Article

Adoption of International Financial Reporting Standards: Impact on the Value Relevance of Intangible Assets

May 2008
Australian Accounting Review 18(3)

May 2008
18(3)

DOI:10.1111/j.1835-2561.2008.0028.x

Authors:

Keryn Chalmers

Monash University (Australia)

Greg Clinch

Deakin University

Jayne M. Godfrey

Australian National University

We examine whether the value relevance of reported intangibles differs between financial reporting regimes pre- and post- adoption of Australian equivalents to International Financial Reporting Standards, AGAAP and AIFRS respectively. Using AIFRS and AGAAP measures of goodwill and identifiable intangible assets for the same financial year and testing their association with share prices, we find evidence that AIFRS generally conveys incremental useful information for investors about goodwill. For aggregated identifiable intangible assets there is no evidence that AIFRS conveys information beyond that in AGAAP. In contrast, we find evidence that AGAAP provides incremental information for investors in relation to identifiable intangibles, but not goodwill.

Debt crisis, age and value relevance of goodwill: evidence from Greece

Article

Full-text available

Feb 2022
Int J Account Inform Manag

Purpose The purpose of this study is to investigate the value relevance of goodwill and its additional aspects during a long-term period in Greece. Furthermore, by implementing two of the most popular value relevance models, the Ohlson’s price and Easton and Harris’ return model, this study examines the impact of goodwill on Greek stock prices from 2007 to 2018, a period of 12 years in which International Financial Reporting Standards (IFRS) are applied. Furthermore, this study analyzes how goodwill’s value relevance changes as it ages and during the Greek debt crisis. Design/methodology/approach In order to test the value relevance of goodwill we implemented two of the most popular value relevance models, Ohlson’s price and Easton and Harris’ return model. Our sample consists of non-financial listed Greek companies that reported positive goodwill accounting balances on their financial statements during the financial period from 2007 to 2018. Finally, we applied fixed-effects regression model to all equations. Findings The results provide evidence that the year-end goodwill accounting balance is value relevant, and that the debt crisis has improved goodwill’s information content. Finally, the empirical findings suggest that only current year acquired goodwill is value relevant compared to older goodwill, and therefore, goodwill’s impact on stock prices is decreasing as it ages. Research limitations/implications A noteworthy limitation of this study is that it focuses on a specific code-law country Greece, which is a relatively small economy compared to the whole Eurozone. This research contributes to the research literature as it confirms other research findings in the European context and specifically that goodwill based on IFRS is value relevant to financial statement users. Additionally, it investigates for the first time how goodwill was affected by the Greek debt crisis. Finally, it contributes to other researcher’s debate concerning the duration of goodwill’s value relevance in a code law environment such as Greece. Practical implications Financial analysts and institutions are provided with more assurance about goodwill’s financial reporting quality to be embedded in the financial evaluation process of corporates. As this research confirms that goodwill should be regarded as an asset, companies should obtain better financial ratings from financial institutions and investors and thus will have better access to equity and debt funding. Originality/value We investigate the value relevance of goodwill in Greece during a long-term period of 12 years. Additionally, our study examines the impact of the Greek debt crisis on the information content of goodwill accounting balances and the period during which accumulated goodwill balances and within-year acquired goodwill maintain its value relevance. Our research could assist accounting standard setters such as the International Accounting Standard Board to evaluate the quality of specific standards such as IFRS 3 “Business Combination” and IAS 38 “Impairment of Assets.”

Incorporation of the Intangibles into the Spanish Start-Ups by Activity Sector and Region. Improving Their Economic Sustainability

Article

Full-text available

May 2020

Nowadays, start-ups, assuming increasing importance, have the possibility to include intangible knowledge as another resource on which they can carry out planning exercises, impact studies, evaluation and monitoring, protection, accumulation and exploitation. The study carried out in this paper allows us to analyze the influence that intangible knowledge has on the financial status of a start-up and, therefore, on its economic sustainability. This enables start-ups to present a good image, become more transparent, have more opportunities, reduce uncertainty, improve sustainability, etc. Moreover, the study presents a descriptive analysis of intangibles according to regions and activity sectors. An analysis of variance was carried out, to see if there is a relationship between the investment in intangible assets and the activity sector and/or regions to which the company belongs. The study concludes that, among all sectors, the differences in the incorporation of intangible assets into financial statements are most recognized in tourism, which may be a key factor for the sustainability of this sector, especially in periods of economic crisis, such as the one Europe and the planet are currently facing.

Can intangible assets predict future performance? A deep learning approach

Article

Full-text available

Oct 2021
Int J Account Inform Manag

Purpose The aim of this study is to evaluate of the predictive ability of goodwill and other intangible assets on forecasting corporate profitability. Subsequently, this study compares the efficiency of deep learning model to that of other machine learning models such as random forest (RF) and support vector machine (SVM) as well as traditional statistical methods such as the linear regression model. Design/methodology/approach Studies confirm that goodwill and intangibles are valuable assets that give companies a competitive advantage to increase profitability and shareholders’ returns. Thus, by using as sample Greek-listed financial data, this study investigates whether or not the inclusion of goodwill and intangible assets as input variables in this modified deep learning models contribute to the corporate profitability prediction accuracy. Subsequently, this study compares the modified long-short-term model with other machine learning models such as SVMs and RF as well as the traditional panel regression model. Findings The findings of this paper confirm that goodwill and intangible assets clearly improve the performance of a deep learning corporate profitability prediction model. Furthermore, this study provides evidence that the modified long short-term memory model outperforms other machine learning models such as SVMs and RF , as well as traditional statistical panel regression model, in predicting corporate profitability. Research limitations/implications Limitation of this study includes the relatively small amount of data available. Furthermore, the aim is to challenge the authors’ modified long short-term memory by using listed corporate data of Greece, a code-law country that suffered severely during the recent fiscal crisis. However, this study proposes that future research may apply deep learning corporate profitability models on a bigger pool of data such as STOXX Europe 600 companies. Practical implications Subsequently, the authors believe that their paper is of interest to different professional groups, such as financial analysts and banks, which the authors’ paper can support in their corporate profitability evaluation procedure. Furthermore, as well as shareholders are concerned, this paper could be of benefit in forecasting management’s potential to create future returns. Finally, management may incorporate this model in the evaluation process of potential acquisitions of other companies. Originality/value The contributions of this work can be summarized in the following aspects. This study provides evidence that by including goodwill and other intangible assets in the authors’ input portfolio, prediction errors represented by root mean squared error are reduced. A modified long short-term memory model is proposed to predict the numerical value of the profitability (or the profitability ratio) in contrast to other studies which deal with trend predictions, i.e. the binomial output result of positive or negative earnings. Finally, posing an extra challenge to the authors’ deep learning model, the authors’ used financial statements according to International Financial Reporting Standard data of listed companies in Greece, a code-law country that suffered during the recent fiscal debt crisis, heavily influenced by tax legislation and characterized by its lower investors’ protection compared to common-law countries.

EFFECT OF INTANGIBLE ASSETS ON VALUE RELEVANCE: EVIDENCE FROM LISTED MANUFACTURING FIRMS IN NIGERIA

Article

Full-text available

Apr 2020

The increasing importance and role of intangible assets in today’s economic environment is a source of concern for scholars and accounting practitioners. As an attempt to explore the relevance of reported intangible assets, the study investigated the market value relevance of different intangible asset (intellectual properties, computer software cost, and goodwill) reported by listed manufacturing firms in Nigeria. To achieve the research objective, the study adopted a correlational research design. The study utilized secondary data extracted from the annual reports and accounts of manufacturing firms listed on the Nigerian stock exchange. The study concentrated on firms that reported components of intangible assets for six years (2013-2019). The model was estimated using the random effect regression technique. The findings revealed intellectual properties to be positively and significantly associated with the market value of listed manufacturing firms in Nigeria. However, goodwill was shown to have a negative and significant relationship with market value. Based on the findings, the study recommends, amongst others, that the management of manufacturing firms bring their expertise to develop innovative technologies and business adaptations, as well as direct policies that will improve brand names and trademarks and protect patents and other intellectual properties as they will impact the market price.

