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We examine the expected preventive function of enforcement of financial reporting which has been subject to reforms in several EU member states in the years following mandatory IFRS adoption. Specifically, we are interested in the question whether accounting quality – proxied by several earnings management metrics – improved in countries with substantive changes in their enforcement setting. For this reason, we compare the development in earnings management activities for a treatment sample of firms from 7 countries with enforcement changes with two control samples from 13 countries in total that do not exhibit comparable enforcement reforms. In contrast to prior literature, we cannot provide consistent evidence for a decrease in earnings management activities; however, some results indicate less upwards and more downwards earnings management after a strengthening of enforcement, arguably as an overcautious counter reaction of responsible managers. Given the limited numbers of observations, we regard our findings as a preliminary ientory in the attempt of assessing the effectiveness of accounting enforcement in the EU.
Short-term and long-term effects of IFRS adoption on disclosure quality and earnings management
(2016)
This study iestigates the effect of IFRS adoption on the transparency of financial reporting in Germany. For a sample period from 1995 to 2012, we analyze the development of the degree of earnings management and of disclosure quality using discretionary accruals and disclosure quality scores from an annual report ‘beauty contest’ published by a German business journal as proxies. We find that IFRS adoption is associated with an increase in disclosure quality and with an initial increase in the extent of earnings management. We argue that the latter is driven by factors such as low compliance, lack of experience and weaker enforcement in the early years of IFRS accounting and show that the degree of earnings management decreases from the ‘early’ to the ‘mature’ phase of IFRS accounting. Finally, we provide evidence for a negative association between disclosure quality and earnings management indicating that disclosures potentially constrain earnings management._x000D_ Keywords: IFRS adoption, earnings management, earnings quality, disclosure quality
Since the beginning of the 21st century, the fundamental concepts of group reporting have been revised substantially by the International Accounting Standards Board. Until now, International Financial Reporting Standards (IFRS) which were introduced with the aim to increase the transparency and comparability of consolidated financial statements have been applied mandatorily for about ten years in the European Union. These important developments frame the research context of this dissertation. Based on a comprehensive introduction into the conceptual fundamentals of group reporting under IFRS, the first part of the dissertation deals with the standards IFRS 10, IFRS 11 and, in particular, IAS 28 (revised 2011) which have recently been issued. Besides, the first part contributes to the ongoing debate on the subsequent accounting for goodwill acquired in a business combination. The second part of the dissertation examines issues related to the comparability and transparency of financial reporting under IFRS. In particular, comparability is assessed by analyzing classification choices in the statement of cash flows. Finally, the effects of the IFRS adoption on two dimensions of financial reporting transparency, earnings management and disclosure quality, are examined. In summary, the dissertation aims to further our understanding regarding recent conceptual developments as well as the achievement of comparability and transparency of group reporting under IFRS.
International Additives Producer AG (IAP) recently announced ambitious forecasts regarding revenue and operating income to the capital market. These key performance indicators depend on the way IAP's iestments are currently accounted for in its consolidated financial statements, a situation that is seriously questioned by the newly appointed auditor. In this context, the case requires the application of the relevant International Financial Reporting Standards (IFRS) regarding the categorization of iestments for group reporting purposes. Specifically, Part I of the case requires the application of the control concept of IFRS 10 as well as the classification rules of IFRS 11 for joint arrangements, while Part II of the case introduces the assessment of significant influence according to IAS 28. Throughout the case the consequences of iestment categorization on external reporting and related management incentives that arise from the interplay between financial reporting and capital markets, compensation contracts and additional disclosure requirements are discussed.
