Enforcement of Accounting Standards in Europe: Capital-Market-Based Evidence for the Two-Tier Mechanism in Germany

Hitz, Joerg Markus; Ernstberger, Jürgen; Stich, Michael

doi:10.1080/09638180.2011.641727

Cited by 94 publications

(76 citation statements)

References 47 publications

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“…As the employment of FV/VU is more subjective and less reliable than historical cost minus depreciation, IASB's standards often require that the assumptions that underlie the establishment of the FV/VU of an asset or liability are disclosed. A substantial non-adherence to mandatory IFRS disclosure requirements, from 2005 and onwards, has, however, been documented (Pope and McLeay, 2011;Tsalavoutas, 2011;Hitz et al, 2012). As the purpose of the disclosure requirements is to improve the reliability of the accounting numbers, which to a higher extent than before (owing to the rejection of the income statement approach and the acceptance of the balance sheet approach) are based on management's estimations, compliance with the disclosure requirements could, more today than previously, be of importance.…”

Section: Introductionmentioning

confidence: 96%

Swedish and Dutch listed companies’ compliance with IAS 36 paragraph 134

Hartwig

2013

Int J Discl Gov

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This article investigates the extent to which companies listed on the Nasdaq OMX (NOMX) and the Euronext Amsterdam (EA), in their 2005 and 2008 annual reports, complied with the disclosure requirements in IAS 36 paragraph 134, as well as the factors that explain why some companies complied with the standard to a higher extent than did other ones. Swedish and Dutch listed companies are chosen as the accounting oversight system differs between the countries. The relationship between the dependent variable, that is, information disclosed in accordance with IAS 36 paragraph 134 in the annual reports in Swedish and Dutch listed companies, and the independent variables, that is, accounting oversight, auditing company, size, leverage, future prospects, industry and learning, is examined. The results reveal that Swedish companies listed on the NOMX were more compliant than their Dutch counterparts in 2005, possibly because of the (historically) weak Dutch institutional oversight system. The compliance level seems to have increased in both Swedish and Dutch companies over time, thus indicating learning. In 2008, there was no significant difference in compliance level between Sweden and the Netherlands, which suggests convergence. Size significantly affected the compliance level in Sweden only, and leverage affected the compliance level in the Netherlands only. Moreover, non-financial companies were more compliant in both countries. The independent variables auditing company and future prospects did not seem to have a significant effect on the compliance level.

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Section: Introductionmentioning

confidence: 96%

Swedish and Dutch listed companies’ compliance with IAS 36 paragraph 134

Hartwig

2013

Int J Discl Gov

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“…Hitz et al. () examine the cause of corrections by application of IFRS using German firms and document negative market reactions to error announcements.…”

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confidence: 99%

The effect of restatements on analyst behavior

Lan

2017

Business Fin & Account

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This paper examines how changes in the credibility of financial reporting affect analyst behavior. Using a sample of restatement firms experiencing a substantial change in credibility over 1997–2006, we document that restatements have a long‐lived effect on analyst behavior and that analysts differentiate between restatements caused by irregularities and those caused by errors. We find that while irregularity restatement firms exhibit a reduction in analyst coverage and forecast accuracy and an increase in forecast dispersion in the post‐restatement period, other restatement firms exhibit only an increase in forecast error. Finally, we find evidence to suggest that remedial actions reduce the effect of irregularity restatements on analyst behavior. Overall, these results are consistent with the notion that restatements affect analyst behavior in forming judgements regarding subsequent earnings announcements.

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“…Furthermore, I find that about 14% of the firms in the sample used in this study are subject to a public error announcement/enforcement release in more than one case. Hitz et al (2012) find that enforced firms have relatively poor governance quality, report poor profitability, and tend to have strong earnings management incentives. Based on capital market reactions to error announcements, they consider the German adverse disclosure sanction to be effective.…”

Section: Financial Statement Oversight and Enforcement System In Germanymentioning

confidence: 97%

“…As the coverage of the investigations has to be limited, due to the capacities of the FREP, examinations are focused either on the issues that led to the indication (indication based reviews) or on "Examination Areas of Emphasis" released by the FREP at the end of each year for the following year (sample-based reviews) (FREP, 2010). Hitz et al (2012) provide a detailed description of the enforcement system. 3.…”

Section: Enforcement Releases and Earnings Quality 291mentioning

confidence: 99%

“…Ernstberger et al (2012) examine consequences (on earnings quality, liquidity, and valuation) of an increase in the overall level of enforcement for affected firms, but do not directly address the firms subject to FREP-error findings. Hitz et al (2012) evaluate a sample based on the error findings, but investigate market reactions to error announcements; they do not evaluate any balance sheet data, financial ratios, or earnings quality. 2.…”

Section: Enforcement Releases and Earnings Quality 291mentioning

confidence: 99%

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Enforcement Releases, Firm Characteristics, and Earnings Quality: Insights from Germany's Two‐tiered Enforcement System

Strohmenger

2014

Financ Manag Account

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The implementation of a two-tier external enforcement mechanism in Germany in 2004 permits the examination of the interrelationship of enforcement releases, firm characteristics, and earnings quality in a unique institutional framework. A total of 151 cases are examined where the announcement of errors in prior disclosed and audited financial statements was mandatorily ordered by the enforcement authority. Prior literature documents the correlation between underperformance in financial ratios and the probability of erroneous disclosure of financial statements. Evidence is provided of differences in characteristics between firms with enforcement releases and control firms as well as all German publicly listed firms. The research affirms the connection of financial ratios to earnings quality metrics. Overall, the results document the underperformance in important financial ratios as well as indicate an inferior earnings quality of firms subject to enforcement releases vis-a-vis the control groups. These results hold with regard to both different earnings quality specifications and different periods observed. This study adds to the earnings quality discussion and contributes to the development of a comprehensive picture of accounting quality in the unique institutional settings of Germany. The findings show that a conjoint two-tier public and private enforcement system is effective and could be a model for consideration by other countries.

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Enforcement of Accounting Standards in Europe: Capital-Market-Based Evidence for the Two-Tier Mechanism in Germany

Cited by 94 publications

References 47 publications

Swedish and Dutch listed companies’ compliance with IAS 36 paragraph 134

Swedish and Dutch listed companies’ compliance with IAS 36 paragraph 134

The effect of restatements on analyst behavior

Enforcement Releases, Firm Characteristics, and Earnings Quality: Insights from Germany's Two‐tiered Enforcement System

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