Relevancia valorativa de los intangibles: Análisis pre-NIIF y NIIF en el mercado de capitales argentino

Article

Full-text available

Jul 2020

El objetivo de este trabajo es analizar el efecto de la adopción de las NIIF en la relevancia que el mercado de capitales argentino asigna a la información financiera sobre activos intangibles y a la información no financiera referida al capital intelectual de las empresas que cotizan en el mismo. El análisis se realiza aplicando modelos de precios basados en Ohlson (1995), con datos recolectados directamente de fuentes originales y correspondientes al período 2009-2015. Los resultados revelan que la adopción de las NIIF produjo cambios en la relevancia valorativa de los activos intangibles, pero no ha impactado en la relevancia valorativa del capital intelectual. Además, muestran que las dimensiones humana y estructural no son consideradas por los inversores, en ninguna de las dos etapas (NIIF y pre-NIIF), mientras que el capital estructural tiene un impacto negativo en los precios en ambos períodos. Estos hallazgos son acordes a los aportados por los estudios previos y, en particular, los referidos al capital intelectual, son similares a los obtenidos para países de bajo desarrollo, donde no se han logrado evidencias que apoyen su relevancia valorativa. Contribuyen, de este modo, a acrecentar la evidencia existente en torno al papel de los intangibles en la valoración externa de las empresas y a las implicaciones que en ello ha tenido la aplicación del marco normativo del IASB, la cual es particularmente limitada para mercados poco desarrollados.

Financial Analyses and Corporate Evaluation on Sustainable Ability to Generate Excess Profit

Article

Full-text available

Jun 2020

Hyunmi Ji

This study empirically examined financial analyses and a market assessment on goodwill. Goodwill is not an individually identifiable asset but is recognized as an intangible asset because it is viewed as having future economic benefits from a business combination. The verification period for this study was from 2011 to 2019. The sample companies were 13,522 firms-years satisfying the selection criteria among listed companies in the Korean stock market. As a result of empirical analysis, it was found that goodwill is related to stock prices. Goodwill was shown to serve as useful accounting information by reflecting the economic realities of intangible assets called creating excess profitability and sustainable profit. For analysis, regression analysis was conducted by separating the companies listed on the KOSPI stock market and those listed on the KOSDAQ stock market. The results of the analysis were as follows. In the case of listed companies in the KOSPI stock market, goodwill was found to have a positive (+) stock price relationship as useful accounting information. These results suggested that goodwill is an asset that represents the ability to generate excess profit as a sustainable profit. The contributions of this study are as follows. First, this study verified that goodwill is related to stock prices even after the adoption of International Financial Reporting Standards (IFRSs). Second, it will be possible to induce rational decision-making regarding goodwill to accounting standards setters, supervisors, and users of financial information. Third, it recognized that the value of the financial market can be recognized only by providing reliable accounting information to the managers who prepare financial statements. This can lead managers to provide capital markets with more useful information.

Value Relevance of Accounting Information: A Review of Empirical Evidence Across Continents

Article

May 2019

In the last two decades, accounting literature has focused increasingly on examining value relevance of accounting information. After the announcement of IFRS adoption, there has been a growth in the literature, which links value relevance of accounting information with IFRS adoption. This study aims to provide a brief literature and presents empirical findings. The purpose is to help future researchers to have the understanding of this nature of the study and identify gaps in the current literature. The article covered 90 empirical research papers published between 1993 and 2016 from various countries across continents, and the majority of them concluded that accounting information is relevant across continents before and after IFRS adoption, while few hold the opposite view. Few studies show no evidence in the improvement of accounting information after IFRS adoption.

The Value Relevance of Aged Goodwill: A South African Study

Article

Full-text available

May 2019

The purpose of this study was to determine whether goodwill, which is measured in accordance with International Financial Reporting Standard 3 (IFRS 3), is value relevant at acquisition and as time progresses, for a period of two years after acquisition. Using the Ohlson model, 126 JSE firm-year observations were tested. It was subsequently found that goodwill was not value relevant at acquisition date but did become value relevant as time progressed. The possible reasons for goodwill not being value relevant at acquisition are attributed to the manner in which IFRS 3 requires goodwill to be measured, the allowance of provisional values under IFRS 3, and the complexities associated with complying with IFRS 3. Goodwill being value relevant as time progresses is attributed to the subsequent measurement requirements of IFRS 3, in particular the annual impairment testing requirement as opposed to the previous amortisation requirements. This study was conducted in a South African context where limited studies on goodwill have taken place. The results are deemed to be useful to investors and standard setters as they hold implications for goodwill accounting practice and changes to goodwill accounting standards.

The Value Relevance and Reliability of Intangible Assets: Evidence from South Korea

Article

Full-text available

Jan 2018

Hyunmi Ji

This study empirically verifies how the value relevance of intangible asset accounting information is affected by the degree of information reliability of intangible assets. The study period was from 2011 to 2016 when Korea International Financial Reporting Standards (K-IFRS) were applied, and the sample companies were 8,174 firm-year observations. Empirical analysis shows that investors have relatively positive evaluations of intangible assets in the capital market when intangible assets are highly reliable. This implies that the reliability of intangible assets is significant information to help evaluate the relationship between accounting information and stock prices. The contribution of this study is as follows. First, it is confirmed that the usefulness of accounting information can be enhanced if the reliability of intangible assets is guaranteed. Second, reasonable decision-making can be induced in the use of intangible asset accounting information in accounting decision making, supervision, and investment decision-making. Third, it can be recognized by managers that the value of intangible assets that are highly reliable can be recognized in the capital market.

The Impact of International Financial Reporting Standards (IFRS): A Qualitative Study

Chapter

Full-text available

Jul 2023

When nations choose to adopt International Financial Reporting Standards (IFRS) in place of their old standards, they frequently point out a number of advantages, especially those pertaining to equity markets. As a result, experts have looked at equities markets to gauge if these advantages were actually realised. The findings they have gathered are varied, in part because different samples were chosen and different proxies were used to represent the same underlying but unobservable idea. The implementation of IFRS has unquestionably had a considerable impact on equities valuation and the state of the equity markets overall, it is clear. While there will always be winners and losers as a result of changes in accounting standards, primarily because of their distributive impacts, some outcomes are seen by businesses and investors as overall positive. The complete narrative is still far from being fully understood, though. There is still plenty of possibility to investigate further possible advantages and to improve the methodology used in their research.

Value relevance of accounting information in an emerging market: the case of IFRS adoption by non-financial listed firms in Saudi Arabia

Article

Full-text available

Mar 2023

Purpose The paper aims to provide empirical evidence of the impact of IFRS adoption on the value relevance of accounting information in the emerging market of Saudi Arabia. Design/methodology/approach The sample consists of 98 non-financial listed firms operating in Saudi Arabia from 2014 to 2019, representing the years before and after IFRS adoption. The authors apply basic and extended price models to examine the value relevance of select accounting figures. Findings The authors findings provide evidence that accounting information is, generally, value relevant to the Saudi Arabian capital market. However, mixed results exist for particular accounting variables. Both earnings and cash flows are value-relevant in the period before and after IFRS adoption; equity is only relevant in the post-adoption period. Furthermore, IFRS adoption also increases the explanatory power of earnings. An increase in the value relevance of earnings and equity hurts the value relevance of cash flows. The effects are moderated by leverage and dividend policy. Originality/value The authors contribute to the ongoing discussion of the economic effects of IFRS adoption in emerging markets. The empirical findings show that initial concerns about IFRS adoption, as reflected by the negative coefficient within the regression analysis, are mitigated once the usefulness of the individual accounting variables published in financial statements is investigated.

Measuring intangible assets—A review of the state of the art

Article

Nov 2021

This paper presents an overview of the state of the art in the field surrounding the measurement of “intangibles” for productivity analysis. The purpose of the paper is to inform indicator development and implementation in economic analysis, both at the micro and aggregated levels. The review seeks to capture the development of intangibles measurement, which has explored a variety of directions, both in terms of definition, method and data. We characterize both the diversity of the field and its development over time. Current national and firm level accounting rules lead, from an economic viewpoint on intangibles, to both an underestimation of intangible assets and productivity growth. Further work is needed, both concerning the estimation of “technical” aspects such as depreciation rates and deflators, and in the continued testing and comparison of different measurement efforts. Many opportunities exist to aggregate across or cross‐validate between the measures that are currently being used, enhancing our understanding of the properties of these measures. Even though micro‐based work faces great challenges in terms of data availability, it will be important for the estimation of depreciation rates and in developing our understanding (and thereby better measurement) of broader forms of intangibles, which can thereafter inform measurement at more aggregated levels.

Which sum is a real measure of liquidity?

