Accounting for government guarantees: perspectives on fiscal transparency from four modes of accounting

Government guarantees are increasingly important as a policy instrument in public infrastructure investment and to assist the banking and financial sectors following the global financial crisis. This paper analyses how different modes of accounting characterize such guarantees in the contexts of public sector financial reporting, statistical accounting, budgeting and long-term fiscal projections. Guarantees are difficult to specify for accounting treatment and consistent conceptualization of liabilities. These difficulties make it attractive for governments to treat obligations as off-budget and off-balance sheet contingent liabilities, rather than recognize them in financial statements and statistical accounts. Miller and Power’s territorializing, mediating, adjudicating and subjectivizing roles of accounting are utilized to analyse the reporting of UK government guarantees. Provisioning for guarantees is complex in financial reporting statements and often absent in national accounts, a deficiency which Eurostat has attempted to address by devising the concept of standardized guarantees and by securing more disclosure of contingent liabilities. There is potential for future research especially where there is greater mediation between the four modes of government accounting

Mandatory IFRS adoption and accounting comparability

The adoption of IFRS by many countries worldwide fuels the expectation that financial accounting might become more comparable across countries. This expectation is opposed to an alternative view that stresses the importance of incentives in shaping accounting information. We provide early evidence on this debate by investigating the effects of mandatory IFRS adoption on the comparability of financial accounting information around the world. Our results suggest that while mandatory adoption of IFRS increases the comparability of some prominent balance sheet line items across countries, it has no clear effect on the cross-country comparability of earnings attributes. To provide a rationale for these mixed findings, we investigate the IFRS measurement and disclosure compliance choices for a hand-collected sample of German and Italian firms. We find that predictable country-, region-, and firm-level incentives continue to shape the outcome of the financial reporting process and thus limit the crosssectional comparability of financial accounting information. Overall, our results suggest that the mandatory adoption of IFRS has a limited impact on accounting comparability and that accounting information continues to be shaped by both reporting standards and incentives.international accounting, IFRS, comparability, accounting harmonization, earnings attributes, disclosure determinants, accounting incentives

Banking Reform in Russia: Problems and Prospects

This paper examines the state of the Russian banking sector in 2004 and assesses the most important reform initiatives of the last two years, including deposit insurance legislation, a major reform of the framework for prudential supervision, steps to increase transparency in the sector, and measures to facilitate the development of specific banking activities. The overall conclusion that emerges from this analysis is that the Russian authorities’ approach to banking reform is to be commended. The design of the reform strategy reflects an awareness of the need for a ‘good fit’ between its major elements, and the main lines of the reform address some of the principal problems of the sector. The major lacuna in the Russian bank reform strategy concerns the future of state-owned banks. Despite a long-standing official commitment to reducing the role of the state – and of the Bank of Russia in particular – in the ownership of credit institutions, there is still a need for a much more clearly defined policy in this area. The real test of Russian banking reform efforts, however, will be in implementation. The reforms challenge numerous vested interests and their successful realisation will require considerable political will as well as the development of regulatory capacities of a very high order

Better capturing risks in the trading book.

The 1996 Amendment to the Basel Capital Accord, which allows, under certain conditions, the use of internal models to calculate regulatory capital requirements for market risk, has resulted in an apparently sound supervisory trading book regime for internationally active banks. Since this amendment was passed, the composition of the trading book has nevertheless changed substantially to include a more and more credit-related products such as credit derivatives and tranches of collateralised debt obligations (CDOs), as well as complex products such as hedge fund or fund of funds structured products. Furthermore, the contents of the trading book are expected to broaden due to the implementation of new international accounting and prudential standards. This development has led to an increase in credit risk in the trading book and a concomitant rise in other risks such as default risk, event risk, liquidity risk, concentration risk and correlation risk, which were not adequately captured when market risk regulations were devised. This has prompted: • banks to improve their risk assessment and control systems for trading book activities. These systems still often use Value at Risk (VaR) calculations based on a uniform 10-day holding period, which does not always appear relevant; • banking supervisors to enhance the supervision of these systems, in particular by ensuring that the measures proposed in July 2005 by the Basel Committee and the International Organisation of Securities Commissions (IOSCO), known as “Basel 2.5”, are correctly implemented. These measures aim to capture risks in the trading book in a more rigorous and comprehensive manner.

