International Financial Reporting Standards (IFRS) allow managers flexibility in classifying interest paid, interest received, and dividends received within operating, investing, or financing ...activities within the statement of cash flows. In contrast, U.S. Generally Accepted Accounting Principles (GAAP) requires these items to be classified as operating cash flows (OCF). Studying IFRS-reporting firms in 13 European countries, we document firms’ cash-flow classification choices vary, with about 76, 60, and 57% of our sample classifying interest paid, interest received, and dividends received, respectively, in OCF. Reported OCF under IFRS tends to exceed what would be reported under U.S. GAAP. We find the main determinants of OCF-enhancing classification choices are capital market incentives and other firm characteristics, including greater likelihood of financial distress, higher leverage, and accessing equity markets more frequently. In analyzing the consequences of reporting flexibility, we find some evidence that the market’s assessment of the persistence of operating cash flows and accruals varies with the firm’s classification choices and the results of certain OCF prediction models are sensitive to classification choices.
As mandated by Sarbanes-Oxley, the SEC reviews the financial reports of public companies and challenges the appropriateness of accounting that seems questionable or unclear. We investigate whether ...the likelihood of an SEC comment (challenge), and the time needed to resolve such comments, depends upon either of two characteristics of the underlying accounting standard -- rules and accounting estimates. We find that the probability of an SEC comment increases with the rules-based characteristics in the standard, but find little evidence that time to resolution is related to such characteristics. We also find that the extent of estimates required to implement the standard is positively associated with both the probability of an SEC comment and the time to resolve the comment. Our findings should help inform the debate over the appropriate level of rules and estimates in GAAP, and are especially timely in light of the potential convergence between more rules-based U.S. GAAP and more principles-based IFRS GAAP. PUBLICATION ABSTRACT
For fiscal years starting on or after January 1, 2011, Canada abandoned Canadian Generally Accepted Accounting Principles (GAAP) and adopted International Financial Reporting Standards (IFRS), but ...permitted firms cross‐listed in the United States to adopt U.S. GAAP instead. We document that the number of Canadian firms reporting under U.S. GAAP increased after Canada adopted IFRS. We find that cross‐listed firms are more likely to choose IFRS, if IFRS is the standard most commonly used by the leading global firms in their industry. In addition, we find that firms more likely to choose IFRS are larger, of civil law legal origin, have less U.S. operations, report exploration expense, have fewer U.S. shareholders, and report higher stockholders' equity under Canadian GAAP than under U.S. GAAP. Of these, we find that the convergence benefits of comparability with industry peers are the most significant determinant in firms' choice of standard. Further, we are unable to document changes in earnings quality from cross‐listed firms adopting IFRS or U.S. GAAP or that earnings quality changed for firms adopting IFRS relative to firms adopting U.S. GAAP.
Qualité des résultats : données issues du choix des sociétés canadiennes entre IFRS et PCGR des états‐Unis
Résumé
Pour les exercices ouverts à compter du 1er janvier 2011, le Canada a délaissé les principes comptables généralement reconnus (PCGR) du Canada et adopté les Normes internationales d'information financière (IFRS), tout en permettant aux sociétés également cotées aux États‐Unis (intercotées) d'adopter plutôt les PCGR des États‐Unis. Selon les données recueillies par les auteurs, le nombre de sociétés canadiennes appliquant les PCGR des États‐Unis a augmenté après l'adoption des IFRS au Canada. Les auteurs constatent que les sociétés intercotées sont davantage susceptibles d'opter pour les IFRS si ces normes sont celles qu'utilisent le plus souvent les sociétés chefs de file de leur secteur d'activité à l'échelle internationale. Ils observent au surplus que les sociétés davantage susceptibles d'opter pour les IFRS sont des entreprises de plus grande envergure, créées sous le régime du droit civil, dont les activités aux États‐Unis sont moins importantes, et qui font état de charges d'exploration, comptent moins d'actionnaires aux États‐Unis et affichent des capitaux propres plus élevés selon les PCGR du Canada que selon les PCGR des États‐Unis. Les auteurs concluent de ces observations que les avantages de la convergence découlant de la comparabilité avec les sociétés homologues du secteur sont le principal déterminant du choix des sociétés en matière de normes. En outre, ils ne parviennent à relever ni changement dans la qualité des résultats entre les sociétés intercotées qui adoptent les IFRS ou les PCGR des États‐Unis, ni données qui permettraient d'établir que la qualité des résultats diffère selon que les sociétés adoptent les IFRS ou les PCGR des États‐Unis.
An analysis of SEC comment letters and IFRS Linthicum, Cheryl L; McLelland, Andrew J; Schuldt, Michael A
Journal of financial reporting & accounting,
07/2017, Letnik:
15, Številka:
2
Journal Article
Recenzirano
Purpose
This study investigates the influence of the Securities and Exchange Commission (SEC) on the interpretation and application of International Financial Reporting Standards (IFRS) by examining ...a group of SEC-selected foreign private issuers filing 2005 annual reports in the USA and reporting using IFRS for the first time.
