Financial reporting standards: Global or international?

Purpose - This paper studies quantitative, monetary information about differences between IFRS and US GAAP in the three principal financial statements. Design/methods/approach - Comparative data from the same company are compared. The explanations of differences are found in lengthy footnotes. The sample is from civil law countries with reputations for high integrity, reducing possible confounding effects of legal systems or earnings management. Sample countries are highly economically developed, reducing distortions that would result from different fair value conditions. Findings - A few key standards account for most of the monetary differences between the accounting standards. In some cases large differences in one direction offset large differences in the other direction, reducing the insights from comparing only income. Research limitations/implications - The window of data availability for single--company reporting under both standards was narrow. However, because of convergence activities, these differences are likely slowly to decline. Originality/value - The only paper to examine the footnote disclosure in sufficient detail to accurately measure differences. The only paper to analyze the cash flow statement. It is valuable for financial analysts, and to academic researchers who study accounting quality and make international comparisons.</p

Are legal families related to financial reporting quality?

A large body of financial accounting research explores the quality of accounting in different countries. An important assumption in most of that research is that common law provides a firmer foundation for good accounting transparency than civil law. Researchers usually regress their proxy for accounting quality on an indicator variable that designates the firm's country as a common or civil law jurisdiction (along with other regressors). But what is the support for that nearly universal assumption? This study addresses that question. It traces the distinctions made by legal scholars that characterize the two ‘families’. It analyzes La Porta et al. (1998), which is the nearly universal citation to support the civil/common dummy, and assesses the design and development of research designs that use law in accounting studies. It concludes that the use of the civil/common distinction as applied in accounting studies cannot be supported, and offers suggestions for how to better investigate the ways in which the law interacts with financial reporting.</p

Impact of IFRS transition on audit and non-audit fees: evidence from small and medium-sized listed companies in Finland.

This study focuses on fees paid to auditors during a major accounting change associated with extra audit risk and work. Specifically, we analyse how a major accounting change from local GAAP to IFRS (International Financial Reporting Standards) affects the audit and non-audit fees paid to auditors. Prior research had evidenced that several auditee-specific properties are associated with audit fees. However, there is lack of specific knowledge on how a major accounting change affects audit and, especially, non-audit fees. Our sample comprises Finnish listed firms that adopted IFRS for the first-time. The Finnish data are employed since prior research findings suggest that there are large differences between Finnish accounting standards (FAS) and IFRS anticipating extra audit risk and work at the accounting move. Therefore, it is highly likely that extensive supply for audit and non-audit services during the transition from FAS to IFRS would occur. When taking into account several control variables, in line with prior research, our analyses based on unique, hand-collected data provide evidence that a company with a high FAS-IFRS disparity is associated with more costly non-audit services during the transition phase than one with low disparity. Furthermore, the results reveal that audit fees, where audit markets are more competitive, are not significantly related to the magnitude of IFRS adjustments. Overall, the research findings inform, among other things, audit firms and their clients about the type and the level of costs incurred during a major accounting change

Gender diverse boards and goodwill changes: association between accounting conservatism, gender and governance

We study the relation between board gender diversity and goodwill (GW). GW on the balance sheet is connected to both the firm’s risk-taking and its accounting conservatism which are two popular topics in how gender diversity affects the governance of firms. GW captures the firm’s decision to acquire another business for a price exceeding the received identifiable net assets and the subsequent valuation of the purchase. We propose that board decisions affecting GW could depict information about board gender diversity and its potential effects. Specifically, we examine Nordic listed firms in the period 2009–2018, to determine whether and how female representation on the board of directors is linked to the GW change. Big GW increases are associated with risk-taking and GW write-downs are signs of conservative accounting. Thus, we hypothesize and evidence that firms with substantial GW increases (decreases) are associated with fewer (more) women on the board. These results provide insight on board composition and potentially also on good governance and their consequences for strategic decision-making. Our findings contribute to the board diversity literature in accounting and corporate governance. </p

