The use of made-up users

While the existence of fictitious users of financial statements has been confirmed in previous research, our study investigates how this powerful yet ‘made-up’ construct is deployed within the discourses of the main stakeholders as they shape regulatory debates in the international accounting standard-setting arena, including ‘real’ users themselves. Our study draws on Bourdieu’s theorization of dominant discourse as a form of power, and extends it with the phraseological theory of meaning, specifically the linguistic concept of collocation, which focuses on the habitual choices of words in discourse. Using this framework, we conduct a comparative analysis of the recurrent language choices around the term ‘user’ in comment letters submitted on the selected IASB’s regulatory proposals. We provide empirical evidence for the existence of commonalties and subtle differences in the ways in which made-up users are discursively operationalized by the four key accounting constituent groups, the accounting profession, prepares, regulators and ‘real’ users of financial statements. At the theoretical and methodological level, our study showcases the explanatory power of the concept of collocation to identify and interrogate implicit patterns of dominant discourse as set forth by Bourdieu. We also show that the close investigation of how the dominant discourse of the made-up users works generates a series of new why questions regarding the ‘real’ users’ role in accounting standard setting

Discretion in accounting for pensions under IAS 19: using the ‘magic telescope’?

We use a panel data set of UK-listed companies over the period 2005 to 2009 to analyse the actuarial assumptions used to value pension plan liabilities under IAS 19. The valuation process requires companies to make assumptions about financial and demographic variables, notably discount rate, price inflation, salary inflation, and mortality/life expectancy of plan members/beneficiaries. We use regression analysis to analyse the relationships between these key assumptions (except mortality, where disclosures are limited) and company-specific factors such as the pension plan funding position and duration of pension liabilities. We find evidence of selective ‘management’ of the three assumptions investigated, although the nature of this appears to differ from the findings of US authors. We conclude that IAS 19 does not prevent the use of managerial discretion, particularly by companies whose pension plan funding positions are weak, thereby reducing the representational faithfulness of the reported pension figures. We also highlight that the degree of discretion used reflects the extent to which IAS 19 defines how the assumptions are to be determined. We therefore suggest that companies should be encouraged to justify more explicitly their choice of assumptions

Does accounting treatment of share-based payments impact performance measures for banks?

This paper identifies, evaluates and analyses the resulting impact of mandatory expensing of share‐based compensation (SBC) under IFRS2/FASB123R on a set of widely used performance measures in the EU and US banking industry. The paper shows that the accounting treatment of SBC schemes, following the mandatory adoption of IFRS2/FAS123R, has a statistically significant negative impact on the selected performance measures over the period 2004–11. The impact also seems to be material, yet modest, for US banks and only for large and high‐growth EU banks, indicating that earlier public concerns and criticisms of the implementation of IFRS2/FAS123R are largely unsubstantiated. The findings also show that banks continue to use SBC, but there is a reduction, albeit insignificant, in the recognised SBC expense over the period 2009–11. That is, earlier public concerns that firms would curtail employing SBC in their employees’ compensation schemes to avoid the effect of SBC expense recognition on their financial ratios came to light after the first option life‐cycle in the post‐adoption period was over. The findings also show a marked movement towards using cash‐settled‐based payments, possibly due to their manipulative accounting treatment, a potentially interesting issue for related accounting research and accounting standard setters

International lease accounting reform and economic consequences: the views of UK users and preparers

In response to perceived difficulties with extant lease-accounting standards in operation worldwide, the G4+1 issued a discussion paper which proposes that all leases should be recognized on the balance sheet [ASB (1999). Leases: Implementation of a new approach, discussion paper. London: Accounting Standards Board]. Leasing is now on the active agenda of the IASB. A major difficulty faced by standard setters lies in overcoming the preparer/user lobbying imbalance and obtaining ex ante evidence on the likely impact of regulatory reform. This paper contributes to the ongoing international debate by conducting a questionnaire survey of U.K. users and preparers to assess their views on proposals for lease-accounting reform and on the potential economic consequences of their adoption. The results, based on 132 responses, indicate that both groups accept that there are deficiencies in the current rules, but they do not agree on the way forward and believe that the proposals would lead to significant economic consequences for key parties. The impact on respondents' views of familiarity with the proposals, level of lease usage, and company size, is also examined

Conservatism, disclosure and the cost of equity capital

This study seeks insights into the economic consequences of accounting conservatism by examining the relation between conservatism and cost of equity capital. Appealing to the analytical and empirical literatures, we posit an inverse relation. Importantly, we also posit that the strength of the relation is conditional on the firm’s information environment, being the strongest for firms with high information asymmetry and the weakest (potentially negligible) for firms with low information asymmetry. Based on a sample of US-listed entities, we find, as predicted, an inverse relation between conservatism and the cost of equity capital, but further, that this relation is diminished for firms with low information asymmetry environments. This evidence indicates that there are economic benefits associated with the adoption of conservative reporting practices and leads us to conclude that conservatism has a positive role in accounting principles and practices, despite its increasing rejection by accounting standard setters

Predecessor versus Acquisition: Evidence of Business Combination under Common Control from China

We investigate the value relevance of two different accounting methods, predecessor vs. acquisition, for business combination under common control (BCUCC) in China. Based on the return and price models, we find that net income under the predecessor method is of higher value relevance than that under the acquisition method. Further analysis suggests that the difference appears to be driven by uncertainties in fair value estimation surrounding the BCUCC and that net incomes under predecessor method can better predict future earnings and future operating cash flows than under the acquisition method. Our research provides some initial evidence to support the use of the predecessor method in China, and at the same time, we discuss implications for the IASB standard setting project for the BCUCC