Design/methodology/approach
This paper uses hand-collected information from SEC comment letters to analyze IFRS topics and documents the ultimate resolution of each SEC comment (no change to filing, current change to filing or prospective change to future filing). The authors use descriptive statistical analyses, as well as a logistic regression model involving the resolution of each SEC comment, to examine the SEC’s influence on the interpretation of IFRS.
Findings
The study finds both higher comment totals, and higher numbers of required filing modifications, for those IFRS pronouncements which were identified as needing improvement during the 2006-2008 convergence efforts by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB). Additionally, the study documents a decreasing likelihood of a filing modification when US generally accepted accounting principles (US GAAP) guidance is referenced in comment letter correspondence involving IFRS topics.
Originality/value
The study extends the IFRS literature and the SEC comment letter literature by focusing on the resolution of comments directed at IFRS disclosures, as well as exploring the factors which influence whether a comment ultimately requires a filing modification.
The EU's adoption of IFRS, combined with the SEC's removal of the US GAAP reconciliation requirement for non-US registrants reporting under IFRS, signifies a major shift towards the acceptance of ...global standards. Based on 20-F reconciliations provided by the population of US listed European companies filing IFRS-based statements with the SEC in 2005, we examine whether 'European' and US GAAP measures of income and equity converged under IFRS. We find that during the period immediately preceding IFRS, for our sample companies, European and US GAAP measures are generally comparable in respect of income and equity. However, as an exception to the latter, we find that UK GAAP yielded significantly lower measures of equity than US GAAP For companies adopting IFRS for the first time in 2005, we find a significant gap between IFRS and US GAAP measures of income, thereby, signifying de facto divergence from US GAAP in regard to income determination. Furthermore, we find that, following IFRS adoption, significant differences with US GAAP equity persisted for companies that previously reported using UK GAAP. Our findings, thus, support critics' claims that standard-setters, most notably the IASB and FASB, have more work to do to achieve a sufficient degree of convergence between IFRS and US GAAP that will convince the SEC to require US companies to use IFRS.
In recent years, the Securities and Exchange Commission (SEC) has grown in size and scope. The implementation of Sarbanes-Oxley (SOX) and the globalization of accounting standards have increased the ...SEC's workload and brought forth important questions regarding the development and application of accounting and auditing standard setting and regulation. This paper identifies key issues of importance to the SEC including record levels of restatements, SOX implementation, the backdating of stock options, increased use of fair-values in financial reporting, adoption of IFRS by numerous non-U.S. registrants, and foreign deregistration. The article highlights the contribution of academic research as it relates to SEC speeches and rulemaking, drawing upon experience of 2005–2006 SEC academic fellows.
In April 2007, the Securities and Exchange Commission (SEC) announced the Commission's plan to seek comments on its intention to allow foreign private issuers a choice between International Financial ...Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP). Even more significant, the Commission announced that it may, at some point in the future, consider allowing a choice between U.S. GAAP and IFRS for U.S.-headquartered issuers. This commentary, poses questions/issues to be carefully considered within the context of making these decisions. These include, but are not limited to, a consideration of whether eliminating the reconciliation could stall convergence efforts and/or minimize the joint efforts of the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) to improve problem areas for current financial reporting. Academics are encouraged to draw upon their research and expertise and engage in the discussion and debate by providing relevant comment letters to the SEC.
In April 2007, the Securities and Exchange Commission (SEC) announced the Commission's plan to seek comments on its intension to allow foreign private issuers a choice between International Financial ...Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP). Even more significant, the Commission announced that it may, at some point in the future, consider allowing a choice between U.S. GAAP and IFRS for U.S.-headquartered issuers. In this commentary, we pose questions/issues to be carefully considered within the context of making these decisions. These include, but are not limited to, a consideration of whether eliminating the reconciliation could stall convergence efforts and/or minimize the joint efforts of the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) to improve problem areas for current financial reporting. We encourage academics to draw upon their research and expertise and engage in the discussion and debate by providing relevant comment letters to the SEC.
We examine the influence of social responsibility ratings on market returns to Arthur Andersen (AA) clients following the Enron audit failure.
Chaney and Philipich (2002) found that AA’s loss of ...reputation resulted in negative market returns to AA clients following the Enron audit failure. Proponents of social responsibility argue that social responsibility can improve the reputation of the firm, while detractors argue that social responsibility expenditures are a poor use of shareholder money. If social responsibility sends a signal to investors regarding the reputation/ethics of management, social responsibility could mitigate the negative returns to AA clients following the Enron audit failure. Using a matched sample of AA and non-AA firms, we do not find evidence that social responsibility mitigated the negative returns to AA clients following the Enron audit failure. Our results are inconsistent with claims that social responsibility can burnish a firm’s reputation in a time of crisis and with prior research indicating a positive relationship between social responsibility and market value.
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