This paper adds to the literature on the role of financial economics in accounting standard-setting by analyzing the co-performation of an economic theory e the Efficient Market Hypothesis (EMH) e in the construction of a new approach to accounting for credit losses in financial reporting. Inspired by actornetwork theory and its notions of performativity and translation, the paper draws on interview data and documents to reconstruct the process by which the devalued “incurred loss” impairment model was replaced with a more forward-looking “expected loss” approach under IFRS in response to the 2008 financial crisis. These actions comprised of a series of experiments and negotiations, including an unsuccessful effort to establish an “ideal”-type model and the failure of a joint initiative between the IASB and the FASB. Alongside extensive considerations over how to make the approach operational, the influence of the EMH regarding the relationship between loan pricing and initial expectations of credit losses is elucidated. We show how a standard-setting objective grounded in financial economics is translated through a process of approximation as it forges linkages with other matters of concern. This process sheds light on the transformations involved in finding tolerable solutions when utilizing financial economics in the setting of accounting standards.

Introduction

As the preceding quote exemplifies, accounting standard-setters are often influenced by a desire to accurately reflect the underlying economics of business activity. Drawing on the precepts of financial economics, standard-setters are equipped with potentially powerful tools which aim to propel the standard-setting process towards its “correct” conclusion (Himick & Brivot, 2018). As Hopwood (1992) posits, “Economics … is seen as a means for helping accounting to become what it should be, but what currently it is not” (p. 128). Along these lines, previous research highlights the increasing influence of financial economic thought on accounting standards (Bougen & Young, 2012; Ravenscroft & Williams, 2009; Young, 2014) and conceptual frameworks (Erb & Pelger, 2015; Pelger, 2016; Power, 2010; Young, 2006). Nevertheless, as Power (2010) points out, the application of financial economics in financial accounting remains “partial, impure and pragmatic” (p. 209). One explanation for this is that the theories of financial economics, such as the Efficient Market Hypothesis (EMH) stimulated by Fama (1965), are both abstract and empirically uncertain (Whitley, 1986). In addition to challenges to the notion of market efficiency from within the discipline of economics (e.g., Shiller, 1981), pragmatism in the realm of financial accounting often generates obstacles to the application of the doctrine (Power, 2010). In light of this and the dearth of research on the operationalization of financial economic theory in standard-setting, we propose that the manner in which the EMH co-performs accounting standards is an important empirical question.

1- Introduction

2- Literature review and research hypotheses

3- Research design

4- Empirical test and analysis

5- Further testing

6- Conclusions

References

Abstract

This paper investigates how accounting standards (AS) convergence influences Chinese firms’ overseas mergers and acquisitions (M&As) and shows that this convergence significantly promotes Chinese firms’ overseas M&As. Specifically, we find that both the probability of success and the value of transactions increases significantly in countries that implemented International Financial Reporting Standards (IFRS) prior to 2007. These results suggest that accounting standards (AS) convergence can improve the comparability of accounting information between China and other countries that have adopted IFRS. Moreover, we find that the impact of accounting standards (AS) convergence on state-owned enterprise (SOE) acquirers is weak. These findings demonstrate that accounting standards (AS) convergence can facilitate Chinese firms’ overseas M&As by improving the comparability of accounting information between China and target countries.

Introduction

The number of overseas mergers and acquisitions (M&As) made by Chinese enterprises has grown rapidly. M&A has become one of the main avenues of foreign direct investment (FDI) in the country, and it has received considerable attention from the government. The 2011 Review and Prospects on Mergers and Acquisitions by Chinese Enterprises released by PricewaterhouseCoopers shows that Chinese enterprises’ overseas M&As have maintained strong momentum, with the number of transactions reaching a record-setting 207, a year-over-year growth of 10%, and the total value of transactions reaching USD42.9 billion, a year-overyear growth of 12%. The Yellow Book of World Economy released by the Chinese Academy of Social Sciences in 2011 also shows that Chinese enterprises, as the acquiring parties, rank second globally in terms of the number of transactions in M&As, gradually shifting from the role of the acquired parties in the past to acquiring parties. To alleviate the pressure of renminbi appreciation, secure energy supplies, and upgrade industries, the Chinese government encourages eligible enterprises to develop overseas investments. The report of the 17th National Congress of the Communist Party of China clearly proposes a ‘‘go global” strategy, which has become an important part of the national strategy and national policy for long-term development. Owing to the continuous growth in overseas M&As, the literature investigates numerous factors that affect the success of overseas M&As and the performance of companies post-M&A, such as institutional and sociocultural factors, industrial and company factors, and transaction details and management style. Today, over a hundred countries and regions have converged their standards with International Financial Reporting Standards (IFRS). However, the literature on the effects of accounting standards (AS) convergence on corporate overseas M&As is limited.

