AN ACCOUNTING PERSPECTIVE ON A CRISIS PERPETUATED THORUGH THE CAPITAL MARKET

Our paper analyzes the current financial crisis starting with some recent developments and reactions in the field of accounting. We find that involved parties within the financial system naturally look for a “scapegoat” instead of dealing with reality. Moreover, they try to avoid regulations that would reflect their current financial position and performance. Meanwhile, what reality reveals us is that we are dealing with a crisis of value, or better said valuation, framed by significant changes of paradigms. Starting with thoughts and reactions within trade literature and financial environment, we analyze some mechanisms of credit derivatives that propagated the crisis within the global financial system. Finally, we prove our point in defending fair value accounting and identify key aspects that allow future improvements. The need for informational transparency is emphasized through the whole paper.Financial crisis, fair value, derivatives, mortgages, informational transparency, capital markets

RECENT DEVELOPMENTS OF THE FINANCIAL REPORTING MODEL: THEORETICAL STUDIES IN REVIEW

Our paper analyzes the manner in which the financial reporting model evolved towards fair value accounting. After a brief introduction into the context of financial reporting at international level, the analysis focuses on the accounting model of fair value. This is done by synthesizing main studies in accounting research literature that analyze fair value accounting through a theoretical approach. The analysis being developed relies on literature review methodology. The main purpose of the developed analysis is to synthesize main pros and cons as being documented through accounting research literature. Our findings underline both the advantages and shortcomings of fair value accounting and of the recent mixed attribute in nowadays financial reporting practices. The concluding remarks synthesize the obtained results and possible future developments of our analysis.fair value, accounting research literature, mixed attribute, pros, cons

CORPORATE GOVERNANCE AND CREATIVE ACCOUNTING: TWO CONCEPTS STRONGLY CONNECTED? SOME INTERSTING INSIGHTS HIGHLIGHTED BY CONSTRUCTING THE INTERNAL HISTORY OF A LITERATURE

Corporate governance is concerned with the relationships between a business’smanagement and its board of directors, shareholders and lenders and its other stakeholders such asemployees, customers, suppliers, and the community in which activates. The connection betweenthis topic and creative accounting was debated in the literature since the latter occurrence isrelated to the weakness of the first. Our study offers interesting insights into this strong connectionby examining the relevant ideas developed previously in the literature with the scope ofunderstanding, reinterpreting and rediscovering from interesting points of view this association inour search for responsibility in the economic environment. By conducting this study we wanted toreinforce the role of literature analyst as an interpreter who contributes meaning to the presentstate of the art.corporate governance, creative accounting, Papineau`s hierarchy

STUDY REGARDING THE QUALITY OF THE TRUE AND FAIR VIEW SUPPLIED BY THE FINANCIAL STATEMENTS FROM FINANCIAL AUDITOR'S POINT OF VIEW

The concept of "true and fair view" is a very subjective one , which didn't find yet the definition general accepted and in this way we can't say that there are relevant instruments for measuring the level of the fidelity reflected in the financial statements. The financial audit plays an important role for delimitating the true and fair view supplied by the financial statements and despite the fact that the financial auditors are consciences that there isn't a mathematical formula or other kind of formula through which could be possible to measure the level of the fidelity and the true and fair view of the financial statement, they consider that they have the possibility to identify the situations in which the financial statements didn't present the reality true and fair, using the professional though to determine the level of the financial statements to give a true and fair view We have made an empirical survey which permits us to analyze the quality of the true and fair view supplied by the financial statements from the point of view of the financial auditor, without having the pretentious of using all the significant aspects.true and fair view, financial audit, survey, financial auditor, financial statements

Fair Value Accounting for Financial Instruments – Conceptual Approach and Implications

This study complements the growing literature on the value relevance of fair value by examining the validity of the hypothesis that fair value is more informative than historical cost as a financial reporting standard for financial instruments. We therefore compare the relative explanatory power of fair value and historical cost in explaining equity values. In order to reflect fair values’ role in offering the fair view where financial instruments are concerned we briefly reviewed capital market studies that examine the usefulness of fair value accounting to investors, and discuss marking-to-market implementation issues of determining financial instruments’ fair values. In doing so, we identified several key issues, which need to be analyzed. More importantly, our results suggest that simply requiring fair value, as the reported measure for financial instruments may not improve the quality of information unless appropriate estimation methods or guidance for financial instruments that are not traded in active markets can be established. In contrast, fair value of available-for-sale securities, which are more actively traded in well-established markets, explains equity values more than historical cost. Taken together, our results are consistent with the notion that fair value is more (less) value relevant when objective market- determined fair value measures are (not) available.

