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This study examines the value relevance of recognised and disclosed revaluations of land and buildings for a large sample of Australian firms from 1993 through 1997. In contrast to prior research, we control for risk and cyclical effects and find no difference between recognised and disclosed revaluations, using yearly‐cross‐sectional and pooled regressions and using both market and non‐market dependent variables. We also find only weak evidence that revaluations of recognised and disclosed land and buildings are value relevant.

The purpose of this paper is to address the concern about the impact of accounting regulatory change pertaining to employee share options (ESOs) on earnings management. Following Australia's adoption of International Financial Reporting Standards (IFRS) in 2005, companies are required to recognise the fair value of ESOs as expenses. Due to inherent imprecision in the estimate of ESO's fair value, the regulatory change from disclosure to recognition was widely claimed to potentially give rise to an alternative mechanism to manage earnings. This study provides empirical evidence on whether the regulatory change leads to earnings management problems.

This study uses the regulatory change in accounting for ESOs to provide a direct test of earnings management between disclosed versus recognised regimes for the same sample of firms. The sample consists of Australian firms from S&P/ASX300 for the period from 2003 to 2006.

The results show that, although the accounting regulatory change from disclosure to recognition may provide an alternative earnings management vehicle, there is no evidence of this occurring. There could be several reasons for this finding. First, the statistical tests lack power. Second, there are stricter audit tests on recognised amounts than on disclosed amounts. Third, given the concern of excessive pay and the close scrutiny of compensation, managers may have already understated ESO values in the disclosure regime. Finally, managers have limited time and resources and the effort involved in the adoption of IFRS in 2005 could have restricted the time available to manage earnings via the ESO reporting channel.

This study adds to the limited research on whether a change in accounting regulation for employee share options from disclosure to recognition gives rise to greater scope for earnings management. One reason for the lack of empirical evidence in the research is due to the problem of designing a test. Bernard and Schipper suggest that within‐firm studies have limitations for comparing the effects of recognition versus disclosure when the change is driven by an estimate becoming more reliable. A cross‐sectional study is also problematic due to self‐selection bias if firms can choose between disclosure versus recognition. This study circumvents potential design problems raised by Bernard and Schipper by setting a test using regulatory change which allows the test to be compared directly using the same company.

The recently passed Statement Financial of Accounting Standard (SFAS) 123R mandates that stock-option compensation costs be recognized in the income statement. This supersedes SFAS 148 and the earlier SFAS 123 which required only disclosure in the notes to the financial statements. The motivation of the Financial Accounting Standards Board (FASB) was to increase transparency in reporting of financial statements. The objective of this chapter is to test whether sophisticated users’ perceptions and judgments are affected by the different reporting format that has been mandated by SFAS 123R. Members of the Institute of Management Accountants (IMA) were used as the participants in this study. The study finds a (1) higher perceived risk, (2) lower expected accounting return, (3) more pessimistic overall perception, (4) more negative future stock price direction, and (5) lower stock price valuation by sophisticated users in the presence of recognition versus disclosure. These findings support the stance of the FASB and indicate that that information content is accentuated in the presence of recognition relative to disclosure.

The fundamental change in accounting rules for equity-based compensation (EBC) instituted by SFAS 123, SFAS 123r, and IFRS 2 has allowed for new insights related to a variety of research questions. This paper discusses the empirical evidence generated in the wake of the new regulation and categorizes it into two broad streams. The first stream encompasses research on the changed use of EBC and the incentives provided. The second stream addresses how firms account for EBC, including the underreporting phenomenon and how it was affected by the mandatory recognition of EBC expenses. I discuss where research delivers unanimous findings versus contradictory results. Using these insights, I make recommendations for further research opportunities in the area of EBC.

This paper synthesizes existing experimental research in the area of investor perceptions and offers directions for future research. Investor-related experimental research has grown substantially, especially in the last decade, as it has made valuable contributions in establishing causal links, examining underlying process measures, and examining areas with little available data. Within this review, I examine 121 papers and identify three broad categories that affect investor perceptions: information format, investor features, and disclosure credibility. Information format describes how investors are influenced by information salience, information labeling, reporting and accounting complexity, financial statement recognition, explanatory disclosures, and proposed disclosure changes. Investor features describes investors’ use of heuristics, investor preferences, and the effect of investor experience. Disclosure credibility is influenced by external and internal assurance, management credibility, disclosure characteristics, and management incentives. Using this framework, I summarize the existing research and identify areas that would benefit from additional research.