While financial reporting standards under U.S. GAAP and IFRS are fundamentally similar, differences do exist that may affect our analysis of company financial statements. This is particularly true when comparing a U.S. company following U.S. GAAP to a firm that uses IFRS. To illustrate, we compare research and development (R&D) accounting methods under both sets of standards and illustrate how they affect the analysis of financial results of firms in a specific industry–—automotive manufacturers. Our results provide insight into settings in which differences in R&D accounting may have the greatest impact on financial analysis.

Using a different accounting standard affects financial statements

While there are numerous standard setters in the accounting world, the majority of leading companies now use either U.S. GAAP or International Financial Reporting Standards (IFRS). For a short while around 2008, it looked as though the Securities and Exchange Commission (SEC) planned to move the U.S. toward the adoption of IFRS but now convergence of the two, rather than adoption, seems to be the more likely path. James Schnurr (2015), chief accountant of the SEC, in his speech at the Baruch College Financial Reporting Conference, stated that collaborations were currently the only way for convergence. In a different speech that year at the Brooklyn Law School, SEC Commissioner Kara M. Stein (2015) said that she was “not convinced of a need to abandon U.S. GAAP in favor of IFRS.” During these collaborations, however, each body has adjusted the resulting standards to fit the perceived needs of its constituents. For example, while the standards on leases and revenue recognition both have many things in common, the differences are still very important. Understanding the differences is crucial. Even within U.S. GAAP and IFRS, there are choices that each company needs to make: what inventory flow system to adopt or what depreciation method to use. Both of these choices, as well as differing regulations, may affect the classic financial ratios that analysts and investors use to evaluate a company.

1- Introduction

2- Background and related literature

3- Research design

4- Data, sample selection, and descriptive statistics

5- Empirical results

6- Additional analyses and robustness tests

7- Conclusions

References

Abstract

This study tests whether firms seek to mitigate the adverse effects of Financial Reporting Complexity (FRC) by investing in accounting expertise. We develop a measure of FRC based on the complexity of accounting standards that govern annual disclosures. We find that FRC is positively related to the accounting expertise on a firm’s board of directors and audit committee. We also find that accounting expertise mitigates the relation between FRC and negative reporting outcomes. Collectively, this study increases our understanding of the actions firms take to mitigate the negative consequences of FRC, and the role of accounting expertise in this setting.

Introduction

The U.S. Securities and Exchange Commission’s (SEC) Advisory Committee on Improvements to Financial Reporting defines financial reporting complexity (FRC) as: “the difficulty for…preparers to properly apply generally accepted accounting principles in the U.S. (U.S. GAAP) and communicate the economic substance of a transaction or event and the overall financial position and results of a company…” (SEC 2008, p. 18).1 Prior literature documents a growing trend in FRC (Dyer et al. 2017) and examines its consequences. Generally, firms with high FRC have a less favorable information environment (e.g., Li 2008; You and Zhang 2009; Lehavy et al. 2011; Peterson 2012) and increased financial misstatement risk (e.g., Filzen and Peterson 2015; Hoitash and Hoitash 2018) relative to firms with low FRC. Extant literature generally attributes these findings to high FRC levels reflecting the intentional choice of firm managers to obfuscate financial reports (e.g., Li 2008; Lo et al. 2017). Recently, some studies have argued that FRC primarily captures the complexity of firms’ business operations and accounting standards rather than the intention to obfuscate (Guay et al. 2016; Bushee et al. 2018; Dyer et al. 2017). If high FRC is not an intentional choice, one could expect firms to seek to diminish the adverse effects of FRC on their information environment and financial reporting risk. However, there is little evidence on whether and how companies mitigate the negative effects of FRC. One exception is a study by Guay et al. (2016) documenting that firms increase voluntary disclosure as financial reporting complexity increases. Their findings are consistent with firms balancing complex mandatory financial reporting and voluntary disclosure to achieve an optimal information environment.

