No abstract

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 study investigates 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

No abstract

This study investigates 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.