The International Accounting Standards Board and the Financial Accounting Standards Board allow fair value measurement of liabilities. Previous findings from the literature on recognition versus disclosure indicate that recognition of fair value information better serves investors' needs, because it is more likely to facilitate the incorporation of the information into their judgment. In cases of credit risk changes for own liabilities, however, many authors doubt that fair value measurement is beneficial due to its potential counter‐intuitiveness. The purpose of this paper is to gain insight into non‐professional investors' processing of fair value information for liabilities.

A between‐subjects laboratory experiment was employed. Subjects received financial information on three different companies. The authors manipulated the accounting treatment of liabilities between the three groups. Subjects ranked three companies according to their economic performance. The authors then compared these rankings to the companies' actual performance.

The results of the experiment indicate that non‐professional investors are less likely to acquire the information of credit risk changes when liabilities are not measured at fair value. Additionally, evidence was found that fair value measurement is to some extent counter‐intuitive for non‐professional investors.

A main limitation is that our experiment concentrates on liabilities and abstracts from interactions of both sides of the balance sheet.

This is the first study to analyze in detail non‐professional investors' information processing of liabilities measured at fair value.

This paper provides a review of research on financial derivatives, with an emphasis on and comprehensive coverage of research published in 15 top accounting journals from 1996 to 2017. We begin with some brief institutional details about derivatives and then summarize studies explaining when and why firms use derivatives. We then discuss the evolution of the accounting rules related to derivatives (and associated disclosure requirements) and studies that examine changes in these requirements over the years. Next, we review the literature that examines the consequences of firms’ derivative use to various capital market participants (i.e., managers, analysts, investors, boards of directors, etc.), with an emphasis on the role that the accounting and disclosure rules play in such consequences. Finally, we discuss the importance of industry affiliation on firms’ derivative use and the role that industry affiliation plays in derivatives research. Overall, our review suggests that, perhaps due to their inherent complexity and data limitations, derivatives are relatively understudied in accounting, and we highlight several areas where future research is needed.

The purpose of this paper is to investigate the policy consequences of expensing stock‐based compensation in Taiwan.

Data were collected on listed firms from 2006 to 2008 and a goodness‐of‐fit of accounting earnings valuation model was used to investigate the incremental information content of expensing stock‐based compensation. In addition, two sensitivity indexes were used to investigate the sensitivity between compensation and firm performance before and after income statement recognition of stock‐based compensation.

It was found that the association between earnings and abnormal returns is stronger after expensing compensation. In addition, the relationship between compensation variables, especially stock compensation, and firm performance is stronger after 2008, indicating that expensing compensation reinforces the relationship between compensation and performance.

The findings suggest that disclosure and recognition are not substitutes. The findings also have implications for standard setters and for investors attempting to mitigate managers' self‐interested behavior.

The accounting treatment of employee stock‐based compensation is a controversial issue among academics, regulators, managers, auditors, and investors. This paper investigates the incremental information content of the new accounting standard and explores whether the relationship between compensation and firm performance has become more transparent than before.

This paper aims to examine pricing differences regarding contingencies presented in statements of financial position or notes, which are considered an area for creative accounting.

The authors have chosen two countries with different cultural environments to test the exploratory study. The sample includes companies using the International Accounting Standard (IAS) 37, which requires recognition of provisions while contingent liabilities are only disclosed, implying different impacts from underlying judgement related with contingencies. The authors apply a regression model based on the Ohlson equity-valuation framework.

The most important conclusion is that market participants in both countries follow different patterns when incorporating information about provisions and contingent liabilities. More precisely, the results suggest that provisions are value-relevant, but incrementally less negative in Portugal. Contingent liabilities seem to have no value relevance. However, an exception exists for Portuguese companies having a risk committee board, in which case a significant market valuation of contingent liabilities is found and discounted in share prices. The existence of a risk committee corroborates the value relevance of this board, which is positively valued by market participants in both national cultures.

The findings may make a contribution to the IASB research project on the IAS 37 and possible amendments to it (suspended until the revisions to the conceptual framework are finalized) and to the IASB prioritization of communication effectiveness of financial statements to all users.

Value relevance of contingencies differentiating countries from two different national cultures and firms with a risk committee on the board of directors.

This paper investigates the debate as to whether employee share options (ESOs) should be expensed in an entity’s financial statements as required by the IASB’s IFRS 2 – Share‐based payment (2004). The paper presents arguments for and against expensing ESOs, demonstrating that compensation of employees via ESOs is a bona fide expense in terms of the recognition and measurement criteria of the IASB Framework. It concludes that, the substance of an ESO transaction is that the entity pays an employee for his services, albeit with a different financial instrument. Consequently, the accounting treatment of such compensation should be the same as for any other payment of services of an employee.