The Public Company Accounting Oversight Board will soon require auditors to disclose critical audit matters (CAMs) to highlight areas of financial statements which are subject to a higher risk of material misstatement. Concurrently, the Financial Accounting Standards Board and the International Accounting Standards Board continue their efforts to converge both sets of accounting standards, and the newly converged revenue recognition standard contains a relatively limited amount of implementation guidance. I hypothesize and find that CAMs lower investors’ perceptions of management’s reporting credibility when the financial statement area discussed by CAMs is governed by precise, but not an imprecise, accounting standards. The emphasis of risks via CAMs is incongruent with investors’ expectations about the ability of precise standards to reduce financial reporting risks. The results from this experiment with nonprofessional investors provide insights about the interaction between CAMs and accounting standards.

Introduction

The Public Company Accounting Oversight Board (PCAOB) recently released AS 3101, The auditor’s report on an audit of financial statements when the auditor expresses an unqualified opinion, which requires the disclosure of critical audit matters (CAMs) in the audit reports of most publicly traded companies. CAMs highlight areas of financial statements which have a higher risk of material misstatement and required an increased amount of auditor judgment. The Public Company Accounting Oversight Board (PCAOB) (2017) expects that CAMs will improve the information content of audit reports for financial statement users.1 Concurrently, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) continue their efforts to converge both sets of accounting standards. The newly converged revenue recognition standard will soon take effect in the U.S., and it lacks much of the detailed implementation guidance that was included in the previous standard (PwC, 2014; Tysiac, 2014). These changes to accounting and auditing standards may affect managers’ perceived ability to manipulate earnings, which may then influence investors’ perceptions of management’s financial reporting credibility. This study investigates how investors’ perceptions of management’s reporting credibility are influenced by the interaction between CAMs and the precision (i.e., the relative amount of implementation guidance) of the accounting standard that governs the item discussed by CAMs. Christensen, Glover, and Wolfe (2014) provide initial evidence that CAMs decrease nonprofessional investors’ intent to purchase a company’s stock, and they use an experiment that manipulates the inclusion of CAMs to highlight risks associated with fair value measurements.

Abstract

This study explores the events leading up to the origination of public sector accounting standards in Canada by the Canadian Institute of Chartered Accountants (CICA) and their adoption by the Government of Canada. We interpret these events from the perspective of institutional theory. We find that a long-standing institutionalized practice of self-developed government accounting policies was disrupted by a series of challenges. An influential actor in this process was the Office of the Auditor General of Canada which first pushed for the creation of independent government accounting standards and then pushed the government toward the implementation of the accounting policies developed by the CICA’s public sector accounting standard-setting body. Two CICA studies served to further disrupt the status quo. We also find evidence of the role played by an inter-organization professional network in defining and labeling problems that ultimately resulted in the change.

Introduction

The preparation of financial statements is guided by criteria that determine such matters as what is included in and excluded from the financial statements, how financial statement items are measured, how financial statement information is presented or otherwise disclosed, and what the appropriate reporting entity is. During the mid-twentieth century, standard-setting bodies came into existence around the world, including in Canada, to promulgate standardized principles, rules, and guidelines for organizations to follow in the preparation of financial statements. In the United Kingdom, The Institute of Chartered Accountants in England and Wales released its Statement of Intent on Accounting Standards in the 1970s noting the need to address the diversity of reporting practices (Rutherford, 2007). In Australia, the process of standard setting by the profession got under way in 1966; few standards, however, were issued until the mid-1970s (Ryan et al., 2007). In Canada, the Canadian Institute of Chartered Accountants (CICA) took on the role of standard setter and in 1968 produced the CICA Handbook which laid out the standards for financial statement preparation and the standards for auditing those financial statements. These standards, however, related solely to the private sector. This study is concerned with the origin of standard setting for public sector entities in Canada.

1- Introduction

2- Theory

3- Method

4- Results

5- Conclusion

6- Discussion

7- Limitations and future research

8- Conclusion

References

Abstract

In the wake of numerous accounting scandals in the early 2000s, the U.S. began considering a move away from a more rule-based approach to accounting standard setting and toward a more principle-based approach to accounting standard setting. Although it is often assumed that this move toward a more principle-based approach is driven by stakeholder preferences, we examine whether this move is driven by demands for procedural justice. Specifically, we analyze one hundred and two comment letters submitted in response to the Financial Accounting Standard Board (FASB) proposal for principle-based standards. We find respondents from different stakeholder groups (preparers, accounting professionals, regulators, users, and academia) do not express a unified preference for rule-based or principle-based standards. We do, however, find that respondents identify benefits and costs of principle-based standards that map into the six elements of fair procedures (representativeness, accuracy, bias suppression, consistency ethicality, correctability). These elements are significantly associated with both the respondent’s degree of support for the FASB proposal and the perceived quality of principle-based standards.

