after adoption of ASU 2016–01, and the relationship between the percentages of assets invested in equity securities for both earnings volatility and analysts’ forecast error. Further, the author tests the price reaction at the time of the release of earnings using an event study. The author also tests the value reliance of earnings measured by the correlation of earnings and stock prices, as well as the change in earnings and stock returns. The association between investment gain/loss components of earnings, and OCI, with stock prices and returns is tested for value relevance.

The findings of this study show that earnings volatility and analysts’ forecast errors increased in the period after adopting ASU 2016–01 and an initial overreaction to earnings releases. Further, the investment gain/loss components of earnings and OCI are not value-relevant in this study and including unrealized gains/losses on equity securities in income decreased value relevance of earnings in the post-adoption period, particularly for firms with large equity investment portfolios.

This study is limited to one industry and only represents the impact of ASU 2016–01 on that industry. Thus, there are opportunities to extend the research to other industries. Furthermore, the time-period of study since adopting ASU 2016–01 is limited to only two years and with the passage of time, a greater sample of post-ASU 2016–01 will be available for testing.

Standard setters considering recognizing fair value changes on all investment securities in income should consider the findings of this study. Further, industry participants affected by ASU 2016–01 should consider improving explanation of earnings to mitigate the initial misunderstanding of earning announcements found in this study.

To the best of the author’s knowledge, this is the first study on the effects of ASU 2016–01 on volatility of earnings, earnings forecast errors, market reactions to earnings releases and the value relevance of earnings. This paper fills a gap in prior research by studying the effects of fair value on reported earnings, which is limited in prior research. This study contributes to the growing field of research on fair value accounting.

The purpose of this paper is to demonstrate how teaching broader accounting concepts through real life non-financial case study information (such as COVID-19 case reporting) can assist students understanding accounting’s technical, social and moral perspectives. Accounting education and practice has traditionally focussed on the technical aspects of accounting and has situated accounting within a financial context.

This exploratory study uses content analysis of COVID-19 case and death numbers reported by several international health reporting agencies. This study does not set out to provide a detailed technical or comparative jurisdictional analysis of the decision-usefulness of COVID-19 information. Rather, this study looks at the “decision-usefulness” of the COVID-19 case and death number information, and provides examples that educators can draw upon for inspiration when showing how the qualitative characteristics of decision-useful information can be applied to non-financial information. This study also highlights, by use of a “novel data set”, the technical, social and moral aspects of accounting.

This study finds that the COVID-19 pandemic provides an opportunity for accounting education by positioning the qualitative characteristics of decision-useful information beyond a financial context. The exploration of accounting within this setting effectively demonstrates that accounting has “technical”, “social” and “moral” dimensions.

This paper fulfils an identified need to include teaching of decision-usefulness of non-financial information in the accounting curriculum to ensure that future professional accountants possess technical and professional competency skills.