Article

Full-text available

Mar 2021

The financial health hypothesis argues that the valuation multiple of book value of equity (earnings) increases (decreases) as financial health decreases. By considering the liquidity dimension of financial health, we analyze an accrual-based liquidity ratio (current ratio) and a cash-based liquidity ratio (OCF ratio) from the perspective of this hypothesis. Using the median values of these ratios, we divide the sample consisting of listed firms on Borsa Istanbul during 2009–2018 into two and document the ensuing outcomes. Valuation multiples of book value of equity and earnings are reported as being statistically indifferent between low-liquid and high-liquid subgroups obtained for the median current ratio. However, the valuation multiple of book value of equity (earnings) significantly increases (decreases) for the low-liquid subgroup below the median OCF ratio. As the latter is consistent with the financial health hypothesis, this study reveals that the OCF ratio is a more convenient and reliable measure of liquidity than the current ratio.

Are the separate financial accounts also relevant? Assessing those accounts reported by listed European entities

Article

Full-text available

Jun 2024

The International Accounting Standard (IAS) 27 should be used in the preparation of separate financial statements (SFS) for entities with securities traded on regulated markets within the European Union (EU) that adopt International Financial Reporting Standards (IFRS). This research aims to assess the value relevance of SFS. Additionally, it also analyses the value relevance of the interests under IAS 27 reported therein. It uses documental analysis as a technique and researches archival as a method, with entities from the major indices of EU countries as a research sample. Linear regression models are used for data analysis. The findings indicate that both the SFS and those interests influence the entities’ share prices. As far as the authors’ knowledge, this research solves a gap in the literature by assessing the value relevance of interests reported in the SFS and the SFS itself, which have not been reaching the same attention by researchers compared to studies with similar purposes but focusing on the consolidated financial statements. As a contribution, this study can benefit standard-setter bodies and local regulators in understanding the usefulness of SFS for stakeholders’ decision-making by stressing the relevance of those accounts, and the material items reported therein.

Adoção das IFRS no Brasil: um estudo da relevância das informações contábeis sobre ativos intangíveis

Article

Nov 2017

A mudança de perfil das empresas em anos mais recentes tornou os ativos intangíveis tão ou mais relevantes que os ativos tangíveis. A adoção das Normas Internacionais de Contabilidade (IFRS, International Financial Reporting Standards) no Brasil, por seu turno, introduziu um tratamento diferente e maior detalhamento no reconhecimento e mensuração dos ativos intangíveis. Assim, na presente pesquisa se avaliou a relevância da divulgação das informações financeiras sobre ativos intangíveis no contexto brasileiro, nos anos de 2009 e 2010, período de transição das Normas Contábeis Brasileiras (BRGAAP) para as IFRS. Para tanto, se utilizou o modelo de especificação desenvolvido por Chalmers, Clinch e Godfrey (2008), que associa os preços das ações com o valor dos ativos intangíveis identificáveis e do goodwill. Encontrou-se que os números contábeis para os ativos intangíveis e o goodwill, ambos reconhecidos de acordo com as IFRS, refletem informações de maior value relevance para os investidores, quando comparados com esses ativos divulgados em BRGAAP.

The impact of different goodwill accounting methods on stock prices: A comparison of amortization and impairment-only methodologies

Article

Full-text available

Nov 2022
Int Rev Financ Anal

In March 2020, the IASB issued a discussion paper – ‘Business Combinations – Disclosures, Goodwill and Impairment’ – which discussed, inter alia, whether to introduce a sort of counterreformation of IAS 36 that might lead to the reintroduction of goodwill amortization. Among other things, the IASB, leveraging key findings from academic research, questioned a) the disclosure provided by entities applying IFRS 3 requirements and b) the timing of impairment write-downs and their overal¹l magnitude. The main goal of this study, focusing on a large sample of European listed companies since the adoption of IAS in 2005, is to test the value relevance of goodwill under the current accounting framework and the alternative hypothesis of an amortization regime. Our findings show that the information provided by listed companies to market investors under the current accounting regime (verification at least annually of the recoverability of the value of the goodwill carrying amount through the impairment test) – the level of goodwill before and post impairment, as well as goodwill write downs – is value relevant and contributes to explain the level of the market to tangible book value multiple. On the contrary, simulating the alternative accounting scenario of goodwill amortization, we found that the information conveyed to market investor would not be value relevant, with the amortization itself added back to the multiple. The results support the current accounting framework and indicate that the best way to improve goodwill accounting is by enforcing present rules. This study aims to provide a multidimensional contribution to the current debate within the IASB, leveraging the largest database in Europe.

IFRS adoption and value relevance of accounting information in the V4 region

Article

Full-text available

Jul 2022

The article compares the value relevance of information contained in financial statements, namely earnings, operating cash flows and book value of equity, in the V4 countries (the Czech Republic, Hungary, Poland and Slovakia). Using a dataset of 604 firm-year observations for the period 2005–2017, we identify higher value relevance of accounting information in the Czech and Hungarian capital markets than in Poland. The financial statements of the Slovak listed firms are found not to present value relevant information. The most relevant metric on the Prague and Budapest stock exchanges are earnings. For the Czech Republic and Poland, we find that investors value between-period changes more than absolute amounts for the period. Finally, the Czech and Hungarian markets exhibit a considerable improvement in value relevance of accounting information approximately five years after adopting the IFRS.

Underlying Profits and Financial Reporting Quality in Australia

Article

Full-text available

Jan 2022
Int J Bus Inform Syst

Purpose: This study examines the Australian Securities Exchange (ASX) 200 listed firms that reported underlying profits from 2009 to 2012 to determine whether the underlying profits reflect accounting-based and market-based financial reporting quality. Design: The panel-data modelling results show no relationship between underlying profits and financial reporting quality. Findings: The study finds that underlying profits positively relate to earnings management, suggesting that firms engaging in opportunistic accrual management aggressively report underlying profits. Originality: The study contributes to the debates about the utility of underlying profits by empirically informing that underlying profits do not contain value-relevant information for investor decision-making.

The Compliance of Methods of Implementation of IFRS: Study of the Impact on the Relevance of Accounting Information

Article

Full-text available

Jan 2014

During the last two decades, many countries have chosen to implement the IFRS for at least one category of firms. According to Zeef and Nobes (2010), the implementation of IFRS can be classified into four methods. Thus, countries as Israel and South Africa have adopted the method "implementation process", others as Canada, Australia and the European Union have opted for the method called "Standard by Standard" while that Switzerland applies the "optional" method; China has chosen the "Not Fully converged" method. The analysis of these methods of implementation of IFRS demonstrates that these latter differ in terms of degree of compliance with the IFRS as issued by the IASB. This difference of compliance with the IFRS led us to wonder if it affects the quality of accounting information through its qualitative characteristic the "relevance". To answer this question, we use an empirical model that we apply to a sample of listed companies from six countries opting for different methods of implementation of IFRS. The significant results found demonstrates that the compliance of methods of implementation of IFRS influences positively the relevance of accounting information and that this relevance is better for the listed companies of countries which have chosen a compliant method of implementation with the IFRS as issued by the IASB. These results complement the previous studies on the relevance of accounting information following the transition to IFRS and give

THE EFFECT OF IFRS ADOPTION ON EARNINGS MANAGEMENT AND THE MODERATING ROLE OF CORPORATE GOVERNANCE: EVIDENCE FROM BANGLADESH

Thesis

Full-text available

Dec 2020

Mohammad Tariq Hasan

International Financial Reporting Standards (IFRS) is introduced with the intention to offer better financial reporting quality. The extent literature suggests that the level of earnings management (EM) is one of the determinants of financial reporting quality. However, previous studies documented inconclusive findings about the effect of IFRS adoption on EM. Few studies suggest that the extent of EM practices may not decline even after IFRS adoption, due to political, cultural, educational level or weak governance inside the organization. Thus, this study investigates the relationship between IFRS adoption and EM i.e. discretionary accruals and real earnings management (REM) in developing economy like Bangladesh. Moreover, the study also examines the relationship between corporate governance (CG) strength and EM as well as the moderating role of CG strength on the relationship between IFRS adoption and EM. Two underpinning theories, namely agency theory and contractual hypotheses of positive accounting theory were employed to explain the relationship among variables. Based on earlier literature a CG-index (CGI) was developed to measure CG strength which is followed by random effect GLS with robust regression in a balanced panel data. The study employed 94 firms for 6 years, that is 564 firm year's observation, over two time period as pre (2004-06) and post (2013-15) adoption of IFRS. The results show that IFRS and CGI both have a significant negative relationship with EM. Moreover, it is recognized that the CG strength significantly moderates the relationship between IFRS and REM. It implies that the presence of good CG may help to attain the objectives of IFRS adoption. Thus, the findings of this study will help regulators and policy-makers to understand the current accounting and corporate governance practice by firms which induce them to make CG compliance report mandatory and punitive action for non-compliance in Bangladesh.