Introduction

In the U.S., the FASB establishes the accounting standards that are used to report economic activity in a company’s financial statements. In the wake of the Enron and WorldCom accounting scandals, critics began to question the process by which these accounting standards were written. Accounting standards, meant to ensure that financial reports fairly present the financial position of a corporation, were perceived as failing to prevent corporations from misleading stakeholders and causing significant losses by investors, creditors, employees, and pension plans (Berkowitz & Rampell, 2002a; Berkowitz & Rampell, 2002b; Burns, 2002). Many critics subsequently argued that the FASB standard setting process was too ‘rule-based’ resulting in accounting standards that simply provided a means for preparers to structure transactions around bright-line thresholds. In an effort to restore trust in the U.S. accounting standard setting process, FASB issued an exposure draft entitled “Proposal for a Principle-based Approach to U.S. Standard Setting” (FASB, 2002).1 This renewed examination of how accounting standards are written spawned a ‘rules versus principles’ debate which centered on the level of specificity versus the degree of judgment allowed by a standard. The debate often presupposed that different stakeholder groups (preparers, accounting professionals, regulators, users) had incentives to prefer either rule-based or principle-based accounting standards. Preparers, for example, are assumed to prefer principle-based standards so that they can use the latitude in such standards to manage earnings (Berkowitz & Rampell, 2002a; Berkowitz & Rampell, 2002b; Burns, 2002).

1- Introduction

2- Research methods and data

3- Empirical results

4- Concluding remarks

References

Abstract

We extend Williamson, 1973, Williamson, 1987 transaction economics research to leased assets to help explain why some assets are acquired by capital lease and the use of other assets is acquired by operating lease. We look for evidence that capital leases are used for higher asset specificity assets and operating leases are used for lower asset specificity assets. Specifically, we find that returns on capital lease assets exceed the returns on operating lease assets. That the nature of capital lease assets differs from operating lease assets suggests that the lease standard SFAS 13 better categorizes assets under lease. The new lease standard ASU 2016-02 allows only one category for lease assets. From this we conclude that ASU 2016-02 will potentially have an adverse effect on the relevance of lease asset accounting.

Introduction

This study involves the relation between the accounting for leased assets and the underlying nature of leased assets. The study begins by linking the lease accounting categories of capital and operating as specified in SFAS 13 to the Williamson (1973, 1987) conceptual framework of asset specificity. In the Williamson framework, lease accounting categories link to asset specificity because firms will tend to acquire assets with greater asset specificity through lease financing arrangements (capital lease assets) and will obtain the use of assets with lower specificity through rental agreements (operating lease assets). We test the lease accounting link to asset specificity with a sample of firms reporting both capital and operating leases with results generally in support. We discuss the implications of the results in the context of a potential loss of relevant information from the adoption of ASU 2016- 02 that requires the capitalization of all non-cancelable long term leases. In particular, the results suggest a potential loss in the relevance of lease asset accounting. The concept of asset specificity is useful in explaining why firms own certain assets but not others (Williamson 1973, 1987). A specialized stamping machine for a firm producing automobile panels is a common Williamson example of a high specificity asset. In the Williamson context, the firm reduces transaction costs by vertically integrating (by constructing and owning) the stamping machine. The stamping machine is idiosyncratic to the firm as it is crucial to the firm’s operations while having little value away from the firm. In contrast, other assets useful to the firm’s operations, such as forklifts, are not firm idiosyncratic but rather have generalizable value across many types of firms. Again in the Williamson context, the firm reduces transaction costs with a market transaction to rent the forklift. Ownership is not a benefit over renting for a firm needing the use of a forklift. It is not controversial that a firm producing automobile panels will be more likely to own the stamping machine and more likely to rent a forklift, all other things being equal. In support, a recent study finds that buildings with higher asset specificity are more likely to be owned and buildings with lower asset specificity are more likely to be leased (Wong, Wong and Jeter 2016). Thus, a firm’s method of obtaining the use of an asset will reflect the idiosyncratic nature of the asset to the firm’s operations.

