Fair Value Reclassifications of Financial Assets during the Financial Crisis

At the peak of the financial crisis in October 2008, the IASB amended IAS 39 to grant companies the option of abandoning fair value recognition for selected financial assets. Using a comprehensive global sample of publicly listed IFRS banks, we find that banks use the reclassification option to forgo the recognition of fair value losses and ultimately the regulatory costs of supervisory intervention. Analyses of stock market reactions suggest that a small subset of the most troubled banks benefit from such reclassifications. However, analyses of related footnote disclosures reveal that two-thirds of reclassifying banks do not fully comply with the accompanying IFRS 7 requirements. These banks experience a significant increase in bid-ask spreads in the long run.Bank Regulation, Fair Value Accounting, Financial Crisis, IAS 39, IFRS 7

Intended and unintended consequences of mandatory IFRS adoption: A review of extant evidence and suggestions for future research

This paper discusses empirical evidence on the economic consequences of mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) and provides suggestions on how future research can add to our understanding of these effects. Based on the explicitly stated objectives of the EU‟s so-called „IAS Regulation‟, we distinguish between intended and unintended consequences of mandatory IFRS adoption. Empirical research on the intended consequences generally fails to document an increase in the comparability or transparency of financial statements. In contrast, there is rich and almost unanimous evidence of positive effects on capital markets and at the macroeconomic level. We argue that certain research design issues are likely to contribute to this apparent mismatch in findings and we suggest areas for future research to address it. The literature investigating unintended consequences of mandatory IFRS adoption is still in its infancy. However, extant empirical evidence and insights from non-IFRS settings suggest that mandatory IFRS adoption has the potential to materially affect contractual outcomes. We conclude that both the intended and the unintended consequences deserve further scrutiny to assess the costs and benefits of mandatory IFRS adoption, which may help provide a basis for evaluating the effectiveness of the IAS Regulation. We provide specific guidance for future research in this field.International accounting, IFRS adoption, economic consequences, contracting, regulation, review

Intended and unintended consequences of mandatory IFRS adoption

This paper discusses empirical evidence on the economic consequences of mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) and provides suggestions on how future research can add to our understanding of these effects. Based on the explicitly stated objectives of the EU‟s so-called „IAS Regulation‟, we distinguish between intended and unintended consequences of mandatory IFRS adoption. Empirical research on the intended consequences generally fails to document an increase in the comparability or transparency of financial statements. In contrast, there is rich and almost unanimous evidence of positive effects on capital markets and at the macroeconomic level. We argue that certain research design issues are likely to contribute to this apparent mismatch in findings and we suggest areas for future research to address it. The literature investigating unintended consequences of mandatory IFRS adoption is still in its infancy. However, extant empirical evidence and insights from non-IFRS settings suggest that mandatory IFRS adoption has the potential to materially affect contractual outcomes. We conclude that both the intended and the unintended consequences deserve further scrutiny to assess the costs and benefits of mandatory IFRS adoption, which may help provide a basis for evaluating the effectiveness of the IAS Regulation. We provide specific guidance for future research in this field

The Effect of Regulatory Harmonization on Cross-border Labor Migration: Evidence from the Accounting Profession

The paper examines the effect of international regulatory harmonization on cross-border labor migration. We analyze directives in the European Union (EU) that harmonized accounting and auditing standards. This regulatory harmonization should make it less costly for those who work in the accounting profession to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that, on average, labor migration in the accounting profession increases relative to comparable professions by roughly 15% after harmonization. The findings illustrate that diversity in rules constitutes an important economic barrier to cross-border labor mobility and, more specifically, that accounting harmonization can have a meaningful effect on cross-border migration

Cerebrospinal Fluid Biomarkers in Cerebral Amyloid Angiopathy: New Data and Quantitative Meta-Analysis