Underlying Profits and Financial Reporting Quality in Australia

Article

Jan 2020

The Impact of IFRS Adoption on Value Relevance of Accounting Information: The Case of Sri Lanka

Article

Full-text available

Sep 2020

This study investigates the impact of IFRS adoption on value relevance of accounting information in a developing country, Sri Lanka. The study uses publicly available data in annual financial statements and Colombo Stock Exchange (CSE) reports of all listed companies in the CSE during 2008-2018 to estimate panel data regression models. Findings of the study indicate that price value relevance of Sri Lankan firms' has increased and return value relevance has decreased upon adopting IFRS in 2012. It also reveals that value relevance of book value of equity has increased, value relevance of operating cash flows has not changed, and value relevance of earnings has decreased after the IFRS adoption. This resembles extant research findings on IFRS give more prominence to financial position (balance sheet items) and investors pay more attention on book value of the firm than earnings in their decision making. The study adds empirical evidence on the impact of IFRS adoption on value relevance of accounting information in a developing country contrary to almost all similar past studies provide evidence related to developed and emerging countries. Given the contextual differences in developed, emerging, and developing countries the findings of this study offer a better explanation on the influence of IFRS adoption on value relevance of accounting information in a developing market. The present study controls the impact of company size and incurring losses on value relevance of accounting information of firms as a modification to existing models reported in literature to provide much more robust evidence. JEL Codes: M40, M41, M49 and C33

Annual Company Reports’ narratives migrate to the Web: A diachronic perspective

Article

Full-text available

Jun 2020

Cinzia Giglioni

Despite the dramatic innovation brought about in the field of corporate communication by the advent of the World Wide Web, when it comes to annual company reports (ACRs), companies seem to introduce few innovative digital elements in the drafting and formatting of the narrative sections. The present study, as the last step of a long-term research project, aimed at investigating this genre from a diachronic point of view by concentrating on the transformations that ACRs’ corporate narratives undergo once they migrate to the Web. Two standpoints emerge: the first sees companies that are highly engaged in the digital environment take advantage of several digital tools at once, while the second proposes a slightly less technological approach whereby simple ACRs in pdf format are uploaded on the company website therefore lacking the most interactive functions. While radical changes in the presentation of ACRs’ narratives between 2000 and 2018 cannot be traced, some companies have decided to deal with such narratives by reporting either the complete narrative or its synthesis.

Estimating the Life-Cycle of Fonts

Conference Paper

Full-text available

May 2017

We analyze the global font industry to determine their anticipated lifecycle based on an analysis of accounting data from Monotype Inc., a global company specialising in the production and licensing of fonts and other intellectual property to software designers. Our analysis highlights amortization as a key business parameter that may predict future acquisition trends and the balance of market power between foundries and distributors. We conclude by exploring the impact on shareholder wealth from amortization decisions made by commercial font companies. This supports our claim that strategic acquisitions may well follow hand-in-hand with the adoption of more aggressive amortization decisions.

International Valuation Standards (IVS) – Bedarf, Reichweite, Würdigung, diskutiert anhand der Bewertung von Unternehmen und GoodwillInternational Valuation Standards (IVS)—Demand, Range, Critical Appraisal, Discussed in Regard to Business and Goodwill Valuation

Article

Full-text available

Mar 2020

Wolfgang Ballwieser

Zusammenfassung Der Beitrag zielt auf eine Bedarfsanalyse des International Valuation Standards Council (IVSC) und der von ihm entwickelten International Valuation Standards (IVS) aus deutscher Sicht. Die akademische Beschäftigung mit IVSC und IVS ist bisher rudimentär und erschöpft sich weitgehend in einer Wiedergabe von Standards. Diese Sichtweise zu erweitern ist das übergeordnete Ziel des Beitrags. Betrieben wird die Analyse für die Unternehmens- und Goodwillbewertung, denn zur Unternehmensbewertung existieren IVS und zur Goodwillbehandlung äußert sich das IVSC. Dies erlaubt einen Vergleich mit der ausdifferenzierten Unternehmensbewertung in Deutschland und mit den ökonomischen Resultaten zum Informationswert der Wertminderungen von Goodwill.

مدى ملاءمة المعلومات المحاسبیة الخاصة بالأصول غیر الملموسة المرسملة لأغراض تحدید القیمة السوقیة للشرکات المسجلة فی البورصة المصریة

Article

Dec 2017

نشوى شاکر علی رجب

Is Financial Reporting Still Useful? Australian Evidence

Article

Mar 2019

There has been recent and growing criticism of the usefulness of financial reporting for investors, particularly the annual financial statements. In response, the IASB is pursuing several projects aimed at improving the relevance of financial information. To inform the IASB’s work, we investigate, using a mixed‐method approach, the extent and nature of the use of annual financial statements by equity investors. We examine the relevance of financial reporting for equity valuation in Australia across time. We find that financial reporting (specifically, reported net income, shareholders’ equity, and operating cash flows) remains relevant for investment decisions. We further support this finding with evidence from field interviews that provide insight into how and why financial statements are used by equity investors. The field evidence also demonstrates that no one financial statement dominates in investor decision making. Given the increasing availability of more timely, forward‐looking information from alternative sources, we examine the relevance of non‐GAAP financial information and other non‐financial information for investor decision making. We find that non‐GAAP financial information (as proxied by EBIT and EBITDA) is more value relevant than statutory measures. We further find a broad range of non‐financial information is utilized by investors in making investment decisions both as a ‘screen’ and for valuation purposes. Our findings inform regulators and other stakeholders as we provide evidence of the continuing relevance of financial statements and the complementary role of non‐GAAP financial and other information. Our evidence provides a rebuttal to the recent criticism.

The Effect of Income Tax Information Content on Firm Value: The View of Adoption IFRS

Article

Sep 2018

The Quality of Accounting Information: From the Guest Editors

Article

Jun 2018
Int J Account Inform Manag

The Disclosure of Recognised and Unrecognised Intangibles: Evidence from New Zealand

Article

May 2024

We examine the reporting of intangible assets and the disclosures on intellectual capital activities by listed companies and public benefit entities in New Zealand and assess the usefulness of these disclosures. Comparing trends in intangible asset disclosure frequency, we note that the most common is capitalised software costs, followed by goodwill. For intellectual capital, we find that qualitative disclosures are more prevalent than quantitative, with disclosure on relational capital being the most frequent. In addition, we find that intangible assets are value relevant, and more intellectual capital disclosures increase the value relevance of goodwill. Finally, we consider intangible reporting by public benefit entities and show that while the rate of intangibles capitalised is similar, they are of less relative economic importance. Overall, our findings provide evidence of divergence in intangible categorisation practice, highlight the absence of reporting digital technologies and call for improved disclosure criteria for recognised and unrecognised intangibles.

The information content of half-yearly goodwill impairment losses: analysis of the European context

Article

Nov 2023
Int J Account Inform Manag

Elisa Roncagliolo

Purpose This study aims to contribute to the debate on goodwill accounting by examining the information content of impairment losses recognized in half-yearly reports. Half-yearly reports provide a suitable context to examine the effectiveness of the impairment process. Due to IFRIC 10 requirements, indeed, managers may have incentives to avoid recognizing impairment losses at the interim reporting date. Design/methodology/approach The study adopts an archival approach. Based on the traditional Ohlson’s model (1995), it explores the information content of half-yearly impairment losses in the European context over the period 2007–2017. Findings Findings confirm the relevance of half-yearly reports and suggest that half-yearly impairment losses are significantly associated with stock prices. In particular, investors positively value companies that recognized goodwill impairment losses at the interim reporting date. Research limitations/implications The study contributes to the academic debate on goodwill and the effectiveness of the impairment procedure. In particular, it provides empirical evidence on the recognition of goodwill write-offs when it is possible to avoid the impairment test in the absence of indications of impairment. Practical implications Findings of this study can support the current debate on accounting for goodwill also in the light of the recent proposals of the IASB on the need to improve the effectiveness of the impairment test. Originality/value This study provides original empirical evidence on the goodwill impairment test in half-yearly reports, extending previous research that typically examines this issue in annual reports.