In 2015, Spanish local governments began to apply a new accounting standard. The success achieved in its implementation is related with stimulifrom outside the organization and with the institutional capacity – administrative and political – developed by it. Through an electronic questionnaire and several interviews carried out withmunicipal chieffinancial officers it has been shown thatfew actions to build the necessary institutional capacity were undertaken in the period prior to its implementation. The results show that the LGs did not attain the necessary institutional capacity and will have to continue allocating resources and time to improve it.

Introduction

The adopting in 2010 of a new public accounting standard (hereafter, PAS), applicable to Spanish state public sector bodies, gave rise to a substantial modifying of the accounting model which reflected the legislative change that had already taken place in the Spanish private sector in 2007. An example of this is the supplying of management and financial information which enables administrators to make appropriate decisions and informs citizens of the result of the government teams’ management. This grants citizens the role of being one stakeholder more (Christianses & Van Peteghem, 2007). This reform means a step forward in the modernization process of the Spanish public administration which began in 1981. A successful PAS implementation is crucial to attain other aims linked to new public management. This implementation is directly related to both the external stimuli which are brought to bear on the organization and the institutional capacity developed by it. This, in turn, is determined by the organization’s capacity to interpret, understand and apply the principles and requirements included in the reform, the staff training and the availability of technical means (Covaleski & Dirsmith, 1988; Harun & Kamase, 2012; Powell & DiMaggio, 1991; Pozzoli & Ranucci, 2013). Anessi-Pessina, Nasi, and Steccolini (2008) show that in the case of Italian local governments, rational factors such as the size of the Local Government (hereafter, LG), dependence on the money market and the degree of complexity of the measures undertaken do not determine the applying of a new accruals-based accounting standard. However, they confirm that institutional factors, such as the CFOs’ perceptions and the geographical location, do condition this application. This is, moreover, consistent with the importance that those in charge give to enforcing the law. Likewise, they point out that it would be interesting to analyze the impact of other variables, such as competencies, skills, perceptions and managers’ and politicians’ resistance to change.

Purpose – This paper aims to examine the compliance of disclosure with the financial accounting standards of the Accounting and Auditing Organisation for Islamic Financial Institutions’ (AAOIFI) related to Islamic financing products by Islamic banks in Bahrain and Qatar. Design/methodology/approach – The study measures compliance using disclosure indexes. The disclosure indexes include the three financial accounting standards of Murabaha, Mudaraba and Musharaka. The data are collected from the annual reports of 24 Islamic banks in Bahrain and Qatar over a period of 2012-2015. Findings – The paper found that Islamic banks in Bahrain and Qatar comply with AAOIFI financial accounting standards related to Murabaha, Mudaraba and Musharaka. However, there was a level of noncompliance in both countries. In addition, it found that the extent of compliance had increased over the 2012- 2015 period. Also, the Murabaha standard had the highest mean of compliance. Moreover, the results showed that the Islamic banks in Qatar tend to have more compliance of overall Murabaha and Mudaraba disclosures compared to the Islamic banks in Bahrain. Research limitations/implications – The findings are preliminary and highlight that the issue is of high interest to Islamic banks and AAOIFI. Hence, it requires a detailed follow-up to form a complete picture that would assist AAOIFI and regulators gear their policies toward better quality disclosure by Islamic financial institutions. Even though the findings are encouraging, future research is recommended to enforce compliance with the AAOIFI financial accounting standards. Originality/value – This is a pioneer empirical study that focuses on the level and trend of compliance with AAOIFI financial accounting standards related to the Islamic financing products of Murabaha, Mudaraba and Musharaka standards, especially in Qatar. Additionally, it is the first study comparing between the only two Gulf Cooperation Council (GCC) countries, i.e. Bahrain and Qatar, that mandatory apply the AAOIFI standards.

