Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Abstract

This paper examines whether the type of jointly controlled entity influences the management choice to report interests in this kind of joint venture using the equity method or proportionate consolidation. We address this gap in the accounting choice literature by exploiting the UK setting where, due to the transition to IFRS, firms had to change their reporting method for interests in jointly controlled entities from the gross equity method to a similar approach (equity method) or to proportionate consolidation. We support our analysis on the classification of jointly controlled entities proposed by Hennart (1988). We hypothesize that venturers are more likely to change their reporting method to proportionate consolidation when the majority of their jointly controlled entities are cases of Link instead of Scale cooperation. After controlling for several variables, our results are consistent with the predictions and thus suggest that the type of jointly controlled entity plays an important role in the management decision to report interests in jointly controlled entities using the equity method or proportionate consolidation. However, the results also provide empirical evidence supporting the importance of debt covenant costs and monitoring costs in the choice between alternative reporting methods.

Determinantes de la discrecionalidad directiva en la elección del método contable de las participaciones en negocios conjuntos

“…Por ello, son idóneas para discriminar entre grupos de empresas que eligen entre dos procedimientos contables alternativos (Whittred, 1987;Mora y Rees, 1998;Giner y Pardo, 2004;Lourenço y Curto, 2010). La regresión logit utiliza una función de distribución logística (no lineal) para transformar las variables independientes, mientras que la regresión probit emplea una distribución normal.…”

Impacts of the elimination of the proportionate consolidation on Itaúsa financial statements

“…Therefore, the equity method would be more appropriate than proportionate consolidation. Furuta (2005), Lourenço and Curto (2010).…”

“…Betancourt andBaril (2013), Furuta (2005), Lourenço and Curto (2010), Reklau (1977), Richardson et al (2012).…”

Escolhas Contábeis: reflexões para a pesquisa

“…Em termos práticos, o número de países que passaram a utilizar o International Financial Reporting Standards (IFRS) para elaboração e divulgação de relatórios contábeis aumentou muito nos últimos anos (http://www.ifrs.org/Use-around-theworld/Pages/Jurisdiction-profiles.aspx, atualizada em 6 de junho de 2016), o que motivou ainda mais as pesquisas sobre escolhas contábeis, notadamente na Europa (QUAGLI; AVALLONE, 2010;LOURENÇO;CURTO, 2010;MARTÍNEZ;MARTÍNEZ;DIAZARAQUE, 2011;NOBES, 2013;ISRAELI, 2015). Isso ocorreu porque o IFRS, por pretender ter aplicação global, é baseado em princípios, o que aumenta sobremaneira o poder discricionário dos elaboradores das demonstrações contábeis, já que cada país, cada mercado, cada cultura, cada religião, cada ambiente institucional é distinto, exercendo pressões distintas sobre as escolhas contábeis.…”