A Dean, A Scholar, A Friend - Texts in appreciation of Markus Granlund

In this paper, we analyse whether there is a difference in the transparency of sustainability reporting between listed state-owned enterprises (SOEs) and listed non-state-owned enterprises (non-SOEs). Employing theoretical approaches (chiefly stakeholder and legitimization theories), we concluded that a wider set of assignments and duties for SOEs call on these companies to expand their sustainability reporting relative to non-SOEs. Transparency is quantified using the widely applied GRI index and its sub-indices. The proposition receives strong support from Finland, where the state is the most significant owner of listed companies in Europe. The result suggests that the state as a shareholder of a listed company results in an observable distinction in a company’s reporting environment. Finally, we suggest several avenues for further research.</p

Audit committee adoption and firm value: Evidence from UK financial institutions

Purpose: This study examines the impact of audit committee (AC) adoption on the financial value of financial institutions in the UK and also examines the impact of the establishment of an audit committee on firm value during the pre/post global financial crisis era. Design/methodology/approach: The paper embarks on a theoretical and empirical literature review on audit committee (AC) adoption and its impact on the firm’s financial value. The paper uses data from 63 financial institutions and covers a 12-year period. Findings: The empirical results indicate that the adoption of an AC by financial institutions has a positive and statistically significant impact on firm value. The results from the precrisis period also indicate the adoption of an AC makes a positive and significant contribution to firm value. However, there is no impact on firm value during the post-crisis period. Our results suggest that the entire UK economy experienced an economic downturn after the financial crisis (2009-2011) and financial firms were no exception. Research limitations/implications: Our study helps to fill research gaps on the relationships between ACs and firm value as they exist in UK financial institutions. These findings are important for policy-makers and regulators. Originality/value: To the best of our knowledge, this research is the first to conduct an empirical study of the effect of AC adoption on UK financial institutions and firm value. Second, no single study has been conducted on the effects of AC adoption and its impact on either the pre- or the post-financial crisis periods. This is the first paper to provide such empirical evidence. Keywords: Audit committee adoption, financial institutions, UK, pre- and post-financial crisis, firm’s value. Paper type: Empirical research.</p

Firm-level disclosure in the Baltic and Nordic regions before and after the mandatory adoption of the IFRS

This study systematically examines the levels of disclosure (i.e. the availability of firm-specific information to those outside publicly traded firms, measured by disclosure indices) in the annual reports of firms from the Baltic states of Estonia, Latvia and Lithuania, and compares the results with a sample of Nordic firms. The Baltic and Nordic regions are members of the EU and have had the same accounting regulations and stock market structure since 2005. In order to focus on and isolate the effect of regulation change on disclosure as reliably as possible, the time period used in this paper is 2004 and 2006, i.e. one year before and one year after the mandatory adoption of the IFRS. NASDAQ OMX owns and operates (with similar trading and quotation mechanisms) the stock exchanges that list all of our sample firms. The countries in our sample also have similar corporate governance regulations and recommendations for their listed firms. These similarities enable us to analyze whether other institutional and economic related factors, i.e. remaining matters that rule, regulate and monitor firms’ legal duties and the role of stock markets in an economy, and the principal societal differences in the sample countries, influence firms’ disclosure practices. We find that the level of financial reporting disclosure in annual reports is lower for Baltic firms than for Nordic firms, both before and after the introduction of the EU mandated International Financial Reporting Standards (IFRS) in 2005. However, the regulated financial reporting disclosure of Estonian firms matches that of their Nordic counterparts. This outcome is in line with the early proactivity and long-range strategy of regulators in Estonia aligning Estonia’s GAAP with the IAS/IFRS. Our results support the conclusion that disclosure practices are affected by factors beyond the IFRS and the similarity between the regions’ market trading and quotation mechanisms. This study provides evidence that systematic and strong-enough regulatory actions influence disclosure practices. We also hope that the disclosure indices described in this paper will help managers recognize the potential and richness of financial reporting disclosure as a communication tool.</p

