Comparability of Accounting Choices in Future Valuation of Investment Properties: An Analysis of Brazilian and Portuguese Listed Companies

Abstract

One of the main purposes for adopting the International Financial Reporting Standards (IFRS) is the quest for comparability between financial statements within the same country, over time, and between different countries. IFRS have the feature of allowing accounting choices in most of their standards. However, the existence of such flexibility in the process for recognizing, measuring, and disclosing assets and liabilities may impact on comparability. IFRS have been criticized both due to their accounting choices and the adoption of the fair value paradigm. This article examines these two issues, investigating the choice of the cost model versus the choice of the fair value model for investment properties (IPs), an option guaranteed under the terms of the International Accounting Standard (IAS) 40. This research aimed to identify the comparability degree and the factors that determine the accounting choices made by managers of IPs, in Brazilian and Portuguese listed companies, within the periods from 2010 to 2012. Comparability, within and between countries, was identified by the T-index and the search for the determining factors of accounting choices made by managers was performed by means of a logistic regression analysis. As a result, it was found that, despite the accounting choices allowed by IAS 40, there was a mean comparability between the accounting practices of firms in these countries, but showing a decrease in the index over the years. The explanatory factors identified were auditing by one of the big four (PricewaterhouseCoopers, Deloitte Touche Tohmatsu, KPMG, or Ernst & Young), companies' indebtedness, relative importance of IPs' balance, net profit, and less experience of Brazil in using the fair value method to appraise IPs.

The Effects of Organisational Culture on IFRS Adoption: Evidence from Nigerian’ Companies

“…The finding is consistent with a previous study which found that ownership structure influences companies' decisions to adopt IAS 41 (Gonç alves & Lopes, 2014) The audit type (AUD_TYP) coefficient is positive and significant at the 1 percent level, meaning that companies using international audit firms in Nigeria such as Deloitte, Ernst and Young, KPMG and PricewaterhouseCoopers have a greater probability of IFRS adoption than companies that used local audit firms. The significance of audit firms on IFRS adoption confirms Souza et al (2015) report on the impact of Big 4 audit firms on IFRS adoption. In the case of Nigeria, the Big 4 audit firms are considered as international audit firms.…”

“…Consequently, companies that have accounting systems that are less flexible will consider IFRS non-adoptable. Souza, Botinha, Silva, and Lemes (2015) state that the flexibility in IFRS policies impacts IFRS adoption. However, flexibility in accounting practice could be a motivating factor for International Journal of Accounting and Financial Reporting ISSN 2162-3082 2018 some companies, while a prohibitive factor to others that have experiences in uniform accounting practice.…”

The effect of corporate governance and investor protection environments on the value relevance of new accounting standards: the case of IFRS 9 and IAS 39

“…Opponents demonstrate that the new accounting standards are not necessarily better than the old ones, especially when the new accounting principles increase accounting discretion. In the case of IAS/IFRS, Souza et al (2015) state that such standards have the feature of allowing accounting choices in most of their standards that negatively impact on comparability due to the flexibility in the process for recognizing, measuring, and disclosing assets and liabilities. Also, Al Farooque (2016) and Elbannan (2011) find a negative effect on firm valuation produced by the IAS/ IFRS adoption in Australia and of IAS-based accounting standards in Egypt.…”

Fair Value Accounting: A Controversial but Promising System

“…volume, frequency) to be met once (Landsman, 2007). Another argument on the lack of complete definition for fair value that may affect the comparability of financial statements according to Prochá zka (2011) is that a particular element may be measured in one entity using fair value and historical cost in another, as well as identifying the fair value of the asset or liability in some circumstances depends on entity's own assumptions, which means several fair values may be found for one element at one time (see also, Lilien, Sarath & Schrader, 2013;Alves de Souza et al, 2015).…”

“…Prochá zka, 2011;Lilien, Sarath & Schrader, 2013;Alves de Souza et al, 2015). This, however, weakens the comparability among entities and damages the credibility of financial statements (Prochá zka, 2011).…”