Intangible Assets in Accounting. A Bibliometric Analysis

Chapter

Jul 2023

This scientific paper presents a bibliometric analysis of publications on the accounting treatment of intangible assets to show the evolution of literature and current trends in the field. The paper has four specific objectives: identifying the development and variations in publications related to intangible asset accounting from 1984 to 2022, establishing the type of publications made with reference to this area, determining the indexed journals that lead the publications on this topic, and identifying the most prolific authors in the area. A bibliometric analysis was performed with information from the Scopus database to answer the four research questions raised. The search equation generated 687 documents published between 1984 and 2022. The study finds that there was a significant increase in publications on this topic during the 2000s and 2010s, peaking in 2020 with 57 publications. However, the number of publications decreased in 2021 and 2022. Business, Management, and Accounting is the area where most publications on this topic are found, with the Journal of Intellectual Capital leading the publications. The study also identifies the most productive authors in the area.KeywordsIntangible AssetsAccountingBibliometric Analysis

The response of Australian firms to AASB 138 disallowing the recognition of internally generated identifiable intangibles

Article

Apr 2023

This paper responds to a call by the Australian Accounting Standards Board to investigate how Australian firms responded to a perceived loss of information pursuant to AASB 138 (IAS38) which mandated the de‐recognition of previously recognised internally generated identifiable intangibles, from its effective date of 1 January 2005. We find that the sample firms did not choose to provide alternative or substitute disclosure elsewhere in their annual report or financial statements anytime during our sample period (2005–2010). Prima facie, this is surprising given prior evidence from the value relevance literature that disclosures relevant to the value of internally generated intangibles are correlated with firm value and presumably informative for investors. However, we caution against the drawing of simple conclusions that this finding implies alternative disclosure may not be valuable. Rather, it is important to understand the forces or frictions that contribute to this result. Schipper ( The Accounting Review , 82, 2007, 301) and Skinner ( Accounting and Business Research , 38, 2008, 191) offer valuable insights into the potential issues such as the costs of alternative disclosure including proprietary costs of disclosing competitive information and, the lower credibility of financial disclosures outside of audited financial statements. These are important considerations in the on‐going standard‐setting debate on recognition versus disclosure of value relevant information on intangible assets.

TMS/TFRS, BOBİ-FRS, KÜMİ-FRS VE ULUSLARARASI DEĞERLEME STANDARTLARI ÇERÇEVESİNDE MADDİ OLMAYAN DURAN VARLIKLARIN DEĞERLEME HÜKÜMLERİNİN İNCELENMESİ

Article

Full-text available

Feb 2023

Serkan Yücel

Examination of the valuation provisions of intangible assets within the framework of international valuation standards and Turkish financial reporting standards

Article

Jan 2023

Serkan Yücel

Purpuse- In this study, the valuation provisions of intangible assets within the scope of TAS-38, BOBI-FRS Section 14, KUMI-FRS Section 12, IVS-210 were compared. Methodology- Content analysis method was used as a method in this study. Findings-As a result of the examination, it has been seen that BOBI FRS Section 14 and KUMI FRS Section 12 are largely compatible with the valuation of intangible assets, and they have a more cost-based approach in order to facilitate the businesses within the scope of these standard sets. In TAS 38, on the other hand, it has been determined that the situations requiring the determination of "Fair Value" are more than the others. In addition to these standards, the IVS 210 standard, which has additional provisions regarding intangible assets from the standards published by the IVSC “International Valuation Standards Council”, is also discussed in the study. It has been understood that “Market approach”, “Income approach” and “Cost approach” can be applied in determining the fair value of intangible assets within the framework of IVS 210. However, it has been observed that, depending on the structure of the intangible asset, the application of the "Market approach" and "Income approach" is primarily desired, while the cost approach is recommended to be applied in mandatory situations. Conclusion-As a result of the research, it has been seen that there are some differences between TMS38, BOBI FRS Section 14 and KÜMİ FRS Section 12. It has been determined that there are no valuation provisions in IDS 210, and the principles supporting the valuation are discussed. Keywords: Intangible assets, TMS-38, BOBI-FRS Section 14, KUMI-FRS Section 12, IVS-210 JEL Codes: M40,M41

An evaluation of the impacts of the adoption of IFRS 15 Revenue from Contracts with Customers

Article

Jul 2022

This paper evaluates the impact of IFRS 15 Revenue from Contracts with Customers on the value relevance of financial reports for Australian listed firms. We find that for most firms the impacts of transition were immaterial, however some firms experienced a significant reduction in earnings and/or retained earnings and for these firms the value relevance of earnings was generally lower in the pre‐adoption period compared to firms in which there was no material impact. Post adoption, there is little evidence that the standard improved the relevance of earnings generally.

Impact of risk management capabilities on stock returns of banks: Evidence from listed commercial banks in Sri Lanka

Conference Paper

Full-text available

Jul 2019

Risk management practices of financial institutions play a significant role in financial stability and thereby strengthen the confidence of stakeholders. The purpose of this study is to examine the impact of banks‟ risk management capabilities on stock returns. Four basic risk management capability measures are used for this purpose.The data from the financial reports of eight listed commercial banks for the period from 2006 to 2018 are used for the analysis. The DuPont analysis of ROE calculation is used to identify four risk management variables such as interest rate risk management, bank income diversification, credit risk managementand solvency risk management. The standard market model is estimated using two different regressions as regression 01 and regression 02 to capture the impact of firm size (control variable) on the whole model.The findings of regression 01 and regression 02 reveal that market return ( and income diversification (NNIM) are significant to predict bank stock returns. However, Interest rate risk management capability (NETIM), credit risk management capability (PROV), solvency risk management capability are insignificant variables under both models. The impact of firm size on the whole model is also insignificant and there is an insignificant positive relationship between bank stock returns and firm size (TA). Therefore, bank managers can employ effective strategies to increase non-interest income, hence it contributes to generate a higher return for the shareholders. Therefore, the study suggests shareholders to purchase the stocks of banks which has increased non-interest income and to aware on the market index changes in order to increase their returns. Keywords: Bank income diversification; Risk management capability; Stock returns

A Study on the Subsequent Measurement of Goodwill

Conference Paper

Full-text available

Jan 2021

Xiaoya Sang

Thirty Years of The Australian Accounting Review : A Bibliometric Analysis

Article

Jan 2021

This study presents a retrospective review of the Australian Accounting Review (AAR) across its first thirty years of publication, 1991 to 2020. AAR's academic contributions have grown by 17.01% year-on-year over this period, while its level of academic influence has risen by 20.21%. Authorship numbers have grown by 16.10% annually, from 11 authors in the year of inception to 969 individuals in 2020. Emerging initially as an important regional resource, the AAR has evolved to become an internationally renowned academic outlet with contributions sourced from 44 different countries. Emergent themes in the journal include integrated reporting, corporate social responsibility, investor protection, and comprehensive income.

Value Relevance of Intangibles: A Literature Review

Chapter

Jan 2021

Ömer Faruk GÜLEÇ

Value relevance can be defined as the association between accounting values and market values and it is one of the most important quality attributes of financial reporting. Recognizing, measuring, and reporting the intangible assets properly has become gradually more important due to the increasing importance of intangibles in the statement of financial position and the shift from a tangible-based economy to an intangible-based economy. Value relevance of intangibles examines how well accounting treatments of intangibles are related to stock market values and it is a controversial and heavily debated issue in the literature. Thus, the purpose of this study is to demonstrate how valuable intangibles and to provide useful information about the value relevance of intangibles by reviewing the most cited literature. For this purpose, the study investigates R&D expenditures, goodwill, patents, brands, and advertising expenditures by comparing the results of the studies. According to the results, while IFRS adoption is expected to provide more comparable and high-quality information, the overall value relevance of intangibles has generally declined after the IFRS. In addition, capitalizing the R&D expenditures seem to be more value relevant than the expensed portion. These results are also consistent with the other intangibles such as patents and brands.

How does leverage affect the value relevance? Evidence from Turkey

Article

Oct 2020

Melik Ertugrul

High-levered firms have serious concerns related to avoiding covenant violations and meeting the needs of their creditors. Accounting information of those firms should be less value relevant for market participants. Based on a sample of Turkish listed firms over 2009–2018, we analyse whether the value relevance of accounting information is significantly lower for high-levered firms. For this purpose, we group observations with no net debt and divide the rest into quintiles based on leverage levels. We conclude that the value relevance of both earnings and book value of equity is lower for the high-levered quintile than the rest. Moreover, the value relevance of earnings is moderated more than the value relevance of book value of equity for the high-levered quintile. Last, book value of equity is more dominant in the valuation of the high-levered quintile than the valuation of the rest.