SEARCHING FOR THE FAIR STORY BEHIND FAIR VALUE FOR FINANCIAL INSTRUMENTS

Our paper aims at telling the whole story where fair value accounting is concerned. Harsh criticism has been brought to this concept under current circumstances that motivated out research. Without arguing for fair value as something it is not, we brieflyFair value accounting, standards setting bodies, financial crisis

CASH-FLOW REPORTING BETWEEN POTENTIAL CREATIVE ACCOUNTING TECHNIQUES AND HEDGING OPPORTUNITIES CASE STUDY ROMANIA

We have studied the cash flow reporting issues in Romania, trying to establish if there isan interest in using creative accounting techniques in order to manipulate cash flow reporting.Another issue of our research is focused on the possibility of using hedging opportunities by financialmanagers of Romanian companies, in order to at least partially protect future cash-flow from externalfluctuating factors.In order to achieve our goals, we have issued a questionnaire, submitted to authorize auditors fromRomania (208 audit companies and 267 individual auditors).Our study lead us to conclude that creative accounting techniques related to cash flow are only partlyknown and used by the Romanian companies. On the other hand, hedging techniques were found to bevery little known and used by Romanian managers. In this respect, the few instruments used are relatedto bank and insurance products like factoring, receivables insurance, financial instruments based oninterest and foreign exchange rates.cash flow, creative accounting, hedging opportunities

FACTORS INFLUENCING THE EXTENT OF CORPORATE COMPLIANCE WITH IFRS. THE CASE OF HUNGARIAN LISTED COMPANIES

Since 2005 European listed companies report their financial figuresbased on IFRSs. This paper investigates whether Hungarian listed companies complywith IFRS disclosure requirements, identifying some factors associated with the levelof compliance. Although the issue of consolidation is not a new topic for Hungarianspecialists, the analysis focuses on the disclosure aspects of consolidation becausepublishing consolidated accounts is considered still a problematic field (Fekete,2008).Findings suggest that corporate size and industry type (more specifically being in theIT&C sector) are statistically associated with the extent of compliance with IFRSdisclosure requirements. This suggest that big, high tech companies comply best toIRFS rules, possibly because they can benefit the most from them.IAS/IFRS, compliance, disclosure, Hungary

FREE CASH FLOW AS PART OF VOLUNTARY REPORTING. LITERATURE REVIEW

The present study has as main objective to reflect the state of literature regarding free cash flow, and to withdraw the main pro's and con's in order to create an objective image upon this indicator. The main idea generating this research was the growing interest on cash flow reporting. As many say, "Cash Flow is King", while in Anglo Saxon countries the interest of investors and analysts in concentrated on operating cash flow, as the most important indicator of the probability of bankruptcy. In this context, voluntary additional reporting, like free cash flow may come either as an aid in providing the fair view or as an opportunistically reported figure. Throughout the paper, the intention was to provide answers to three main research questions: "What are the definition and calculation method of free cash flow? Why is there an interest in free cash flow reporting? What is the impact of free cash flow on the agency theory?" In order to provide relevant conclusions, four international data basis were used, and related articles and studies were extracted. The results proved that there is no generally accepted definition and computing method, while the format depends on the end-user of the report (shareholders, investors, analysts, bankers, a.s.o.). As stated below, this aspect generates confusion and lack of comparability, giving room to creative accounting techniques. Moreover, the interest on free cash flow reporting is connected mainly to liquidity assessment, company valuation and investors' choice. Still, in the context of agency theory, results show that in presence of high free cash flow, managers tend to make investment choices that satisfy their personal interest and that generate low efficiency and profitability for the company. The contribution to current state of research is providing a literature review study, focused on a comparative approach, as well as on underlying an objective image upon a debatable financial indicator and accounting report.free cash flow, reporting, management, agency theory, creative accounting

CASH FLOW REPORTING AND CREATIVE ACCOUNTING

Within the wide field of creative accounting, the main preoccupation of researchers surrounded earnings management. The current study comes to acknowledge that creative cash flow may distort the assessment of financial performance and should therefore, become a subject of the same interest for analysts and investors, as earnings management is. In order to reach the objective proposed, there are two hypotheses formulated, to be validated within the research: H1: Creative accounting distorts cash flow reporting within the boundaries of current regulations. H2: Real activity manipulation alters significantly the operating cash flow. The steps followed were analyzing the accounting standard related to cash flow statement, IAS 7, in order to uncover issues not taken into account, or options of allocation provided for accountants, which could lead to opportunistic choices and lack of comparability. The relevant literature was reviewed, so as to identify the opinions of accounting and finance specialists related to this subject, the results of their scientific process. The final step was a synthesis of relevant results and observations, which lead to the acceptance of the hypothesis of the research. Moreover, several techniques were identified, both related to creative accounting and to real activity manipulation, influencing mainly the figure reflecting operating cash flow, and thus the image on the potential of business continuity. Main conclusions were that the techniques applied were within the limits set by the standard: opportunistic allocation of dividends and interest collected or paid misallocation of certain activities like sale of receivables, but mainly recording non-recurring events into the operating cash flow, without separate notes of information or adjustments. Real activity manipulation should also be considered as it is even more difficult to detect, unless analysis is also performed on notes to financial reports and the figures within the profit and loss account. The contribution of the current study is providing a synthetic arrgumentation to why cash flow should be analysed in the context of creative accounting, reviewing methods and techniques that distort significantly the results of operating activity, providing basis for further study related to the impact of such practices on forecasts of cash flow and predictability of bankruptcy.operating cash flow, creative accounting, non-recurring activity, IAS 7, financial performance