Compliance with flexible accounting standards

Bøhren, Øyvind; Haug, Jørgen; Michalsen, Dag

doi:10.1016/j.intacc.2003.12.001

Cited by 5 publications

(6 citation statements)

References 7 publications

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“…Previous empirical research on equity accounting has examined (a) the representation of investor firms on associates' boards (Gniewosz, 1980), (b) whether equity accounting contributes to investors' loan repaying ability (Wilkins and Zimmer, 1985), (c) whether investors' holdings in investees are influenced by the bright-line threshold for applying equity accounting (Comiskey and Mulford, 1986), (d) the economic determinants of equity accounting in Australia immediately after release of accounting standards thereon (Mazay et al , 1993;Zimmer, 1994), (e) equity accounting's value relevance (Ricks and Hughes, 1985;Tutticci, 2002;, (f) equity accounting's risk relevance (Kothavala, 2003) and its predictive ability , (g) whether the market prices of off-balance-sheet obligations are concealed by equity accounting (Bauman, 2003), and (h) the determinants of equity accounting usage in Norway (Bohren et al , 2004;Bohren and Haug, forthcoming).…”

mentioning

confidence: 99%

Equity accounting adoption in regulated and unregulated settings: an empirical study

Morris

Gordon

2006

Abacus

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This article investigates equity accounting adoption in regulated and unregulated settings. Equity accounting 1 is a controversial accounting method. As Nobes (2002) recently pointed out, the method is conceptually flawed; yet it has survived R ichard D. M orris (richard.morris@unsw.edu.au) is an Associate Professor of Accounting at the University of New South Wales and I sabel G ordon a Lecturer in Accounting at The University of Sydney. We acknowledge the helpful comments of reviewers and seminar participants at the Universities of New South Wales, Queensland, Southern Queensland, Sydney, and Queensland University of Technology.1 The article is restricted to equity accounting of investments in associates, even though the method has also been applied to incorporated joint ventures. Associates are investees over which an investor has significant influence but not control. An equity holding between 20 per cent and 50 per cent in the investee usually indicates significant influence, although other factors are also relevant.

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mentioning

confidence: 99%

Equity accounting adoption in regulated and unregulated settings: an empirical study

Morris

Gordon

2006

Abacus

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“…Alternatively, earnings management does indeed attract managerial attention, but no significant effect is observed because incentives for earnings minimization are on average as strong as those for earnings maximization. The finding by Bøhren et al (2004) that these firms do not comply with accounting regulations on the consolidation choice does not support the GAAP explanation. Moreover, Panel B of Table 3 shows that accounting practice varies substantially across industries.…”

Section: Sample Selection and Descriptive Statisticsmentioning

confidence: 74%

“…In contrast, the Norwegian GAAP (NGAAP) rule that the decision to use the equity method rather than the non‐consolidating cost method is left to management's discretion. Bøhren et al (2004) find that the financial reporting practice of Norwegian firms is inconsistent with this flexible regime. Neither the relative voting power of the investor (significant influence), the length of the investment period (long‐term commitment), nor the investment's size or recent growth (strategic importance) influences the choice between the cost and equity methods.…”

Section: Introductionmentioning

confidence: 85%

Managing Earnings with Intercorporate Investments

Bøhren

Haug

2006

Business Fin & Account

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We explore to what extent firms deliberately manage their financial reports by exploiting the flexibility of generally accepted accounting principles. Using a sample of Oslo Stock Exchange-listed firms with 20-50% equity holdings in other firms, we find that firms with high financial leverage tend to maximize reported earnings from these investments through their choice between the cost method and the equity method, possibly in an attempt to reduce debt renegotiation costs or to avoid regulatory attention. In contrast, managers do not systematically bias reported earnings to extract private benefits or to signal revised expectations about future cash flows. Firms use different earnings management tools in a consistent way, as the earnings effect of the cost/equity choice is not offset by discretionary accruals. Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

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“…This is a vague concept that is left to management's discretion and is difficult to audit (Nobes 2002). Prior research provides evidence that management's judgement of significant influence is a function of earnings management incentives (Miller and Leo 1997;Bøhren et al 2004;Haug and Bøhren 2006). This leads to the second hypothesis:…”

Section: Equity Methods Earnings and Core Earningsmentioning

confidence: 99%

“…Prior research provides evidence that management's judgement of significant influence is a function of earnings management incentives (Miller and Leo ; Bøhren et al. ; Haug and Bøhren ). This leads to the second hypothesis: H2:Equity method earnings are negatively related to core earnings. …”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

An Empirical Evaluation of Investment Income under the Equity Method of Accounting

Lai

Zou

2017

Australian Accounting Review

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This study investigates the valuation implications of equity method earnings among Chinese listed firms, which are often perceived by the Chinese business press of employing the equity method to avoid reported losses. Our results show that firms with declining core earnings are more likely to have equity method investments than firms with increasing core earnings. Also, firms with lower core earnings report higher equity method earnings. Moreover, equity method earnings do not improve earnings persistence but are found to be relevant. Investors act as if they naively fixate on equity method earnings. A portfolio constructed on the basis of core earnings and equity method earnings generates a hedged return of 8%.

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Compliance with flexible accounting standards

Cited by 5 publications

References 7 publications

Equity accounting adoption in regulated and unregulated settings: an empirical study

Equity accounting adoption in regulated and unregulated settings: an empirical study

Managing Earnings with Intercorporate Investments

An Empirical Evaluation of Investment Income under the Equity Method of Accounting

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