The Effect of Management Compensation and Debt Requirements on Earnings Management Concerning The Impairment of Assets

This study determines the relationship between the impairment decision, as well as its magnitude, and two earnings management motivations, namely increasing management compensation, and meeting debt requirements. The computation of value in use in the impairment loss is subject to management’s estimate of future cash flows and choice of discount rate, which tolerates earnings management. Certain indicators and financial ratios were used to depict the effect of the two motives on impairment. In addition to this, the effect of firm size on impairment was also analyzed. The data were obtained from the OSIRIS database and the SEC form 17-A of the respective companies, as well as from telephone interviews and surveys. Probit regression was used to analyze the effect of the different motives to the impairment decision while multiple linear regression was used for the impairment magnitude. The findings show that publicly listed companies in the Philippines are engaging in “income smoothing” and “big bath” accounting with the use of impairment. Results also indicate that most “big bath” happens during periods where changes in the company’s executive officers occur. Lastly, there is also evidence that financially strong companies are deferring their impairment recognition to obtain a lower cost of financing.</p

Impact of full IFRS, accounting standards for SMES and company demographics on firms’ return on asset and return on equity using panel data regression

© BEIESP. Due to globalization, markets are becoming more interconnected as the companies are engaged in doing cross-border offerings. Currently, competitions are intensified because Domestic organizations discover themselves competing with each nearby opposite numbers and worldwide companies. But one component that hinders SMEs is the need for reliable and similar monetary data. According to Abarca (2014), adoption of a high-quality and consistent set of accounting requirements is critical so as for the businesses to remain competitive in ASEAN member states. This paper ambitions to answer the query, what modified into the extent of the impact of compliance with full IFRS and IFRS for SMEs on profitability of agencies belong to real property enterprise? This paper moreover sought to decide whether there may be a sizeable distinction among the groups’ compliance with the overall PFRS and the PFRS for SMEs and to determine whether or now not there is a massive distinction among the companies’ financial normal overall performance earlier than and after the adoption of the PFRS for SMEs.Paired T-test have become employed in case you need to determine whether there is a big distinction between the agencies’ compliance with the entire PFRS and the PFRS for SMEs and to decide whether or not there may be a big difference some of the groups’ monetary performance earlier than and after the adoption of the PFRS for SMEs. Using STATA, the great appropriate version for every economic ratio on the subject of degree of compliance emerge as determined on. First, take a look at parm command became used to find out which most of the Least Squares Dummy Variable Regression Modes (LSDV1, LSDV2, LSDV3) underneath the Fixed Effects Model is the ideal version. Afterwards, Hausman Fixed Random Test changed into used to pick out out which is more suitable amongst Fixed Effects Model and Random Effects Model. If Fixed Effects Model modified into the more appropriate one, the Wald’s test turn out to be used to determine the best version among Fixed Effects Model and Ordinary Least Squares Model. On the alternative hand, if Random Effects Model became the more suitable one, the Breusch and Pagan Lagrangian Multiplier Test for Random Effect have become used to decide the satisfactory version amongst Random Effects Model and Ordinary Least Squares. Moreover, if Ordinary Least Squares became the splendid model, it is going to be in addition tested to check for heteroscedasticity and multicollinearity. White’s test became used to check for heterescedasticity and Variance Inflation Factor have become used to test if multicollinearity is gift. The results display that the adoption of PFRS for SMEs stepped forward the compliance of Philippine real property SMEs. However, no vast alternate became said inside the financial average performance of those companies (as measured with the resource of cross back on assets and go back on equity). This was further supported by the results of the panel regression. This means that despite having a relatively easier time in complying with the required accounting standards, this did not translate to having lower significantly costs related to compliance. It was also noted that firm characteristics, namely, firm age and firm size, are generally not correlated with the firm’s profitability

The effects of international financial reporting standards disclosure for small and medium enterprises (IFRS for SMES) on profitability under the retail sector

