IFRS adoption and unconditional conservatism: an accrual-based analysis

Fullana, Olga; González, Mariano; Toscano, David

doi:10.1108/ijaim-05-2021-0093

Cited by 7 publications

(13 citation statements)

References 65 publications

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“…In Panel B, the dependent variables are conditional accounting conservatism (C_SCORE) and unconditional accounting conservatism (CON_ACC). For a detailed explanation of the construction of these measures, please refer to These findings extend prior studies (Cho and Krishnan, 2023;Eiler et al, 2022;Fullana et al, 2021) by demonstrating implications of principles-based standards on auditors' risk assessments via a reduction in financial reporting risks and accounting conservatism.…”

Section: Discussionsupporting

confidence: 70%

“…In Panel B of Table 8, the study provides evidence that a firm's reliance on principles-based accounting standards is negatively associated with both conditional accounting conservatism (C_SCORE) and unconditional accounting conservatism (CON_ACC). The findings in Table 8 extend prior studies (Cho and Krishnan, 2023;Eiler et al, 2022;Fullana et al, 2021) by demonstrating implications of principles-based standards on auditors' risk assessments via reduction in financial reporting risks and accounting conservatism.…”

Section: Additional Tests For Conservatism and Financial Reporting Risksupporting

confidence: 77%

“…In an experimental study, Agoglia et al (2011) find that managers choose less aggressive reporting if the guidelines allow more managerial judgment. Fullana et al (2021) find that unconditional conservatism of firms declines after the adoption of International Financial Reporting Standards (IFRS). The concern among managers is that applying standards in an aggressive manner potentially increases litigation risk.…”

Section: Introductionmentioning

confidence: 99%

“…Fullana et al (2021, p. 862) suggest that the negative relationship between principles-based accounting standards and earnings management is mediated through a reduction in unconditional conservatism. André et al (2015) and DeFond et al (2016) suggest that auditors may also respond to conditional conservatism because, unlike unconditional conservatism, conditional conservatism affects auditors’ business risk.…”

Section: Introductionmentioning

confidence: 99%

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Principles based accounting standards, audit fees and going concern: evidence using advanced machine learning

Subedi

2023

IJAIM

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Purpose The current study uses an advanced machine learning method and aims to investigate whether auditors perceive financial statements that are principles-based as less risky. More specifically, this study aims to explore the association between principles-based accounting standards and audit pricing and between principles-based accounting standards and the likelihood of receiving a going concern opinion. Design/methodology/approach The study uses an advanced machine-learning method to understand the role of principles-based accounting standards in predicting audit fees and going concern opinion. The study also uses multiple regression models defining audit fees and the probability of receiving going concern opinion. The analyses are complemented by additional tests such as economic significance, firm fixed effects, propensity score matching, entropy balancing, change analysis, yearly regression results and controlling for managerial risk-taking incentives and governance variables. Findings The paper provides empirical evidence that auditors charge less audit fees to clients whose financial statements are more principles-based. The finding suggests that auditors perceive financial statements that are principles-based less risky. The study also provides evidence that the probability of receiving a going-concern opinion reduces as firms rely more on principles-based standards. The finding further suggests that auditors discount the financial numbers supplied by the managers using rules-based standards. The study also reveals that the degree of reliance by a US firm on principles-based accounting standards has a negative impact on accounting conservatism, the risk of financial statement misstatement, accruals and the difficulty in predicting future earnings. This suggests potential mechanisms through which principles-based accounting standards influence auditors’ risk assessments. Research limitations/implications The authors recognize the limitation of this study regarding the sample period. Prior studies compare rules vs principles-based standards by focusing on the differences between US generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) or pre- and post-IFRS adoption, which raises questions about differences in cross-country settings and institutional environment and other confounding factors such as transition costs. This study addresses these issues by comparing rules vs principles-based standards within the US GAAP setting. However, this limits the sample period to the year 2006 because the measure of the relative extent to which a US firm is reliant upon principles-based standards is available until 2006. Practical implications The study has major public policy suggestions as it responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US Securities and Exchange Commission (SEC), to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the International Accounting Standards Board (IASB) Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks such as climate change. Originality/value The study has major public policy suggestions because it demonstrates the value of principles-based standards. The study responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US SEC, to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information as business transactions and investor needs continue to evolve globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the IASB Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks like climate change. The study fills the gap in the literature that auditors perceive principles-based financial statements as less risky and further expands the literature by providing empirical evidence that the likelihood of receiving a going concern opinion is increasing in the degree of rules-based standards.

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Section: Discussionsupporting

confidence: 70%

Section: Additional Tests For Conservatism and Financial Reporting Risksupporting

confidence: 77%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Principles based accounting standards, audit fees and going concern: evidence using advanced machine learning

Subedi

2023

IJAIM

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“…In line with this development, several studies have focused attention on examining the sustainability practices of HEIs. These studies have analysed the integration of sustainability into curricula (Matten and Moon, 2004; Cornelius et al , 2007; Stough et al , 2018; Argento et al , 2020) and examined the existence of environmental management systems (Arvidsson, 2004; Sammalisto and Arvidsson, 2005) and sustainability reporting (Adams, 2013; Ceulemans et al , 2015; Fullana et al , 2021; Sassen et al , 2018). Thus, evidence exists on the adoption, implementation and reporting of sustainability in HEIs.…”

Section: Introductionmentioning

confidence: 99%

The effects of stakeholder power, strategic posture and slack financial resources on sustainability performance in UK higher education institutions

Núnez Chicharro,

Mangena,

Alonso Carrillo

et al. 2023

SAMPJ

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Purpose Higher education institutions (HEIs) are critical in the sustainability agenda, not only as catalysts for promoting sustainability practices but also because their activities have substantial social, economic and environmental impacts. Yet there is limited research that examines their sustainability performance. This paper aims to investigate the factors that are associated with sustainability performance in HEIs. Specifically, drawing from the stakeholder theory and exploiting Ullmann’s (1985) conceptual framework, this study examines the association between sustainability performance and stakeholder power, strategic posture and financial slack resources. Design/methodology/approach The authors draw the sample from the People & Planet University Green League Table for the period 2011–2019 and use the generalised estimating equations for the modelling approach. Findings This study finds that stakeholder power, in particular, funding grant income, tuition fee income and student and staff numbers, are positively associated with sustainability performance. In relation to strategic posture, this study finds that sustainability performance is negatively associated with governing body independence and gender diversity, and positively associated with internal structures. Finally, regarding financial slack resources, this study finds that surplus income (staff costs) is positively (negatively) associated with sustainability performance. Practical implications To the best of the authors’ knowledge, this research contributes to several existing literature focusing on the not-for-profit sector by documenting, for the first time, the role of stakeholder power, strategic posture and slack financial resources on sustainability performance. Social implications The paper includes relevant implications for HEI managers and regulators for promoting sustainability. Originality/value These results contribute to the literature on the factors influencing sustainability performance.

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The role of financial performance of Eurostoxx listed hotel companies in determining CEO compensation

Fullana

Priego

Toscano

2022

International Journal of Hospitality Management

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IFRS adoption and unconditional conservatism: an accrual-based analysis

Cited by 7 publications

References 65 publications

Principles based accounting standards, audit fees and going concern: evidence using advanced machine learning

Principles based accounting standards, audit fees and going concern: evidence using advanced machine learning

The effects of stakeholder power, strategic posture and slack financial resources on sustainability performance in UK higher education institutions

The role of financial performance of Eurostoxx listed hotel companies in determining CEO compensation

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