We show that SEO firms engage in real activities manipulation, and the decline in post-SEO performance due to the real activities management is more severe than that due to accrual management. Our ...evidence is important, because it shows that post-SEO operating underperformance is driven not just by accrual reversals, but also reflects the real consequences of operational decisions made to manage earnings. We also show how firms’ choices of real versus accrual-based earnings management activities around SEOs vary predictably as a function of the firm's ability to use accrual management and the costs of doing so.
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Business scandals are always with us from the South Sea Bubble to Enron and Parmalat. As accounting forms a central element of any business success or failure, the role of accounting is crucial in ...understanding business scandals. This book aims to explore the role of accounting, particularly creative accounting and fraud, in business scandals. The book is divided into three parts. In Part A the background and context of creative accounting and fraud is explored. Part Blooks at a series of international accounting scandals andPart Cdraws some themes and implications from the country studies.
We examine whether application of International Accounting Standards (IAS) is associated with higher accounting quality. The application of IAS reflects combined effects of features of the financial ...reporting system, including standards, their interpretation, enforcement, and litigation. We find that firms applying IAS from 21 countries generally evidence less earnings management, more timely loss recognition, and more value relevance of accounting amounts than do matched sample firms applying non-U.S. domestic standards. Differences in accounting quality between the two groups of firms in the period before the IAS firms adopt IAS do not account for the postadoption differences. Firms applying IAS generally evidence an improvement in accounting quality between the pre- and postadoption periods. Although we cannot be sure our findings are attributable to the change in the financial reporting system rather than to changes in firms' incentives and the economic environment, we include research design features to mitigate effects of both.
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A Brookings Institution Press and American Enterprise Institute publicationA few years ago, Americans held out their systems of corporate governance and financial disclosure as models to be emulated ...by the rest of the world. But in late 2001 U.S. policymakers and corporate leaders found themselves facing the largest corporate accounting scandals in American history. The spectacular collapses of Enron and Worldcom-as well as the discovery of accounting irregularities at other large U.S. companies-seemed to call into question the efficacy of the entire system of corporate governance in the United States.In response, Congress quickly enacted a comprehensive package of reform measures in what has come to be known as the Sarbanes-Oxley Act. The New York Stock Exchange and the NASDAQ followed by making fundamental changes to their listing requirements. The private sector acted as well. Accounting firms-watching in horror as one of their largest, Arthur Andersen, collapsed after a criminal conviction for document shredding-tightened their auditing procedures. Stock analysts and ratings agencies, hit hard by a series of disclosures about their failings, changed their practices as well.Will these reforms be enough? Are some counterproductive? Are other shortcomings in the disclosure system still in need of correction?These are among the questions that George Benston, Michael Bromwich, Robert E. Litan, and Alfred Wagenhofer address in Following the Money. While the authors agree that the U.S. system of corporate disclosure and governance is in need of change, they are concerned that policymakers may be overreacting in some areas and taking actions in others that may prove to be ineffective or even counterproductive.Using the Enron case as a point of departure, the authors argue that the major problem lies not in the accounting and auditing standards themselves, but in the system of enforcing those standards.
Advances in Accounting Behavioral Research publishes high-quality research encompassing all areas of accounting and addressing a broad range of issues that affect the users, preparers, and assurers ...of accounting information. Further, this research incorporates theory from, and contributes knowledge and understanding to, applied psychology, sociolog.
This book presents a detailed and scholarly historical study of the International Accounting Standards Committee (IASC), which prepared the way for the International Accounting Standards Board ...(IASB). The IASB holds the dominant influence over the financial reporting of thousands of listed companies in the European Union as well as in many other countries.
Financial institutions have been at the forefront of the debate on the controversial shift in international standards from historical cost accounting to mark-to-market accounting. We show that the ...trade-offs at stake in this debate are far from one-sided. While the historical cost regime leads to some inefficiencies, marking-to-market may lead to other types of inefficiencies by injecting artificial risk that degrades the information value of prices, and induces suboptimal real decisions. We construct a framework that can weigh the pros and cons. We find that the damage done by marking-to-market is greatest when claims are (1) long-lived, (2) illiquid, and (3) senior. These are precisely the attributes of the key balance sheet items of banks and insurance companies. Our results therefore shed light on why banks and insurance companies have been the most vocal opponents of the shift to marking-to-market.
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“Sustainability accounting” and related terms are being used with greater frequency at academic conferences and in corporate practice. This raises the question of the relationship between accounting ...and sustainability and the role of accounting for sustainability, as well as what could be understood by sustainability accounting. The paper reviews the literature on sustainability accounting from an information management perspective and distinguishes different interpretations of sustainability accounting.
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