At the dawn of the 21st century, businesses from all over the globe started crossing geographical boundaries to compete in the international market. Several breakthroughs impacted not only on the firms\u27 ability to generate profits but also their ability to provide accounting information to various stakeholders. As business innovations continue to push through, globalization further necessitated transparency and comparability across entities regardless of geographical location. Hence, the IASB published international standards tailored for established and large corporations. This, however, posed burden to small and medium sized entities. As a proactive response, the IASB subsequently crafted a firm-specific standard now known as the IFRS for SMEs. This set of standards was later adopted by the Philippines and renamed it to PFRS for SMEs. This study determined that on a general level, compliance level among entities in the retail trade industry had increased by adapting the PFRS for SMEs. However, further testing suggests that such increase was insignificant. After assessing the compliance level through testing the disclosure indices, this study tested whether there has been a significant difference on the financial performance of the entities before and after adapting the PFRS for SMEs as evidenced by the entities\u27 financial ratios. The result of the test indicated that there is no significant difference

An empirical investigation of the effects of merger and acquisition on firms\u27 profitability

Economic advantage and competitive edge is the name of the game. Business combination is one proven and tested method by companies wanting to grow and gobble up a larger market share. The emerging business scenario created an additional burden to the already struggling corporations\u27 existence, in almost all types of industry, which is due to the ever increasing demand for innovative strategies. To survive the dog-eats-dog world of competitiveness, a number of these players engage in business combination - wherein two or more companies incorporate into a single accounting entity. This study is considered a causal and correlational research, which aims to determine the relationship of the mergers and acquisitions to the firm\u27s profitability. It is a quantitative study that measured the effects of mergers and acquisitions on return on assets and return on equity of the companies. Besides knowing the relationship, this study also obtained an estimate of the possible impact of the independent variable to the dependent variables. This study covered all the listed companies in the Philippines Stock Exchange for the years 2006 until 2010. This covered companies from the different sectors of the economy, which comprise of 30 companies in the financial sector, 75 firms in the industrial sector, 39 businesses classified as holding firms, 39 companies in the property sector, 54 businesses in the service sector and 22 companies in the mining and oil sector. The research made use of two linear regressions to analyze the effect of having a merger or acquisition on the profitability of the companies. Two separate regressions are needed because profitability would be proxy by two different but widely used variables: the return on equity and the return on assets ratio. Since the study covered the entire publicly listed companies in the Philippines for the period 2006 until 2010, this essentially means that panel data was used in the study. Hence, the appropriate panel analysis was conducted. Findings suggest that there is significant negative relation of merger and return on equity, having a merger or acquisition to return on equity implies that most mergers and acquisitions do harm to the financial well-being of the companies, rather than good. Furthermore, merger and acquisition provide an insignificant relation to the return on total assets, as evidenced by the insignificant p-value. As a result, the finding of this variable provides empirical evidence that having a merger and acquisition does not affect the return on assets ratio of companies in the Philippines

Liquidity and financial leverage ratios: Their impact on compliance with international financial reporting standards (IFRS)

This paper investigates how the liquidity and leverage ratios exert significant effect on the degree of compliance with International Financial Reporting Standard disclosure as measured by Balance Sheet and Income Statement of Publicly Listed Corporations. The researcher analyzed the effects of current ratio, quick ratio, debt equity ratio and interest coverage ratio on compliance with IFRS. The compliance audit output was used by the author to calculate the financial statement disclosure index using a dichotomous procedure to score each of the company indices. This study covered 100 publicly listed corporations in the Philippines from different industries out of the 244 PLCs. The companies belong to different sectors / industries such as Financials, Industrial, Holding Firms, Property, Services, and Mining and Oil. Published annual reports of the aforesaid companies have been used as a secondary source. Disclosure indices were constructed from 475 items of Balance Sheet disclosure checklist and 263 items of Income Statement disclosure checklist based on the compliance audit consistent with the International Financial Reporting Standard (IFRS) Report Checklist. Using multiple regression analysis, the author regressed each of balance sheet index, income statement index and total of income statement balance sheet indices, against liquidity ratios and financial leverage ratios such as current ratio, quick ratio, debt ratio and interest coverage ratio. Finding suggests that none of the indices exert a significant effect on the financial variables cited based on the computed t-statistics whose p-values are greater than the level of significance (α = 0.05). Therefore, the null hypothesis, that liquidity and financial leverage have no effect on IFRS when the latter is expressed in terms of Balance Sheet and Income Statement indices, is accepted

An empirical analysis of audit risk assessed by top auditing firms: A Philippine particularityy

