The Role of Accounting in the German Financial System

Leuz, Christian; Wüstemann, Jens

doi:10.1093/0199253161.003.0014

Cited by 111 publications

(43 citation statements)

References 35 publications

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“…Germany is typically characterized as a code‐law system with low investor protection and strong insider orientation. German GAAP are geared towards the contracting needs of creditors who have private information channels (Leuz & Wüstemann, ). In contrast, IFRS cater more to the information needs of outsiders by promoting financial statements that are prepared for providing information that is useful in making economic decisions (IASB, ).…”

Section: Institutional Settingmentioning

confidence: 99%

“…We search for industrial firms (1) whose equity shares are not listed on a stock exchange, and (2) which prepare consolidated financial statements. Our focus is on consolidated financial statements, because they have no legal implications for dividend distributions or taxes and exclusively serve informational purposes (Leuz & Wüstemann, ). We do not include firms that are subsidiaries of other IFRS firms.…”

Section: Sample Selection and Collection Of Datamentioning

confidence: 99%

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IFRS adoption, reporting incentives and financial reporting quality in private firms

Bassemir

Novotny-Farkas

2018

Business Fin & Account

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This study examines financial reporting quality (FRQ) effects around voluntary International Financial Reporting Standards (IFRS) adoptions by German private firms across two important dimensions, earnings quality and disclosure practices. To capture differences in the motivations for IFRS adoptions, we identify four different types of IFRS adopting firms based on a comprehensive set of firm characteristics. We observe earnings quality improvements around IFRS adoptions primarily for one type of firm, which is young, fast growing and seeking access to public equity markets. Using a matched sample of private German GAAP and IFRS reporting firms, we find some evidence suggesting that IFRS also contribute to higher earnings quality. Recognizing that our earnings quality metrics are only incomplete measures of FRQ, we also compare the disclosure practices of IFRS and German GAAP firms. We find that all IFRS firm types disclose significantly more information in their financial reports and show a higher propensity to publish their financial reports voluntarily on the corporate website. Our findings indicate that failure to identify earnings quality changes around IFRS adoption cannot be automatically interpreted as IFRS adoption having no effect on the FRQ of (private) firms. Collectively, our results suggest that both incentives and accounting standards shape private firms’ FRQ.

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Section: Institutional Settingmentioning

confidence: 99%

Section: Sample Selection and Collection Of Datamentioning

confidence: 99%

IFRS adoption, reporting incentives and financial reporting quality in private firms

Bassemir

Novotny-Farkas

2018

Business Fin & Account

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“…We use the rule of law ( RoL ) and the polity score ( Polity_score ) that captures the government attitude to equality. Further, some regulators use a similar definition of income for tax and financial reporting purposes as they may find it optimal to use similar accrual instruments in regulating creditor protection and in defining taxable income (Leuz and Wüstemann []). We proxy for creditor rights using the creditor rights index ( Credit_rights ).…”

Section: Determinants Of the Accrual Choicementioning

confidence: 99%

Why Do Countries Mandate Accrual Accounting for Tax Purposes?

Goncharov

Jacob

2014

J of Accounting Research

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This study investigates why countries mandate accruals in the definition of corporate taxable income. Accruals alleviate timing and matching problems in cash flows, which smoothes taxable income and thus better aligns it with underlying economic performance. These accrual properties can be desirable in the tax setting as tax authorities seek more predictable corporate tax revenues. However, they can also make tax revenues procyclical by increasing the correlation between aggregate corporate tax revenues and aggregate economic activity. We argue that accruals shape the distribution of corporate tax revenues, which leads regulators to incorporate accruals into the definition of taxable income to balance the portfolio of government revenues and expenditures. Using a sample of 26 OECD countries, we find support for several theoretically motivated factors explaining the use of accruals in tax codes. We first provide evidence that corporate tax revenues are less volatile in high accrual countries, but high accrual countries collect relatively higher (lower) tax revenues when the corporate sector grows (contracts). Critically, we then show that accruals and smoother tax revenues are favored by countries with higher levels of government spending on public services and uncertain future expenditures, while countries with procyclical other tax collections favor cash rules and lower procyclicality of corporate tax revenues.

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“…If FTGC reports issued after the audit reforms result in more timely public information flows related to firms' going-concern uncertainties, we expect postreform FTGC reports to generate a greater negative market reaction than first-time goingconcern opinions issued prior to the audit reforms. Leuz and Wüstemann (2004) note the capital market in Germany is relationship based. In a relationship-based capital market, firms establish close ties with banks and other financial intermediaries and rely heavily on internal financing.…”

Section: Information Content Of Audit Reportsmentioning

confidence: 99%