Accounting and the welfare-state: The missing link

In recent years, accounting regulation has been internationalized with the extensive use and adoption of International Financial Reporting Standards (IFRS) by nation-states, which points at least to a formal convergence between accounting regulatory systems. However, major differences between national accounting systems persist. In this paper, it is argued that a country's accounting system is influenced by the type of the welfare-state. This allows us to see accounting in a broader social perspective. The societal attitudes influencing the accounting system are captured by using the Esping-Andersen (1990) classification of welfare states. To show that there is a connection between the typology of welfare-states and the way in which various corporate constituencies' interests are balanced, we compare Germany as an example of a conservative welfare-state and the UK as an example of a liberal welfare-state. This comparison shows that the type of welfare state exerts an influence on the system of accounting and, therefore, can be seen as an explanatory variable for persisting differences between accounting regulatory systems. -- In den letzten Jahren deuten zahlreiche Veränderungen im Bereich der nationalen Regulierung der Rechnungslegung zumindest auf eine formale Konvergenz zwischen den regulatorischen Systemen der Rechnungslegung hin. Abgeleitet werden kann dies aus der mittlerweile weitreichenden Anwendung und Einführung des internationalen Rechnungslegungsstandardwerkes IFRS durch zahlreiche Nationalstaaten. Allerdings bestehen auch weiterhin wesentliche Unterschiede zwischen nationalen Rechnungslegungssystemen fort. Mit diesem Arbeitspapier wird die Hypothese vertreten, dass das Rechungslegungssystem in einem Land und damit die Unterschiede zwischen Ländern maßgeblich durch den Typ des Wohlfahrtsstaates beeinflusst werden. Dieses erlaubt eine weitergefasste gesellschaftliche Perspektive auf den Bereich der Rechungslegungsregulierung. Die einflussnehmenden gesellschaftlichen Werte werden hierbei durch die Wohlfahrtsstaatentypologie von Esping-Andersen (1990) erfasst. In einem abschließenden Länderfallbeispiel werden Deutschland (konservativer Wohlfahrtsstaatstyp) sowie Großbritannien (liberaler Wohlfahrtsstaatstyp) miteinander verglichen. Hierbei soll gezeigt werden, dass eine Verbindung zwischen dem Typ des Wohlfahrtsstaates und der Art und Weise besteht, wie Interessen verschiedener Anspruchsgruppen des Unternehmens ausgeglichen werden. Der Vergleich zeigt, dass ein Zusammenhang zwischen dem Wohlfahrtsstaatstyp und der Rechungslegungsregulierung hergestellt werden kann. Der Wohlfahrtsstaatstyp ist dementsprechend als ein wesentlicher Erklärungsfaktor für den Fortbestand von nationalen Unterschieden in der Rechnungslegungsregulierung zu sehen.

British research in accounting and finance (2001–2007): the 2008 research assessment exercise

No abstract available

Financial stability consequences of the expected credit loss model in IFRS 9

Artículo de revistaFollowing the G20 mandate, there has been a move from incurred loss approaches for the recognition of credit losses to expected credit loss approaches. Since 1 January 2018, European banks follow the approach defined by IFRS 9, according to which, exposures are allocated to three stages depending on their relative credit risk. These stages require different time horizons for the computation of expected credit losses and different basis for interest accrual. Overall, the timelier and fuller recognition of credit losses is expected to bring substantial benefits to financial stability. However, IFRS 9 is not going to be applied with perfect foresight. On the contrary, expected credit loss models would be able to anticipate downturns only shortly before their occurrence. At the onset, a system-wide sizable increase in provisions associated with expected credit losses can be expected, which may have undesired procyclical effects via banks’ profits and regulatory capital. The paradigm shift in accounting for credit losses may call for a policy reflection on: i) the importance of supervisory stress tests; ii) a call for simplicity in models; iii) the need for better and harmonised disclosures; iv) the expectations on the use of cyclical capital buffers, and v) the interaction with the current regulatory framework

European Accounting Harmonisation: Consequences of IFRS Adoption on Trade in Goods and Foreign Direct Investments

This paper focuses on the importance of accounting harmonisation in foreign activities at country level. The adoption of International Financial Reporting Standards (IFRS) is considered to reduce information costs among countries and, therefore, encourage international trade in goods and investment. The results provide evidence that benefits exist in terms of trade in goods and foreign direct investments (FDI) when IFRS are adopted.IFRS, trade in goods, FDI, gravity

Stress testing International Financial Reporting Standards (IFRSs) : Accounting for stability and the public good in a financialized world

This is a pre-copyedited, author-produced PDF of an article accepted for publication in Accounting, Economics and Law - a Convivium following peer review. The version of record [Andersson, T. et al, 6:2 (93-118), first published online November 13, 2015, is available on line at doi: https://doi.org/10.1515/ael-2015-0006The recent Maystads report (2013) challenged the European Parliament to modify governance arrangements surrounding the design and endorsment of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). In addition the Maystadt report constructs an argument that accounting information has the capacity to also modify behaviour and that this might not be conducive for the European public good, financial stability and economic development. In this paper we argue that IFRS need to be stress tested for their impact on firm-level financial stability in a financialized World. The financialized firm can revalue a range of assets to their market value crystalizing future earning stream into current value but these valuations can become impaired. Asset value impairments will be charged to shareholder equity but this is being hollwed out because a higher proportion of earnings are being distributed to shareholders. Accounting disclosures are not only an information feed to users they inform the stewardship and control of a firm´s resources and in the financialized firm the potential for financial instability is heightend and this can translate into a moral hazard for society.Peer reviewedFinal Accepted Versio

Empirical results for expected credit losses of G-SIBs during COVID-19:The proof of the pudding is in the eating

This study examines the provision for credit losses and its disclosures for Global Systemically Important Banks (G-SIBs) in connection to the COVID-19 crisis. We find a profound difference in the increase of the provision for credit losses between banks that report under IFRS and US GAAP. For banks that report under US GAAP, the provision for credit losses more than doubles, while it increases by only 32 percent for banks that report under IFRS. This difference becomes even more striking when considering that the increase for IFRS-reporting banks is partly attributable to increased lending activities. This study further finds that European auditors are more likely to issue a Key Audit Matter (KAM), than auditors of US banks, and that these KAMs specifically relate to COVID-19 in the financial year 2020. Furthermore, IFRS-reporting banks disclose more information on expected credit losses than banks that report under US GAAP. Moreover, we find that European banks disclose relatively more information regarding the impact of COVID-19 than banks reporting under US GAAP