Introduction

The Islamic financial system differs from the conventional banking system due to its application of Islamic Shari’ah rules (i.e. Islamic law). The teachings of Islam prohibit products that charge riba (i.e. interest or usury) which conventional banks apply as a cost of advancing credit. In contrast, Islamic finance is based on the idea of profit-risk sharing. Under this model, the Islamic bank undertakes to share profits derived from an investment by a customer as well as potential losses arising from the venture. Islamic banking is continuing its tremendous expansion across the globe with assets reaching up to $1.3tn. After the establishment of the first Islamic bank in Dubai in 1975, Islamic banking increased rapidly and with more than 300 banks spread across more than 70 countries. A large portion of these Islamic banks is located in countries comprising the Gulf Cooperation Council (GCC). The increased expansion has led to the need to establish a regulatory framework to oversee their operations and handle the task of preparing useful standards. To this end, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) was established in 1991 to prepare accounting, auditing, governance, ethics and Shari’ah standards for Islamic Financial Institutions (IFI). However, little research has investigated the compliance with such standards. The AAOIFI is an Islamic international autonomous not-for-profit body established based on the Agreement of Association which was signed by Islamic financial institutions on 26 February 1990 in Algiers and was registered on 11 March 1991 in the Kingdom of Bahrain (AAOIFI, 2017). AAOIFI’s sole objective is to develop and disseminate accounting and auditing guidelines relevant to IFIs. AAOIFI prepares, promulgates and interprets reviews and amends accounting and auditing standards for IFIs (AAOIFI, 2017). AAOIFI’s organisational structures consist of General Secretariat, Board of trustees, Executive Committee, General Assembly, Shari’ah Board and Accounting and Auditing Standards Board. The organisation has so far published 96 standards and statements including one Financial Accounting Statement (i.e. Conceptual Framework for Financial Reporting by Islamic Financial Institutions) and 27 financial accounting standards (FAS), five auditing standards, 54 Shari’ah standards, seven governance standards and two code of ethics standards (AAOIFI, 2013). The AAOIFI accounting standards are mandatory in Bahrain, Qatar, Oman, Sudan and Syria (AAOIFI, 2017). Moreover, the AAOIFI accounting standards are either used as a basis of national accounting standards in Indonesia and Pakistan or adopted voluntarily in some countries such as Brunei, Egypt, France, Kuwait, Lebanon, Malaysia, Saudi Arabia, South Africa, United Arab Emirates and the UK (AAOIFI, 2017). AAOIFI auditing, governance and ethics standards are adopted by IFIs voluntarily (AAOIFI, 2017). AAOIFI is supported by 202 institutional members from 45 countries (AAOIFI, 2013).

Regulators and the accounting community are concerned with how accounting standards should be designed or changed to achieve financial reporting objectives. Higher quality accounting standards are supposed to positively affect firms’ reporting quality and to be of greater value to users of financial statements. The German regulator implicitly acknowledged the growing influence of international accounting standards by enacting the German Accounting Law Modernization Act in 2009 in an attempt to make German GAAP align more closely with IFRS and to improve the information provided in German financial statements as a result. Specifically, modernizing national accounting law should result in a set of rules that is on par with international accounting standards, but more cost-effective and simpler to manage in practice (RegE BilMoG 2008). This study presents the main changes in the accounting rules and disclosure requirements of German accounting law and examines their effects on financial accounting properties. As medium-sized non-listed companies were a target of the German Accounting Law Modernization Act, this investigation focuses on the consolidated financial statements of private firms. However, to exclude the possibility that macroeconomic effects are driving our results, we include as a control group private firms that release their financial statements under IFRS. With no capital market data in our treatment group, measures of reporting properties represent accounting-based measures, which are calculated using only financial statement data. We employ several accounting-based financial accounting property measures that have previously been implemented in prior research and test whether adopting the German Accounting Law Modernization Act had an impact on these measures. All German firms were required to adopt the new accounting standards in the fiscal year 2010. However, the regulator allowed early adoption in 2009 on a voluntary basis. Our analysis is based on the magnitude of absolute discretionary accruals, the correlation between accruals and operating cash flow, the persistence of earnings, and the predictability of earnings as accounting-based financial reporting properties. The results of the main analysis, which uses a sample of German GAAP firms and German companies that report under IFRS, reveal an increase in discretionary accruals and no change in smoothing activities or in the persistence and the predictability of earnings. Certain significant differences in firm characteristics between the treated companies and the control companies raise concerns that our results are attributable to those differences. Hence, we employ a propensity score matching approach based on a probit regression to estimate the likelihood of releasing financial statements under German GAAP.