Background To evaluate the diagnostic accuracy of cerebrospinal fluid (CSF) biomarkers in patients with probable cerebral amyloid angiopathy (CAA) according to the modified Boston criteria in a retrospective multicentric cohort. Methods Beta-amyloid 1-40 (Aβ40), beta-amyloid 1-42 (Aβ42), total tau (t-tau), and phosphorylated tau 181 (p-tau181) were measured in 31 patients with probable CAA, 28 patients with Alzheimer's disease (AD), and 30 controls. Receiver-operating characteristics (ROC) analyses were performed for the measured parameters as well as the Aβ42/40 ratio to estimate diagnostic parameters. A meta-analysis of all amenable published studies was conducted. Results In our data Aβ42/40 (AUC 0.88) discriminated best between CAA and controls while Aβ40 did not perform well (AUC 0.63). Differentiating between CAA and AD, p-tau181 (AUC 0.75) discriminated best in this study while Aβ40 (AUC 0.58) and Aβ42 (AUC 0.54) provided no discrimination. In the meta-analysis, Aβ42/40 (AUC 0.90) showed the best discrimination between CAA and controls followed by t-tau (AUC 0.79), Aβ40 (AUC 0.76), and p-tau181 (AUC 0.71). P-tau181 (AUC 0.76), Aβ40 (AUC 0.73), and t-tau (AUC 0.71) differentiated comparably between AD and CAA while Aβ42 (AUC 0.54) did not. In agreement with studies examining AD biomarkers, Aβ42/40 discriminated excellently between AD and controls (AUC 0.92-0.96) in this study as well as the meta-analysis. Conclusion The analyzed parameters differentiate between controls and CAA with clinically useful accuracy (AUC > ∼0.85) but not between CAA and AD. Since there is a neuropathological, clinical and diagnostic continuum between CAA and AD, other diagnostic markers, e.g., novel CSF biomarkers or other parameters might be more successful

Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research

This paper discusses empirical evidence on the economic consequences of mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) and provides suggestions on how future research can add to our understanding of these effects. Based on the explicitly stated objectives of the EU's so-called 'IAS Regulation', we distinguish between intended and unintended consequences of mandatory IFRS adoption. Empirical research on the intended consequences generally fails to document an increase in the comparability or transparency of financial statements. In contrast, there is rich and almost unanimous evidence of positive effects on capital markets and at the macroeconomic level. We argue that certain research design issues are likely to contribute to this apparent mismatch in findings and we suggest areas for future research to address it. The literature investigating unintended consequences of mandatory IFRS adoption is still in its infancy. However, extant empirical evidence and insights from non-IFRS settings suggest that mandatory IFRS adoption has the potential to materially affect contractual outcomes. We conclude that both the intended and the unintended consequences deserve further scrutiny to assess the costs and benefits of mandatory IFRS adoption, which may help provide a basis for evaluating the effectiveness of the IAS Regulation. We provide specific guidance for future research in this field

Fair Value Reclassifications of Financial Assets during the Financial Crisis

At the peak of the financial crisis in October 2008, the IASB amended IAS 39 to grant companies the option of abandoning fair value recognition for selected financial assets. Using a comprehensive global sample of publicly listed IFRS banks, we find that banks use the reclassification option to forgo the recognition of fair value losses and ultimately the regulatory costs of supervisory intervention. Analyses of stock market reactions suggest that a small subset of the most troubled banks benefit from such reclassifications. However, analyses of related footnote disclosures reveal that two-thirds of reclassifying banks do not fully comply with the accompanying IFRS 7 requirements. These banks experience a significant increase in bid-ask spreads in the long run

Fair value reclassifications of financial assets during the financial crisis

This study examines whether reclassifications of financial assets out of fair value categories during a market downturn are associated with regulatory benefits and informational costs. We find that the severity of regulatory capital restrictions and the lack of prudential filters for unrealized fair value changes are positively associated with a bank’s reclassification choice. For a small group of banks that have a high reclassification likelihood and the greatest need for additional regulatory capital, we observe a positive stock market reaction around the announcement of the new accounting option. For another group of banks that were initially not expected to reclassify, we find that abnormal stock returns around the announcement of the accounting choice increase in the regulatory capital effect of the reclassification. Finally, we document a positive association between banks’ bid-ask spreads and the reclassification choice for those banks that do not provide complete IFRS 7 disclosures about the unrecognized fair value changes