Accounting resource (currency) translation :

The methodology involved collecting quarterly financial statements of four U.S. companies for the time period 1976-1981. The companies were selected from Compustat tapes on the basis of their monetary assets to monetary liabilities structure, net income growth and inventory valuation method. The financial statements were obtained from the Security and Exchange Commission 10Q-filings. The ability of the different translation approaches to preserve nontranslated financial statements information was measured by correlation analysis.The purpose of this study was to compare the current U.S. currency translation standard (Financial Accounting Standards Board Statement No. 8 (FAS 8)), to the new U.S. currency translation standard (Financial Accounting Standards Board Statement No. 52 (FAS 52)). The two translation standards were compared using first currency exchange rates, and then substituting purchasing power parities (PPP) for exchange rates. Thus four translation approaches were compared. The two major research questions were: (1) Is there a difference among different translation approaches with respect to preserving the net income information embodied in the foreign financial statements? (2) Is there a difference among different translation approaches with respect to the extent to which they retain the integrity of financial relationships in the functional (foreign) currency?The research led to the following major conclusions subject to constraints with respect to generalizability because of small sample size, limited range of differently structured companies and limited range of environmental conditions: (1) The FAS 52 translation approaches are preferable to the FAS 8 translation approaches. (2) The PPP-ratios translation approaches are preferable to their exchange rates counterparts. (3) The difference between the PPP-ratios approach of FAS 52 and the exchange rates approach of FAS 52 is greater (to the PPP-ratios approach's advantage) for high net income growth companies than for low net income growth companies. (4) The translation approaches investigated generally perform better for low net income growth companies. (5) The FAS 8 exchange rates translation approach's performance is not only poor but also inconsistent. (6) The good performance of the PPP-ratios translation approaches deserves more research attention

What drives cross-segment diversity in returns and risks? Evidence from Japanese and U.S. firms

The usefulness of segment reporting is grounded on the presumption of diversities of returns and risks across reported segments. We examine the effect of country-specific factors, reporting incentives, and choices on an ANOVA-based measure of cross-segment diversities (CSD) in risk and returns for a sample of Japanese and U.S. multi-segment firms. We find that, in contrast to our expectations, Japanese firms exhibit greater CSD than U.S. firms. Moreover, we find that in both countries CSD is driven especially by reporting incentives associated with profitability and foreign sales, but not by proprietary costs. Further, the manager's choice of the number of reported segments is an important factor affecting CSD.Risk and return Segment reporting Business segment Operating segment Proprietary costs Japanese keiretsu

Analyst Characteristics and the Level of Critical Perception of Goodwill Accounting

While inputs used in analysts’ valuation models have been documented (Brown et al. 2015), it has not been studied how analysts’ personal characteristics are associated with their level of critical perception regarding agency conflict manifested in published financial statements. This is important because analysts are, to some extent, substitutes for industry‐specialised auditors in monitoring financial reporting (e.g., Sun and Liu 2011). To address this shortcoming, we investigate analysts’ level of critical perception concerning current goodwill accounting standards, which provide significant reporting latitude. We use data from a survey of Nordic financial analysts and examine this data with statistical methods, including factor analysis and structural equation modelling. We find two latent constructs, one which reflects a critical attitude to the current goodwill accounting standards and one which reflects an uncritical attitude to the current standards. Our structural equation model suggests that having a background in auditing, as well as general experience and exposure to different industries, is associated with a higher degree of critical perception of current standards. In contrast, having a basic (low) level of formal business (accounting) education is associated with a more uncritical perception than having a high level of education.peerReviewe

What Turns the Taxman On? Tax Aggressiveness, Financial Statement Audits and Tax Return Adjustments in Small Private Companies

This study examines the effect of tax aggressiveness and voluntary audit of financial statements on the likelihood of tax adjustments in small private companies. We provide evidence that (a) tax aggressiveness increases the likelihood of the tax authority not accepting taxable income as reported, whereas (b) voluntary audit decreases it. To derive our hypotheses, we built a theoretical stochastic model explaining tax authority’s reactions to bias and noise in tax returns and how these two relate to tax aggressiveness and voluntary audit. In our empirical tests of the hypotheses, we used a large proprietary data set comprising internal records of the Finnish Tax Administration for the fiscal year 2010 combined with data on the taxable income reported by approximately 19,500 small, private companies. Our results show that while the findings on tax aggressiveness are significant when measured with the book-tax difference using proprietary tax return data from the Tax Administration, they are insignificant when based on the conventional tax aggressiveness measure of book-tax difference derived from publicly available financial statement data. Our paper contributes to the literature by being the first to document the effects of tax aggressiveness and voluntary audit on tax return adjustments of small private companies.peerReviewe

What turns the taxman on?

This study examines the effect of tax aggressiveness and voluntary audit of financial statements on the likelihood of tax adjustments in small private companies. We provide evidence that (a) tax aggressiveness increases the likelihood of the tax authority not accepting taxable income as reported, whereas (b) voluntary audit decreases it. To derive our hypotheses, we built a theoretical stochastic model explaining tax authority's reactions to bias and noise in tax returns and how these two relate to tax aggressiveness and voluntary audit. In our empirical tests of the hypotheses, we used a large proprietary data set comprising internal records of the Finnish Tax Administration for the fiscal year 2010 combined with data on the taxable income reported by approximately 19,500 small, private companies. Our results show that while the findings on tax aggressiveness are significant when measured with the book-tax difference using proprietary tax return data from the Tax Administration, they are insignificant when based on the conventional tax aggressiveness measure of book-tax difference derived from publicly available financial statement data. Our paper contributes to the literature by being the first to document the effects of tax aggressiveness and voluntary audit on tax return adjustments of small private companies.Peer reviewe