Non-performing loans at the dawn of IFRS 9: regulatory and accounting treatment of asset quality

Asset quality is a key indicator of sound banking. However, it is difficult for banking regulators and investors to assess it in the absence of a common, cross-border scheme to classify assets. Currently no standard is applied universally to categorise loans, the most sizeable asset on banks’ balance sheets. As a corollary, definitions of nonperforming loans (NPLs), despite recent steps towards greater harmonisation, continue to vary between jurisdictions. This paper offers a comprehensive analysis of NPLs and considers variations in the treatment of NPLs across countries, accounting regimes, and firms. The paper relies on a multi-disciplinary perspective and addresses legal, accounting, economic and strategic aspects of loan loss provisioning (LLP) and NPLs. A harmonised approach to NPL recognition is particularly desirable, in view of the fact that IFRS 9, the new accounting standard on loan loss provisioning, will be mandatory from January 2018. IFRS 9 changes the relationship between NPLs and provisions, by relying on greater judgement to determine provisions. The potential for divergence makes the need for comparable indicators against which to assess asset quality all the greater

Evaluation of a system-specific function to describe the pharmacokinetics of benzylpenicillin in term neonates undergoing moderate hypothermia

The pharmacokinetic (PK) properties of intravenous (i.v.) benzylpenicillin in term neonates undergoing moderate hypothermia after perinatal asphyxia were evaluated, as they have been unknown until now. A system-specific modeling approach was applied, in which our recently developed covariate model describing developmental and temperature-induced changes in amoxicillin clearance (CL) in the same patient study population was incorporated into a population PK model of benzylpenicillin with a priori birthweight (BW)-based allometric scaling. Pediatric population covariate models describing the developmental changes in drug elimination may constitute system-specific information and may therefore be incorporated into PK models of drugs cleared through the same pathway. The performance of this system-specific model was compared to that of a reference model. Furthermore, Monte-Carlo simulations were performed to evaluate the optimal dose. The systemspecific model performed as well as the reference model. Significant correlations were found between CL and postnatal age (PNA), gestational age (GA), body temperature (TEMP), urine output (UO; system-specific model), and multiorgan failure (reference model). For a typical patient with a GA of 40 weeks, BW of 3, 000 g, PNA of 2 days (TEMP, 33.5°C), and normal UO (2 ml/kg/h), benzylpenicillin CL was 0.48 liter/h (interindividual variability [IIV] of 49%) and the volume of distribution of the central compartment was 0.62 liter/kg (IIV of 53%) in the system-specific model. Based on simulations, we advise a benzylpenicillin i.v. dose regimen of 75, 000 IU/kg/day every 8 h (q8h), 150, 000 IU/kg/day q8h, and 200, 000 IU/kg/day q6h for patients with GAs of 36 to 37 weeks, 38 to 41 weeks, and ≥42 weeks, respectively. Thesystem-specific model may be used for other drugs cleared through the same pathway accelerating model development

Voluntary disclosure of corporate strategy: determinants and outcomes. An empirical study into the risks and payoffs of communicating corporate strategy.

Business leaders increasingly face pressure from stakeholders to be transparent. There appears however little consensus on the risks and payoffs of disclosing vital information such as corporate strategy. To fill this gap, this study analyzes firm-specific determinants and organisational outcomes of voluntary disclosure of corporate strategy. Stakeholder theory and agency theory help to understand whether companies serve their interest to engage with stakeholders and overcome information asymmetries. I connect these theories and propose a comprehensive approach to measure voluntary disclosure of corporate strategy. Hypotheses from the theoretical framework are empirically tested through panel regression of data on identified determinants and outcomes and of disclosed strategy through annual reports, corporate social responsibility reports, corporate websites and corporate press releases by the 70 largest publicly listed companies in the Netherlands from 2003 through 2008. I found that industry, profitability, dual-listing status, national ranking status and listing age have significant effects on voluntary disclosure of corporate strategy. No significant effects are found for size, leverage and ownership concentration. On outcomes, I found that liquidity of stock and corporate reputation are significantly influenced by voluntary disclosure of corporate strategy. No significant effect is found for volatility of stock. My contributions to theory, methodology and empirics offers a stepping-stone for further research into understanding how companies can use transparency to manage stakeholder relations

The influence of accounting changes on financial analysts' forecast accuracy and forecasting superiority: Evidence from the Netherlands

Abstract This study assesses the influence of discretionary accounting changes on financial analysts' individual forecast errors in the Netherlands from 1988 to 1999. It contributes to previous research by examining whether accounting changes (1) influence analysts' earnings forecast accuracy; and (2) change analysts' forecasting superiority relative to a mechanical earnings prediction model because of the change in the time series and composition of earnings. The empirical results indicate that changes in accounting procedures can significantly affect analysts' forecast accuracy and forecasting advantage, conditional on the change-year effect, prior disclosure and the type of change. Specifically, this study finds that in the year that firms adopt accounting changes with a material effect on earnings before extraordinary items, analysts' forecast accuracy significantly worsens if the changes have not been previously disclosed. Further, in the earliest years after the adoption of changes from current cost accounting to historical cost accounting and changes from expensing to capitalization analysts' forecast accuracy and forecast superiority significantly improves, whereas analysts' forecast accuracy and superiority significantly worsens after the adoption of other changes.Accounting changes, financial analysts, forecast accuracy, earnings predictability,

The European IFRS experiment: objectives, research challenges and some early evidence

This paper provides an academic perspective on the development of the EU's harmonisation project based on International Financial Reporting Standards (IFRS), on the costs and benefits of IFRS adoption in Europe, and on the research challenges that arise. The paper reviews the accumulating academic evidence, emphasizing the effectiveness and transparency of the enforcement framework, and documenting the main lessons to be learned from the research programme on EU IFRS implementation conducted within the INTACCT network. Results on the consequences of IFRS adoption and the quality of implementation are far from uniform across Europe, and depend on factors reflecting preparer incentives and the effectiveness of local enforcement. The paper also outlines a possible alternative proposal for the organisation and development of enforcement activities in Europe

A contract-law perspective on legal cases in financial reporting: the Netherlands, 1880-1970

This paper proposes a framework for the historical analysis of judicial decisions in financial reporting that may provide a basis for comparative research in the historical relation between the law and accounting. It is suggested that contract law may have been the dominant legal domain in which such judicial decisions were taken. To illustrate the approach, an analysis is presented of the development of judicial decisions on financial reporting in the Netherlands from the late nineteenth century to the second half of the twentieth century. It is found that contract law provided the dominant frame of reference for financial reporting cases. The overall development of contract law explains why, in substance, it was difficult for interested parties to challenge accounting policy choice in court. A tentative comparative conclusion is that this substantive position was quite comparable to that arrived at in the UK, despite the different legal setting. Further research should investigate whether the predominance of a contract-law view of financial reporting led to greater similarities in the legal understanding of financial reporting across the civil-law/common-law divide than is commonly supposed. © The Author(s) 2012