Accounting standards represent the rules underlying the preparation of external financial statements. These rules are set by authoritative bodies, adhered to by accountants, referenced by auditors, and must be understood by both professional (e.g. institutional investors) and citizen financial statement users. Due process, defined as the policies and procedures that constrain administrative decision-making (Richardson, 2008), involves stakeholder participation in the standard-setting process. Stakeholder involvement in the due process of standard setting is integral to independent standard setting and is highly important as a means to gauge the potential reaction of interest groups, as well as their ultimate acceptance of the standards (Tandy and Wilburn, 1992). The Governmental Accounting Standards Board (GASB) is the standard-setting body for authoritative governmental accounting standards in the USA. It is an independent, private sector organization that “develops and issues accounting standards through a transparent and inclusive process (italics added)” (GASB.org, 2017). Established in 1984, the GASB enjoyed widespread general acceptance for most of its first quarter century (Roybark et al., 2012a); however, in 2007-2008 its service efforts and accomplishments (SEA) project ignited extreme opposition from professional groups (Roybark et al., 2012b). More recently, a GASB due process document proposing the inclusion of financial projections within governmental financial statements again caused an uproar among some GASB constituents (DePaul, 2012; Quigley, 2011). Given the importance of stakeholder participation in the standard-setting due process, we study comment letters in response to proposals presented by the GASB. Specifically, in this study, we examine comment letters submitted in response to several of the GASB’s due process documents from 2010-2013 to consider who participates in the comment letter process, when they participate (e.g. response trends), and what their comments include (i.e. for or against the standard being proposed). We then select the financial projections preliminary views (PV) document for a more detailed analysis of constituent responses, as it was controversial and elicited 173 comment letters. Of interest is observation of stakeholder motivation – why do stakeholders participate in due process via comment letter submission? We find that while comment letter participation is not widespread, various stakeholders do participate in the governmental accounting standard-setting process. Responses are generally constructive and relatively consistent over the course of our study in their balance of favorable and unfavorable feedback, with a few exceptions. Stakeholders who do not participate perennially will do so when they feel it is warranted, as demonstrated by response to the financial projections PV document. The study extends prior research regarding governmental standard setting due process by including more comprehensive participant classifications, evaluating the nature of comments within the letters, examining responses over time, and considering the possible motivation of participants.

During 2015, a record US$3.8 trillion worth of mergers and acquisitions occurred (Baigorri, 2016). The largest completed deal was Pfizer Inc. and Allergan Plc’s blockbuster US$160 billion deal. Two other noteworthy deals announced that year were the proposed takeover by AB InBev of SABMiller for US$106 billion and Dell’s merger with data storage company EMC for US$67 billion. It would seem that the growth of mergers and acquisitions is set to continue. Mergers and acquisitions have a number of business implications for marketing, strategy, finance, human resources — and virtually all areas of business. Our interest is in the implications of mergers and acquisitions for accounting, and from an accounting standards perspective in particular. Accounting standards play a vital role in allowing investors and providers of credit to understand the financial workings of these or any other companies. The canon of standards, of which there are many, guide those who prepare financial statements in what to say and how to say it (see www.fasb.org and www.iasb.org). In particular, they provide guidance as to how financial accounts should be organized and presented. Many of these deals will have been carried out by companies that are subject to the accounting standards issued by the Financial Accounting Standards Board (FASB) in the USA and the International Accounting Standards Board (IASB) elsewhere in the world. Specifically, the acquiring company will be required to comply with the appropriate accounting standards that deal with business combinations and the impairment of assets. The FASB version is Accounting Standards Codification (ASC) 805 Business Combinations issued in 2001, and the IASB version is International Financial Reporting Standards (IFRS) 3 Business Combination issued in 2005 (see Sinclair and Keller (2014) for a full explanation of the relevant accounting standards). One particular set of standards, which deals with business combinations or mergers and acquisitions, contains a requirement regarding the accounting treatment of acquired goodwill and intangible assets that have the potential to suppress important information that investors should know. We call this phenomenon, where the value of acquired brands is unchanged for accounting purposes and remains at their transaction measurement over time, ‘‘The Moribund Effect.’’ In this article, we will explain how it came about, its effect on the company’s market value, and how it can be seen as conflicting in spirit with the Efficient Market Hypothesis and the manner by which information is absorbed by financial markets. We will explain how this apparent conflict deprives users of the annual financial reports of information they should have if the price of a company’s stock is to be fully priced. We finish by proposing how the Moribund Effect can best be dealt with, emphasizing how marketing can play a key role to bring this change about.