Gender diversity and firm value: Evidence from UK financial institutions

Purpose: The purpose of this research is first, to empirically examine if the appointment of females (Board Gender Diversity) onto the corporate boards of UK financial institutions can improve the firm’s value. The second purpose is to examine if having females on the boards of UK financial institutions can impact the firm’s value during the pre/post global financial crisis situation.Design/methodology/approach: The paper uses secondary data obtained from DataStream covering 63 financial institutions over a period of 12 years. A number of additional statistical estimations, including Random Effects and Fixed Effects, are conducted in order to test the robustness of the findings.Findings: The outcome of this empirical research shows that the presence of females on the corporate boards of UK financial institutions has a positive and statistically significant relationship to the firm’s value. Before the financial crisis era, that is, during the pre-crisis situation (2000-2006), our evidence reveals a positive and statistically significant impact on the firm’s value. This means that women contributed significantly to the firm’s value. However, after the financial crisis period, the presence of females on the board did not make any significant effect on the firm’s value. A reasonable explanation may be that, even though the financial crisis was over from 2009 to 2011, the entire UK economy was still experiencing an economic downturn and financial firms were no exception, irrespective of whether there was female representation on any corporate board. Overall, the findings are consistent with prior studies.Originality/value: In spite of several research projects on board gender diversity (BGD), this research is unique when compared to other previous empirical works because, primarily, it will be the first time that such research will empirically ascertain board gender diversity and firm value in UK financial institutions and also during the pre/post financial crisis era. This paper contributes to the corporate governance literature by offering new insights on board diversity and firm’s value relationship. Overall, the results will help to fill any missing gaps on gender diversity and firm’s value in UK financial institutions.Keywords: Gender diversity, firm’s value, UK, financial institutions, financial crisis                                    Paper type: Research paper</p

Bimodality In Interim Reports: An Analysts' View

Cumulative abnormal residuals (cars) show how markets adjust to published information. Theoretically, cars are assumed to display unit normal behavior.&nbsp; Despite its merits, car has proved to be a somewhat imprecise measure of market response to published information.&nbsp; In practice, cars exhibit considerable deviation from theoretical unit normal behavior. Three disparities between theory and practice can be pinpointed.&nbsp; These are car: (1) location, (2) shape, and (3) stability.&nbsp; In our previous work we have demonstrated that cars are often bimodally distributed.&nbsp; This finding shows one reason why it takes semistrong efficient markets some time to digest new information. Cars, for the time period during which markets analyze the new value determining data, are usually bimodally distributed. One mode of the distribution represents the impact of good news. The other peak is caused by bad news.&nbsp; The valley, between the two peaks, indicates the influence of neutral news. &nbsp;This paper analyzes the interim reports, which constitute the data for our previous related studies. This research identifies the type of new information that creates bimodal cars

Audit Committee Adoption and Firm Value: Evidence from UK Financial Institutions

Purpose: This study examines the impact of audit committee (AC) adoption on the financial value of financial institutions in the UK and also examines the impact of the establishment of an audit committee on firm value during the pre/post global financial crisis era.Design/methodology/approach: The paper embarks on a theoretical and empirical literature review on audit committee (AC) adoption and its impact on the firm’s financial value. The paper uses data from 63 financial institutions and covers a 12-year period.Findings: The empirical results indicate that the adoption of an AC by financial institutions has a positive and statistically significant impact on firm value. The results from the precrisis period also indicate the adoption of an AC makes a positive and significant contribution to firm value. However, there is no impact on firm value during the post-crisis period. Our results suggest that the entire UK economy experienced an economic downturn after the financial crisis (2009-2011) and financial firms were no exception.Research limitations/implications: Our study helps to fill research gaps on the relationships between ACs and firm value as they exist in UK financial institutions. These findings are important for policy-makers and regulators.Originality/value: To the best of our knowledge, this research is the first to conduct an empirical study of the effect of AC adoption on UK financial institutions and firm value.Second, no single study has been conducted on the effects of AC adoption and its impact on either the pre- or the post-financial crisis periods. This is the first paper to provide such empirical evidence