DO INTERNATIONAL FINANCIAL REPORTING STANDARDS AID IN PROVIDING HIGH-QUALITY DATA AND CONTRIBUTE TO OPEN AND PRECISE ACCOUNTING STATEMENTS?‏

Article

Nov 2020

Yaser Al Frijat

Abstract: This study investigates whether the implementation of International Financial Reporting Standards (IFRS) aid in providing high-quality data and contribute to open and precise accounting statements. This study evaluates the initial implementation of the IFRS in the Jordanian Amman stock exchange's ASE) industry field. The Nvivo program was utilized to evaluate the responses. Utilizing structured interviews with a sample of financial managers, internal auditors, external auditors, and financial accountants selected from Amman stock exchange's industry field, the results of this study revealed that the majority of the interviewees agreed that the implementation of the IFRS has aided in high-quality data provision and contributed to open and precise accounting statements.

Factors Affecting the Value-Relevance of Capitalized Exploration and Evaluation Expenditures Under IFRS 6

Article

May 2020

This study examines factors affecting the value-relevance of financial and nonfinancial disclosure in the context of the long contentious International Financial Reporting Standard 6 (IFRS 6). Relative to the capitalization of R&D expenditures, IFRS 6 follows a far less restrictive approach, delaying the requirement for probable future economic benefits in settings of high uncertainty. We compare the value-relevance of this asset with that of nonfinancial information commonly reported by mining firms, namely mineral resource estimates. We report evidence that investors utilize nonfinancial information to assess the value-relevance of financial information, initially focusing on whichever information is timelier. We do not find evidence that investors prefer conservative reporting practices in a setting with high uncertainty; rather we provide evidence that investors interpret the capitalization decision as a signal of project viability. This finding is of particular relevance to the ongoing Intangible Assets project being conducted by the International Accounting Standards Board (IASB). JEL classifications: G12, G14

"QUANTIFY THE IMPACT OF IFRS ADOPTION ON CORPORATE REPORTING PRACTICES IN INDIA: AN INNOVATIVE APPROACH"

Article

May 2020

Neeraj Sehrawat

The empirical research of financial statements with the help of International Financial Reporting Standards (IFRS) examines the relevance, reliability and quality of corporate reporting of companies making dual reporting in India. The main purpose of this study is to identify the statistically significant differences between the Indian GAAP-based and IFRS-based financial statements of companies through the calculated financial ratios. The analysis is based on the sample of 10 Indian companies that have voluntarily adopted IFRS reporting. Financial statements prepared as per Indian GAAP and IFRS were obtained for a period of 5 years. Financial ratios under the categories of stability, liquidity, profitability and investment valuation were analyzed using Gray's Comparability Index, Wilcoxon's signed ranks test and paired t-test for identifying significant differences between Indian GAAP-based and IFRS-based financial ratios. Results of these tests reflect that IFRS presents a robust picture of the liquidity of the organization. However, majority of the profitability as well as the solvency ratios have shown a decline under IFRS, compared to their values under GAAP. A Linear Regression model indicated that reporting under IFRS is less subject to fluctuations as compared to I-GAAP. In the end, a company wise analysis was conducted to decipher the impact of IFRS adoption on these companies, individually. The analysis revealed that all the companies except

Duration of Equity Overvaluation and Managers’ Choice to Use Aggressive Underlying Earnings Disclosure and Accrual-based earnings Management: Australian Evidence

Article

Full-text available

Apr 2019

This paper examines whether equity overvaluation duration influences managers’ choice of different earnings management mechanisms and how corporate governance and the Australian Securities and Investment Commission's underlying earnings disclosure guidelines influence managers’ choices. The study samples Australian Securities Exchange 200 firms from 2009 to 2016. Findings show that on average, firms more likely engage in accrual-based earnings management in the early overvaluation stage. In later stages, firms more likely disclose underlying earnings aggressively to sustain overvaluation. Additionally, firms with a high proportion of independent directors on the board prefer to disclose underlying earnings aggressively to sustain the equity overvaluation; firms with a low proportion of independent directors prefer both accrual-based earnings management and aggressive underlying earnings disclosure to sustain the overvaluation. Moreover, firms that conform to the Commission's underlying earnings disclosure guidelines use neither accrual-based earnings management nor aggressive underlying earnings disclosure to sustain overvaluation, but non-conforming firms use both mechanisms.

Review of Accounting Variables Affecting Stock Price Movements

Article

Jun 2018

Reviewing IFRS Goodwill Accounting Research: Implementation Effects and Cross-Country Differences

Article

Aug 2018

We review 42 studies from 2008 to early 2017 about IFRS goodwill accounting choices for recognition, impairment, and disclosure of goodwill, focusing on cross-country evidence of implementation effects. We develop a model of application of goodwill accounting based on IFRS 3, IAS 36, and country- and firm-level influences to analyze the research and to summarize existing evidence about goodwill accounting choices. We report evidence in support of IFRS accounting for goodwill recognition, impairment, and disclosure from many countries. However, evidence regarding value relevance is mixed. Overall, there is a lack of cross-country evidence regarding factors affecting goodwill accounting. Many studies show goodwill recognition, impairment, and disclosure are associated with economic and firm factors, and there is some evidence about the impact of managerial incentives and a lack of timeliness in impairment recognition. There is scope for more cross-country studies showing how institutional factors affect the application of IFRS 3 and IAS 36.

Do Accruals Earnings Management Constraints and Intellectual Capital Efficiency Trigger Asymmetric Cost Behaviour? Evidence from Australia: Accruals Earnings Management Constraints and Intellectual Capital

Article

Jun 2018

Yiru Yang

This study examines whether accruals earnings management constraints and intellectual capital (IC) efficiency affect asymmetric cost behaviour by analysing data for the 1990 to 2016 period on firms listed on the Australian Securities Exchange. The analysis reveals that, on average, anti‐sticky cost behaviour occurs when firms have limited ability to engage in accrual earnings management to manipulate earnings in the current year. Further, IC efficiency – particularly human capital efficiency – increases the degree of cost stickiness. This study also finds that the degree of asymmetric cost behaviour is more pronounced in the post‐International Financial Reporting Standards (IFRS) period than in the pre‐IFRS period. The results suggest that the increased asymmetric cost behaviour in the post‐IFRS period derives from higher IC efficiency relative to the pre‐IFRS period. This study presents important implications for external stakeholders because they can consider the extent of earnings management constraints and the extent of firms’ IC efficiency as the determinants of asymmetric cost behaviour when assessing firms’ cost behaviour.

A review of the current debate on the determinants and consequences of mandatory IFRS adoption

Article

Jun 2018
Int J Account Inform Manag

Noor Houqe

Purpose This review analyzes the economic and financial reporting consequences of International Financial Reporting Standards (IFRS) adoption. Design/methodology/approach Literature review Findings The survey of the IFRS adoption literature shows that the implementation of IFRS has been successful in reducing information asymmetry, improving the quality of information for users, enhancing transparency and comparability, and positively influencing capital markets. In general, the positive effects of IFRS are associated with firms in strong enforcement regimes that have incentives to comply. The survey find enforcement of IFRS to be a recurring theme throughout the literature reviewed and is therefore an area which requires development. Practical implications In particular, there is a need to develop a mechanism for the enforcement of accounting standards internationally. Hence, there is a need for collaboration between the International Accounting Standards Board and regulatory bodies around the world to maximize the effectiveness of international accounting standards. Originality/value Given the considerable discussion about mandating IFRS for U.S.A. firms by the Securities and Exchange Commission (SEC), this study’s results are both important and well-timed.

Acquisition premiums and the recognition of identifiable intangible assets in business combinations pre and post IFRS adoption

Article

May 2018
Account Res J

Purpose This paper evaluates the relation between acquisition premiums and amounts recognised as identifiable intangible assets in business combination, in periods before and after transition to IFRS. Design/methodology/approach Empirical archival research using data from business acquisitions. Findings In the pre-IFRS period there is evidence of firms recognising identifiable intangible assets in business combinations having higher acquisition premiums. This association of acquisition premiums and identifiable intangible assets ceased with transition to IFRS, notwithstanding the relative latitude provided in accounting standards for the recognition of identifiable intangible assets. Research limitations/implications This paper complements Su and Wells (2015) which finds little association between identifiable intangible assets and performance subsequent to business acquisitions prior to transition to IFRS. The results here suggest that is attributable to overpayment. Problematically, the incentives for opportunism remain and an issue requiring address is whether alternative sources of accounting flexibility in relation to business combinations exist, such as goodwill which is no longer subject to mandatory amortisation. Practical implications Our results are consistent with accounting opportunism, and suggests ‘overpayment’ and accounting flexibility having an economic consequence. This would be expected to result in asset impairments in subsequent periods, however there is little evidence of this occurring. Originality/value This paper complements a number of papers concerned with the recognition of identifiable intangible assets in business combinations and confirms what many researchers in the area typically assume (triangulation).

