Empirical test on the removal of reconciliation requirement from IFRS to US-GAAP

Liu, Chunhui; O'Farrell, Grace

doi:10.1504/ijmfa.2010.033286

Cited by 6 publications

(3 citation statements)

References 19 publications

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“…Similarly, the average values of cash to sales and other determinants are significantly different, with a p-value of 0.00, excluding the dividend dummy. Our results are in line with Asheghian (2012) and Liu and O'Farrell (2009). The difference in the accounting procedures, the standards the firms are following, and the unique characteristics financial markets have may be the causes for these differences (Akhtar, 2021).…”

Section: Empirical Findings 41 the T-test Resultssupporting

confidence: 90%

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Are the motives of holding cash differing between developed and emerging financial markets?

Akhtar

2023

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PurposeThis study compares the motives of holding cash between developed (Australian) and developing (Malaysian) financial markets.Design/methodology/approachFor the period 2006–2020, the t-test, fixed-effect and generalised method of moment (GMM) model have been applied to a sample of 1878 (1,165 Australian and 713 Malaysian) firms.FindingsThe empirical results reveal that firms in developed financial markets hold higher cash compared to the developing financial markets. The findings confirm that motives to hold cash differ between developed and developing financial markets. The GMM findings further show that cash holdings (CH) in Australia are higher due to higher ratios of cash flow, research and development (R&D) and return on assets (ROA), and lower due to larger dividend payments. In the Malaysian market, however, cash flows and R&D are ineffectual, ROA falls and dividend payments rise CH.Practical implicationsThe study helps managers, practitioners and investors understand that firms' distinct economic, institutional, accounting and financial environments are important. To attain the desired outcomes, they must thus comprehend and consider these considerations while developing suitable liquidity strategies.Originality/valueTo the authors' best knowledge, this is the initial research demonstrating how varied cash motives and their ramifications are in developed and developing financial markets. Therefore, this study identifies the importance that CH motives varied among financial markets and that findings from a particular market cannot be generalised to other markets because of the market and financial structural variations.

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Section: Empirical Findings 41 the T-test Resultssupporting

confidence: 90%

“…Compared to more aggressive sales methods in the US, less asset turnover is discovered in Italy (Hagigi and Sponza, 1990). Significant discrepancies in financial ratios between US and Chinese enterprises have been observed in the literature (Asheghian, 2012; Fuglister, 1997; Liu and O'Farrell, 2009).…”

Section: Literature Reviewmentioning

confidence: 99%

Are the motives of holding cash differing between developed and emerging financial markets?

Akhtar

2023

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“…This study also contributes to the debate about the nature of accounting standards (Francis, 1987; Nelson, 2003; Acker et al , 2002; Jeanjean and Stolowy, 2008; Liu and O’Farrell, 2010; Donelson et al , 2012). More specifically, the main findings confirm that principles-based standards reduce the risk of financial misreporting (Folsom et al , 2016; Agoglia et al , 2011) and document that the auditors react to this risk by increasing audit fees.…”

Section: Introductionmentioning

confidence: 87%

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

Subedi

2023

IJAIM

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

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Does the improvement in accounting standard IAS/IFRS cure the financial crisis and bank profitability? Evidence from banking sector in Lebanon

Alrub

Ağa

Rjoub

2018

Asia-Pacific Journal of Accounting & Economics

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Empirical test on the removal of reconciliation requirement from IFRS to US-GAAP

Cited by 6 publications

References 19 publications

Are the motives of holding cash differing between developed and emerging financial markets?

Are the motives of holding cash differing between developed and emerging financial markets?

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

Does the improvement in accounting standard IAS/IFRS cure the financial crisis and bank profitability? Evidence from banking sector in Lebanon

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