This study included a test if significant difference exists between the perceptions of the auditors on Audit Risk when the latter are grouped as to gender, position, specialization and years of audit experience. Respondents of the survey were numbering one hundred twenty nine (129) auditor respondents were randomly selected from the top four (4) auditing firms in the Philippines such as Sycip Gorres Velayo & Co. (SGV & Co.), Isla Lipana & Co., Manabat, San Agustin & Co. and Manabat, Delgado, Amper & Co. The results indicate that based on t-test and one-way ANOVA that there is no significant difference (the resulting p-values are greater than the level of significance (α = 0.05) in the risk assessment of auditors when the latter are grouped as to gender, position, specialization and number of years audit experience

Risk exposures and risk management techniques: Their impact on earnings per share

This study investigated risk exposures, risk treatments, implementation of policies, guidelines and monitoring in relation to performance in terms of earnings per share. The venue was Bataan Economic Zone in the Philippines comprising of 38 companies or 100% locators as survey participants, all manufacturing firms. Statistical treatment of data gathered revealed that the profile of the subject companies in terms of number of years in operation showed no correlation (.001) whereas manufacturing industry classification (-.193), nationality of the owners (-.153) and previous loss experience identified (-.027) were with negligible negative correlation and risk outlook of the firm revealed moderate negative correlation (-.450). In addition, the companies were moderately exposed in terms of speculative risks namely output and input commodity price risks covering physical assets, human resource, legal liabilities and work related injuries. With respect to respondents mitigating the risks, this was found to be moderately implemented with risk management policies and guidelines as fairly implemented while monitoring risks obtained a qualitative description moderately always. It further identified that the variables of the study do not show significant relationship. Risk treatments, policies and guidelines and monitoring are wanting in terms of full implementation. This can be effected by installing a qualified risk manager who would take charge of the whole risk management process

Financial performance, liquidity, financial leverage and the extent of their compliance with IFRS3 business combination between 2006-2010: A test Ross\u27 signaling theory

This study focused on how compliance with International Financial Reporting Standards regarding Business Combination Index is related with and its impact on the financial performance, liquidity and financial leverage of publicly listed companies. The compliance audit output was used by the author to calculate the financial statement disclosure index using a dichotomous procedure to score each of the company indices. Using panel analysis, the author regressed each of the variables, namely, financial performance, liquidity and financial leverage of publicly listed companies against IFRS 3 Index, the latter being the main components of the disclosure indexed that capture the IFRS requirements. The IFRS Index served as proxy variables to test whether Ross\u27 signaling theory can be validated or not in the Philippine equity market. Findings suggest that the IFRS 3 disclosure index of merger and acquisition exhibited a significant positive relation with the current ratio. Hence, this resulted to the rejection of the null hypothesis that the exogenous variable has no relation with the endogenous variable. Furthermore, merger and acquisition disclosure index denoted an insignificant relation with the asset turnover ratio and debt to equity ratio, as evidenced by the insignificant p-value. Applying the signaling theory by Ross, the companies would be disclosing financial information as their managers want to show off the firm\u27s financial position and the results of the operations to different stakeholders like the investors to be reassured that the company is into going concern status and relieving market pressures. It can be further deduced that the results of the dichotomous procedure of attaining the level of compliance among PLCs with IFRS disclose requirements are anchored with Signaling Theory. It must be noted that financial statement serves as a mode of communicating with different stakeholders. Signaling theory conveys information such as financial information disclosed on the face of the financial statements to wide range of different users. Thus, companies would be disclosing information with the help of their auditors in providing sufficient data to different stakeholders. Signaling hypothesis, was used by different companies, refers to the proposition that signaling motivates corporate disclosure

Income statement disclosures: An international financial reporting standard compliance report of ten selected publicly listed corporations in the manufacturing industry

This study focuses on compliance audit of ten selected publicly listed corporations in the manufacturing industry. It seeks to ensure that the submitted financial statements of a business entity are in accordance with applicable laws and regulations set forth in the Philippine Accounting Standards. The review\u27s aim is to establish a recommendatory measure that may support the SEC and other bodies interested in promoting a more unified, synchronized financial report that may be easily understood; to facilitate evaluation; and to provide a uniform basis of financial reporting. As a supplement, it may be used as a tool to identify loopholes, differences, common pitfalls or omissions inadvertently exercised or encountered by business entities that submit reports peculiar to the manufacturing industry in general, and its area in particular