The Role of R&D Capitalisations in Firm Valuation and Perfor Mance Measurement

Article

Full-text available

Dec 1998

We investigate the value‐relevance of capitalised R&D on the balance sheet, and the extent to which R&D accruals improve the association between accounting‐based measures of firm perfor Mance and capital market returns for Australian listed companies. This is a regulatory setting where management discretion in the capitalisation decision is permitted and can be empirically observed. Our results suggest that capitalised R&D on the balance sheets of selective capitalisers is value‐relevant; that is, the ability of capitalised R&D to explain infor Mation contained in prices (given infor Mation conveyed by other components of the balance sheet) is statistically significant. For the same group of firms R&D accruals (particularly the initial capitalisation) improve accounting earnings as a measure of perfor Mance but only for the pooled sample using contemporaneous returns. The results for the fully expensing sample are less clear, perhaps due to the small sample size.

Capitalised Intangibles and Financial Analysts

Article

Full-text available

Aug 2005

We examine whether firms that capitalise a higher proportion of their firm’s underlying intangible assets have higher analyst following, lower dispersion of analysts’ earnings forecasts and more accurate earnings forecasts relative to firms that capitalise a lower proportion. Under Australian GAAP, capitalisation of intangible assets has become increasingly ‘routine’ since the late 1980s. It is predicted that this experience leads Australian analysts to expect firms with relatively more certain intangible investments to signal this fact by capitalising intangible assets. Our results are consistent with this. We find capitalisation of intangible assets is associated with higher analyst following and lower absolute earnings forecast error for firms with a stock of underlying intangible assets. Our tests suggest a weaker association between capitalisation and lower earnings forecast dispersion. We conclude that there are benefits for analysts, for management to have the option to capitalise intangible assets. These findings suggest IAS 38 Intangible Assets and AASB 138 Intangible Assets reduce the usefulness of financial statements.

Likelihood Ratio Tests for Model Selection and Non-Nested Hypotheses

Article

Full-text available

Feb 1989
ECONOMETRICA

Quang Vuong

Using the Kullback-Leibler information criterion to measure the closeness of a model to the truth, the author proposes new likelihood-ratio-based statistics for testing the null hypothesis that the competing models are as close to the true data generating process against the alternative hypothesis that one model is closer. The tests are directional and are derived for the cases where the competing models are non-nested, overlapping, or nested and whether both, one, or neither is misspecified. As a prerequisite, the author fully characterizes the asymptotic distribution of the likelihood ratio statistic under the most general conditions. Copyright 1989 by The Econometric Society.

Accounting for Intangibles

Article

Nov 2001
Aust Account Rev

Jayne M. Godfrey

The Relevance to Firm Valuation of Capitalised Research and Development Expenditures

Article

Dec 2008
Aust Account Rev

Although the relevance of research and development to firm value has been extensively documented, some apparently contrary results were recently reported using Australian data. Godfrey and Koh (2001) reported that capitalised R&D costs do not seem to contain information relevant to the valuation of Australian companies. As the Godfrey and Koh study was designed to test the value-relevance of intangible assets in general, it is likely that the sample did not include sufficient research-intensive companies to test the relevance of R&D to firm value. This research note confirms results from other previous studies indicating that capitalised R&D is relevant to firm value.

Intangible Assets: Diversity of Practices and Potential Impacts From AIFRS Adoption

Article

Dec 2008
Aust Account Rev

The adoption of Australian equivalents of International Financial Reporting Standards (AIFRS) radically alters Australian accounting practices for intangible assets. Under AIFRS, goodwill amortisation expense is replaced by goodwill impairment loss based on frequent tests of the value of goodwill, and Australian firms are no longer permitted to recognise certain internally generated intangibles. This paper provides statistics regarding intangible asset reporting by 476 firms listed on the Australian Stock Exchange in 2002. We find significant diversity in reporting practices relating to both goodwill and identifiable intangible assets. Accordingly, the new accounting rules will potentially reshape ASX-listed firms' financial statements by significant amounts.

The Value-Relevance of Intangibles: The Case of Software Capitalization

Article

Jan 1999

We examine in this study the relevance to investors of information on the capitalization of software development costs, as promulgated in 1985 by the Financial Accounting Standards Board in its Statement No. 86 (SFAS 86). We find that software capitalization is value-relevant to investors: The annually capitalized development costs are positively and significantly associated with stock returns and the cumulative software asset reported on the balance sheet is associated with stock prices. Furthermore, software capitalization figures are associated with subsequent reported earnings, indicating another dimension of relevance to investors. We also find that investors undervalue firms that expense all their software development costs. Finally, we find no support for the frequent argument that the judgment and subjectivity involved in software capitalization adversely affects the quality of reported earnings. We also investigate why the industry petitioned the FASB, in March 1996, to abolish SFAS 86. We document a significant shift in the mid-1990s in the impact of software capitalization on reported earnings and return-on-equity of software companies. Whereas in the early period of SFAS 86 application (mid- to late-1980s) software capitalization enhanced reported earnings considerably more than its detraction by the amortization of the software asset (since that asset was still small), during the early 1990s the gap between capitalization and amortization narrowed, and in 1995, the amortization?s negative impact on reported profitability roughly offset the positive impact of capitalization. This diminished impact of capitalization on reported performance may have been among the reasons underlying the petition to abolish SFAS 86. Finally, we find that analysts? earnings forecast errors are positively and significantly associated with the intensity of software capitalization.

Revalued Financial, Tangible, and Intangible Assets: Associations With Share Prices and Non-Market-Based Value Estimates

Article

Jan 1998

This study investigates how Australian asset revaluations are associated with share prices and non market-based firm value estimates. We find that revalued financial, tangible, and intangible assets can be value-relevant. Although prior research presages the financial assets findings, the intangible assets findings are striking in strength and consistency. Findings for property, plant, and equipment are less consistent. Also, we find stronger value-relevance for plant and equipment than for property, suggesting revalued operating assets are more value-relevant. Perhaps surprisingly, the market does not distinguish director- and independent appraiser-based valuations, consistent with directors' enhancing value estimates by using their private information countervailing distorting effects associated with management discretion. Also, even several year old revalued amounts are value-relevant, suggesting timeliness is not critical for long-term asset revaluations. Finally, evidence indicates that investors value differently upward and downward revaluations, suggesting the discretionary nature of asset write-ups can affect value-relevance.

The Capitalization, Amortization, and Value-Relevance of R&D

Article

Feb 1996
J ACCOUNT ECON

GAAP mandates the full expensing of R&D in financial statements, presumably because of concerns with the reliability, objectivity, and value-relevance of R&D capitalization. To address these concerns, we estimate the R&D capital of a large sample of public companies and find these estimates to be statistically reliable and economically meaningful. We then adjust the reported earnings and book values of sample firms for the R&D capitalization and find that such adjustments are value-relevant to investors. Finally, we document a significant intertemporal association between firms' R&D capital and subsequent stock returns, suggesting either a systematic mispricing of the shares of R&D-intensive companies, or a compensation for an extra-market risk factor associated with R&D.

The value relevance of management’s research and development reporting choice: Evidence from Australia

Article

Feb 2006
J Account Publ Pol

We examine the value relevance of Australian firms’ discretionary R&D accounting policy and the association between this expenditure and the firm’s future economic performance. The results indicate that: (1) managerial discretionary accounting practice, capitalizing or expensing R&D expenditure, demonstrates greater value relevance than accounting figures that are the product of mandatory R&D expensing, (2) managerial discretionary capitalized R&D accounting figures demonstrate higher association with market share prices than managerial discretionary expensed expenditure, (3) the strength of the association between R&D accounting figures and the firm’s market value is higher for firms that are members of a defined industrial group than for the general population of firms and (4) R&D capitalized expenditure is positively and significantly associated with the firm’s future earnings. We also examine the sensitivity of comparative value relevance models to the choice of deflator variables. Our results are robust with respect to such choice. Implications of our findings for accounting rule makers and researchers are also offered.