This study iestigates the prevalence of transactions resulting in negative goodwill under IFRS 3 Business Combinations. For a sample of 1,440 firm-year observations of listed German firms for the years 2005 to 2013, we find 96 negative goodwill transactions which give rise to an immediate gain recognized by the acquirer. Besides the fact that “bargain purchases” are not as rare as assumed by the standard setter when developing the current guidance, we document the reasons for the occurrence of negative goodwill. Our findings show that “bargain purchases” indeed account for the single most disclosed reason in our sample. However, alternative reasons such as future restructuring activities or market conditions are together equally likely to explain the existence of negative goodwill. Therefore, our results question whether the current treatment of negative goodwill as an immediate gain is most appropriate._x000D_ Keywords: Business combinations, negative goodwill, bargain purchase, badwill, IFRS 3
IFRS are intended to provide users with transparent and comparable financial information. However, in contrast to US GAAP and German GAAP, IFRS offer considerable flexibility regarding the classification of interest and dividends in the statement of cash flows. We explore the reporting practice of German listed firms and shed light on the determinants of classification choices which aim to increase operating cash flow (OCF). Our findings support prior research in that firms tend to increase OCF under specific circumstances, especially when they are highly leveraged and/or less profitable. Moreover, we find that industry practice plays a major role in determining firms’ reporting choices. Overall, our results cast doubt on whether the advantages of the flexibility offered under IFRS outweigh the disadvantages of reduced comparability._x000D_ A previous version of the article was published as <link http://www.hhl.de/en/research/publications/detail-page/?tx_publikationen_pi1%5Buid%5D=4655 _blank external-link-new-window "Opens external link in new window">HHL Working Paper 148</link>.
IFRS are intended to provide users with transparent and comparable financial information. However, in contrast to US GAAP and German GAAP, IFRS offer considerable flexibility regarding the classification of interest and dividends in the statement of cash flows. We explore the reporting practice of German listed firms and shed light on the determinants of classification choices which aim to increase operating cash flow (OCF). Our findings support prior research in that firms tend to increase OCF under specific circumstances, especially when they are highly leveraged and/or less profitable. Moreover, we find that industry practice plays a major role in determining firms’ reporting choices. Overall, our results cast doubt on whether the advantages of the flexibility offered under IFRS outweigh the disadvantages of reduced comparability. This HHL Working Paper was submitted to the journal Corporate Ownership and Control and published in the issue 12 (2015) 4, p. 906-927.
The IASB emphasizes the demand for academic research in the standard setting process. Ewert and Wagenhofer (2012) specifically refer to the post-implementation review (PIR) process and point out that “academics can, and should, play a significant role in a PIR.” We follow these requests and aim to contribute to the current PIR on IFRS 3 Business Combinations. In particular, we evaluate the impact of the introduction of the impairment-only approach for goodwill accounting in 2004 from two perspectives. Firstly, we analyze the comment letters submitted by stakeholders in response to the Request for Information (RfI) during the PIR. Secondly, we systematically review related academic literature. The analysis of comment letters sheds light on the advantages and disadvantages of the goodwill impairment test perceived by interested stakeholders. By reflecting on these perceptions with respect to academic research, we identify differences between the two perspectives as well as research opportunities. Our findings show that stakeholders’ views about the usefulness of the information provided by the impairment test are mixed, while they share widespread concerns about the cost-benefit relation and the extent of discretion iolved in the tests. Academic research tends to support the assumption that the impairment-only approach increases the usefulness of financial reporting. However, the concerns expressed about subjectivity and managerial discretion are confirmed by a number of empirical studies. In this dilemma, we advise the IASB not to withdraw the current concept immediately, but rather recommend some short-term measures to address areas of improvement identified in the PIR. In the long-term, we need a larger project – reasonably in cooperation with the FASB – in which the subsequent treatment of goodwill is holistically reviewed.
Im Mai 2014 veröffentlichte das IASB die finalen Änderungen an IAS 16 und IAS 38 hinsichtlich der Angemessenheit von Abschreibungsmethoden. Klargestellt wird nunmehr, dass umsatzbasierte Abschreibungsmethoden für das Sachanlagevermögen nicht sachgerecht sind. Für immaterielle Vermögenswerte gilt dies grds. gleichermaßen, wobei sich der Standardsetter aufgrund der im Rahmen des Kommentierungsprozesses eingegangenen Stellungnahmen hier für eine widerlegbare Vermutung entschied. Entsprechend können Umsatzerlöse weiterhin als Grundlage für die Abschreibungsbemessung immaterieller Vermögenswerte dienen, und zwar dann, wenn eine starke Korrelation zum tatsächlichen Werteverzehr besteht oder Umsatzerlöse der maßgebliche begrenzende Faktor des betrachteten Vermögenswerts sind.