We assess the unexplained information content of abnormal audit fees using a sample of initial public offering (IPO) audits in China. We find that abnormal IPO audit fees are positively associated with manipulation of pre-IPO real activities, suggesting lower audit quality for IPO financial statements. We further find that abnormal IPO audit fees are negatively associated with post-IPO financial performance. These results suggest a strong alignment of interests between the principal (pre-IPO shareholders), whose main interest is to gain listing status, and its agent (the auditor), who is willing to cooperate with the principal for extra economic rents (abnormal audit fees). Our findings that abnormal IPO audit fees are associated with lower audit quality and can help predict post-IPO financial performance have important implications for audit regulators, IPO market participants, and the applicability of agency theory in the context of IPO audits. JEL Classifications: M43; M49.
{"title":"Do Abnormal IPO Audit Fees Signal IPO Audit Quality and Post-IPO Performance? A Principal-Agent Analysis Based on Evidence from China","authors":"K. Chan, P. Mo, Weiyin Zhang","doi":"10.2308/jiar-2020-054","DOIUrl":"https://doi.org/10.2308/jiar-2020-054","url":null,"abstract":"\u0000 We assess the unexplained information content of abnormal audit fees using a sample of initial public offering (IPO) audits in China. We find that abnormal IPO audit fees are positively associated with manipulation of pre-IPO real activities, suggesting lower audit quality for IPO financial statements. We further find that abnormal IPO audit fees are negatively associated with post-IPO financial performance. These results suggest a strong alignment of interests between the principal (pre-IPO shareholders), whose main interest is to gain listing status, and its agent (the auditor), who is willing to cooperate with the principal for extra economic rents (abnormal audit fees). Our findings that abnormal IPO audit fees are associated with lower audit quality and can help predict post-IPO financial performance have important implications for audit regulators, IPO market participants, and the applicability of agency theory in the context of IPO audits.\u0000 JEL Classifications: M43; M49.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2020-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42305012","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Based on a sample of 2,034 Malaysian listed firm-year observations for the period 2007–2014, this study shows a negative relationship between dimensions of political patronage (i.e., politically connected firms and the percentage of Bumiputera directors) and analysts' earnings forecast accuracy. Furthermore, the study documents a positive relationship between Bumiputera directors and earnings forecast dispersion. These results suggest that the political patronage of firms is associated with low-quality earnings. We also find that measures of high audit quality are associated with high financial reporting quality and that this is evident in firms with high audit quality showing a weaker negative (positive) relationship between forecast accuracy (dispersion) and political connections and high levels of Bumiputera directors. Overall, the findings suggest that high audit quality plays an important role in mitigating agency costs of information asymmetry by improving the financial information environment. JEL Classifications: G24; G34; G38.
{"title":"Political Patronage, Audit Quality, and the Properties of Analysts' Earnings Forecasts in Malaysia","authors":"Willie. E. Gist, Effiezal Aswadi Abdul Wahab","doi":"10.2308/jiar-19-077","DOIUrl":"https://doi.org/10.2308/jiar-19-077","url":null,"abstract":"\u0000 Based on a sample of 2,034 Malaysian listed firm-year observations for the period 2007–2014, this study shows a negative relationship between dimensions of political patronage (i.e., politically connected firms and the percentage of Bumiputera directors) and analysts' earnings forecast accuracy. Furthermore, the study documents a positive relationship between Bumiputera directors and earnings forecast dispersion. These results suggest that the political patronage of firms is associated with low-quality earnings. We also find that measures of high audit quality are associated with high financial reporting quality and that this is evident in firms with high audit quality showing a weaker negative (positive) relationship between forecast accuracy (dispersion) and political connections and high levels of Bumiputera directors. Overall, the findings suggest that high audit quality plays an important role in mitigating agency costs of information asymmetry by improving the financial information environment.\u0000 JEL Classifications: G24; G34; G38.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2020-10-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47476289","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Bank records analysis is a vital component of many forensic accounting and fraud examination engagements. This case provides students with a hands-on opportunity to conduct a fraud examination based upon a detailed review of bank records. The context of this case is an elderly client who has appointed her son as her durable power of attorney. Unfortunately, he violates his fiduciary duty and misappropriates money from his mother. The students’ assignment is to trace the missing money through numerous bank accounts and prepare a report for the local county attorney who will prosecute the case. Students will learn how to trace money through multiple bank accounts, prepare a succinct report for the prosecutor, cope with a large quantity of source documents, and manage a relatively unstructured task.
{"title":"Mom’s Money is Missing: Bank Records Analysis in a Fraud Examination Case","authors":"D. O'Bryan, J. Quirin","doi":"10.2308/jfar-2020-016","DOIUrl":"https://doi.org/10.2308/jfar-2020-016","url":null,"abstract":"Bank records analysis is a vital component of many forensic accounting and fraud examination engagements. This case provides students with a hands-on opportunity to conduct a fraud examination based upon a detailed review of bank records. The context of this case is an elderly client who has appointed her son as her durable power of attorney. Unfortunately, he violates his fiduciary duty and misappropriates money from his mother. The students’ assignment is to trace the missing money through numerous bank accounts and prepare a report for the local county attorney who will prosecute the case. Students will learn how to trace money through multiple bank accounts, prepare a succinct report for the prosecutor, cope with a large quantity of source documents, and manage a relatively unstructured task.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2020-10-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42307325","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines how firm behaviors are affected by the voluntary adoption of International Financial Reporting Standards (IFRS) in Japan, which has expanded the scope for the capitalization of intangible assets compared with the Japanese Generally Accepted Accounting Principles. Prior research suggests that capitalization of intangibles is preferred by firms with larger intangibles and that it enables them to increase intangible investments. Using empirical data from Japanese IFRS adopters, this study analyzes the relationship between firms' intangible asset amounts and their voluntary adoption of IFRS. The results show that (1) the more intangibles firms possess, the more likely they are to adopt IFRS, and (2) once firms decide to adopt IFRS, their intangible assets increase compared with matched non-adopters. Additional analysis shows that this increase is partly attributable to an increased volume and value of mergers and acquisitions after IFRS adoption, suggesting that the real actions of the adopters changed.