Longitudinal Value Relevance of Earnings and Intangible Assets: Evidence from Australian Firms

Article

Dec 2006
J Int Account Audit Taxat

Recent U.S. studies report that earnings value relevance has declined over time. Some authors suggest non-recognition of intangible assets in the U.S. is a major reason for declining earnings value relevance. However, the evidence is mixed on the effect of non-recognition of intangible assets. To examine this conjecture, this paper examines earnings value relevance for Australian firms since Australian GAAP has not prohibited intangible asset recognition. Using a variety of established models and specifications, our results indicate that for the average firm, there is weak evidence of decline in earnings value relevance. However, firms that capitalize intangibles have increasing earnings value relevance. Further, the magnitude of the difference in earnings value relevance between capitalizing firms and non-capitalizing firms is most pronounced in the latter part of the 1990s and this difference is increasing.

A Heteroskedasticity-Consistent Covariance Matrix and A Direct Test for Heterskedasticity

Article

Apr 2001

Halbert L. Jr. White

This paper presents a parameter covariance matrix estimator which is consistent even when the disturbances of a linear regression model are heteroskedastic. This estimator does not depend on a formal model of the structure of the heteroskedasticity. By comparing the elements of the new estimator to those of the usual covariance estimator, one obtains a direct test for heteroskedasticity, since in the absence of heteroskedasticity, the two estimators will be approximately equal, but will generally diverge otherwise. The test has an appealing least squares interpretation.

The Relevance to Firm Value of Capitalising Intangible Assets in Total and by Category

Article

Nov 2001
Aust Account Rev

Debate about the appropriate treatment of intangible assets can benefit from knowledge about the relevance of their financial statement capitalisation to valuation of firms. With rules permitting or requiring intangible asset capitalisation, Australia provides an ideal setting to obtain this evidence. This paper reports findings that indicate that capitalisation of intangibles is value-relevant for Australia's largest firms. Results indicate that investors place greater value on capitalised goodwill than on other categories of capitalised balance sheet items. Similarly, capitalisation of identifiable intangible assets adds value to large firms. However, research and development capitalisation does not affect the value of firms in our study.

Accounting Recognition of Intangible Assets: Theory and Evidence on Economic Determinants

Article

Jul 2005

Anne Wyatt

This paper examines the extent to which management makes accounting choices to record intangible assets based on their insights into the underlying economics of their firm. It exploits a setting in which management has accounting discretion to record a wide range of intangible assets. The results suggest that management's choice to record intangible assets is associated with the strength of the technology affecting the firms operations, the length of the technology cycle time, and property-rights-related factors that affect the firm's ability to appropriate the investment benefits. These effects are more important than other contracting and signaling factors consistent with the underlying economics operating as a first-order effect as envisaged by GAAP. The results also indicate that the intangible assets management has a voluntary (unregulated) choice to record - identifiable intangible assets - are more highly correlated with underlying economic factors than the regulated classes, purchased goodwill and R&D assets. This result suggests that limiting managements' choices to record intangible assets tends to reduce, rather than improve, the quality of the balance sheet and investors' information set.

Discretionary Capitalization Of R&D: Evidence On The Usefulness In An Australian And Canadian Context

Article

Dec 2001
Adv Int Account

This study addresses the discretionary capitalization of R&D costs in Australia and Canada. We demonstrate, for both samples, that the discretionary capitalization of development costs (hereafter capitalized D) by the manager results in balance sheet and income numbers that are more highly associated with market value, relative to the corresponding "asif" numbers generated by expensing GAAP. Moreover, we show that a dollar worth of capitalized D is worth more than a dollar worth of expensed R&D, for the same firm. This points to a corroboration role for capitalization. As a caveat, our results hold only when the samples are partitioned on the materiality of capitalized D. Our results point to a potentially useful signalling role for discretionary capitalization, in Australian and Canadian capital markets. However, while the manager’s capitalized D is associated with firm value, it has at best a modest advantage over what the analyst can do, using the researchercreated capitalized R&D. Thus, the regulatory policy debate must consider the small incremental benefits from allowing discretionary capitalization compared to the costs associated with earnings management when discretion is allowed.

Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards

Article

Jul 2008

Philip Palmer

This study investigates two disclosure variables ("Extent" and "Quality") in relation to compliance with paragraph 4.1 (b) of AASB 1047 "Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards". Using a sample of 150 Australian listed firms, I find that the extent and quality of disclosure is influenced by firm size, leverage and auditor firm size, with the latter variable being the most significant. In general, the results suggest that many companies might have relied on sample disclosures provided by their auditors, perhaps limiting both quality and intent. Additionally, the ultimate usefulness of broad and imprecise standards might be questionable. Smaller companies might also require more guidance and assistance with their preparation for the adoption. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 AFAANZ.

The Stock Market Valuation of Research and Development Expenditures

Article

Aug 1999

We examine whether stock prices fully reflect the value of firms' intangible assets, focusing on research and development (R&D). Since intangible assets are not reported on financial statements under current U.S. accounting standards and R&D spending is expensed, the valuation problem may be especially challenging. Nonetheless we find that historically the stock returns of firms doing R&D on average matches the returns on firms with no R&D. For companies engaged in R&D, high R&D intensity has a distinctive effect on returns for two groups of stocks. Within the set of growth stocks, R&D-intensive stocks tend to out-perform stocks with little or no R&D. Companies with high R&D relative to equity market value (who tend to have poor past returns) show strong signs of mis-pricing. In both cases the market apparently fails to give sufficient credit for firms' R&D investments. Our exploratory investigation of the effects of advertising on returns yields similar results. We also provide evidence that R&D intensity is positively associated with return volatility, everything else equal. Insofar as the association reflects investors' lack of information about firms' R&D activity, increased accounting disclosure may be beneficial.

Identifiable Intangible Asset Disclosures, Stock Prices and Future Earnings

Article

Oct 2006

As a consequence of regulatory reforms currently being initiated as part of international convergence, it is likely that the recognition and disclosure of identifiable intangible assets by Australian firms will cease. This study provides empirical evidence on how this will impact financial reports. First, evidence is provided of a positive association between stock prices and voluntarily recognized and disclosed identifiable intangible assets. Second, evidence is provided of a positive association between identifiable intangible assets and realized future period income. This provides insights into the nature of the information provided by intangible assets, and identifies a basis for the association between stock prices and identifiable intangible assets. This leads to the conclusion that identifiable intangible assets disclosures are value relevant, and that with the application of the restrictive recognition rules in AASB138 these disclosures in financial reports will be greatly diminished. Copyright (c) The Authors Journal compilation (c) 2006 AFAANZ.

Capitalized Intangibles and Financial Analysts

Article

Feb 2006

We examine whether firms that capitalize a higher proportion of their underlying intangible assets have higher analyst following, lower dispersion of analysts' earnings forecasts and more accurate earnings forecasts relative to firms that capitalize a lower proportion. Under Australian generally accepted accounting principles, capitalization of intangible assets has become increasingly 'routine' since the late 1980s. It is predicted that this experience leads Australian analysts to expect firms with relatively more certain intangible investments to signal this fact by capitalizing intangible assets. Our results are consistent with this. We find that capitalization of intangible assets is associated with higher analyst following and lower absolute earnings forecast error for firms with a stock of underlying intangible assets. Our tests suggest a weaker association between capitalization and lower earnings forecast dispersion. We conclude that there are benefits for analysts, for management to have the option to capitalize intangible assets. These findings suggest that IAS 38 "Intangible Assets" and AASB 138 "Intangible Assets" reduce the usefulness of financial statements. Copyright (c) The Authors Journal compilation (c) 2006 AFAANZ.

The Stock Market Valuation of Research and Development Expenditures

Article

Feb 2001

Louis Chan

We examine whether stock prices fully value firms' intangible assets, specifically research and development (R&D). Under current U.S. accounting standards, financial statements do not report intangible assets and R&D spending is expensed. Nonetheless, the average historical stock returns of firms doing R&D matches the returns of firms without R&D. However, the market is apparently too pessimistic about beaten-down R&D-intensive technology stocks' prospects. Companies with high R&D to equity market value (which tend to have poor past returns) earn large excess returns. A similar relation exists between advertising and stock returns. R&D intensity is positively associated with return volatility. Copyright The American Finance Association 2001.

ASIC maintains the standards

Jan 2004
3

Ludlow M.

Ludlow, M. and F. Buffini 2004, 'ASIC maintains the standards', Australian Financial Review, February, p.

Adoption of International Financial Reporting Standards: Impact on the Value Relevance of Intangible Assets

Abstract

No full-text available

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