{"title":"Real Effects of Intangibles Capitalization—Empirical Evidence from Voluntary IFRS Adoption in Japan","authors":"Y. Amano","doi":"10.2308/jiar-19-539","DOIUrl":"https://doi.org/10.2308/jiar-19-539","url":null,"abstract":"\u0000 This study examines how firm behaviors are affected by the voluntary adoption of International Financial Reporting Standards (IFRS) in Japan, which has expanded the scope for the capitalization of intangible assets compared with the Japanese Generally Accepted Accounting Principles. Prior research suggests that capitalization of intangibles is preferred by firms with larger intangibles and that it enables them to increase intangible investments. Using empirical data from Japanese IFRS adopters, this study analyzes the relationship between firms' intangible asset amounts and their voluntary adoption of IFRS. The results show that (1) the more intangibles firms possess, the more likely they are to adopt IFRS, and (2) once firms decide to adopt IFRS, their intangible assets increase compared with matched non-adopters. Additional analysis shows that this increase is partly attributable to an increased volume and value of mergers and acquisitions after IFRS adoption, suggesting that the real actions of the adopters changed.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2020-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49526452","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Prior research shows that managers make income-decreasing accounting choices around labor negotiations and predicts that managers disclose bad news during labor negotiations. This study extends the literature by investigating whether disclosure and financial statement reporting practices are consistent during employee downsizing years. Using data from Japanese domestic firms during the period 2002–2016, we find that beginning-of-period management forecasts (i.e., disclosure) are positively associated with during-period negative stock returns for downsizing firms but not for non-downsizing firms. Also, downsizing firms report more conservative earnings at the end of the fiscal year (i.e., financial statement reporting). Our supplementary analyses show no difference in an association between management forecast errors and stock returns between downsizing and non-downsizing firms with during-period negative stock returns, nor in an association between discretionary accruals and employee downsizing. These results suggest that managers strategically inform firms' prospects during employee downsizing years. JEL Classifications: G34; J51; M41. Data Availability: Data are available from the public sources cited in the text.
{"title":"Strategic Management Forecasts and Accounting Choices: A Case of Employee Downsizing in Japan","authors":"Keishi Fujiyama, Makoto Kuroki","doi":"10.2308/jiar-17-079","DOIUrl":"https://doi.org/10.2308/jiar-17-079","url":null,"abstract":"\u0000 Prior research shows that managers make income-decreasing accounting choices around labor negotiations and predicts that managers disclose bad news during labor negotiations. This study extends the literature by investigating whether disclosure and financial statement reporting practices are consistent during employee downsizing years. Using data from Japanese domestic firms during the period 2002–2016, we find that beginning-of-period management forecasts (i.e., disclosure) are positively associated with during-period negative stock returns for downsizing firms but not for non-downsizing firms. Also, downsizing firms report more conservative earnings at the end of the fiscal year (i.e., financial statement reporting). Our supplementary analyses show no difference in an association between management forecast errors and stock returns between downsizing and non-downsizing firms with during-period negative stock returns, nor in an association between discretionary accruals and employee downsizing. These results suggest that managers strategically inform firms' prospects during employee downsizing years.\u0000 JEL Classifications: G34; J51; M41.\u0000 Data Availability: Data are available from the public sources cited in the text.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2020-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41945043","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Economics-based tax research in accounting draws heavily on the Scholes-Wolfson framework. The framework develops a global approach to tax planning where all parties, all taxes, and all costs are to be considered in effective tax planning. Effective tax planning is distinct from tax minimization as the goal of the former is to maximize the after-tax rate of return. The first empirical applications of the framework followed the passage of the Tax Reform Act of 1986. Taxation of multinationals has long been of interest to accounting (and other) researchers and continues to be of interest. The Tax Cuts and Jobs Act of 2017 changed many tax laws including how the U.S. taxes U.S. multinationals. Research examining the ramifications of this latest Tax Act is already well under way.
{"title":"An Overview of Academic Tax Accounting Research Drawing on U.S. Multinational Taxation","authors":"T. Shevlin","doi":"10.2308/jiar-2020-065","DOIUrl":"https://doi.org/10.2308/jiar-2020-065","url":null,"abstract":"\u0000 Economics-based tax research in accounting draws heavily on the Scholes-Wolfson framework. The framework develops a global approach to tax planning where all parties, all taxes, and all costs are to be considered in effective tax planning. Effective tax planning is distinct from tax minimization as the goal of the former is to maximize the after-tax rate of return. The first empirical applications of the framework followed the passage of the Tax Reform Act of 1986. Taxation of multinationals has long been of interest to accounting (and other) researchers and continues to be of interest. The Tax Cuts and Jobs Act of 2017 changed many tax laws including how the U.S. taxes U.S. multinationals. Research examining the ramifications of this latest Tax Act is already well under way.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2020-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48794768","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Statement No. 26, Accounting Standard for Retirement Benefits, requires Japanese firms to recognize previously off-balance sheet pension liabilities on their balance sheets. We explore auditors’ responses to recognized versus disclosed pension liabilities in the Japanese audit market. We use a pre-Statement No. 26 versus post-Statement No. 26 setting to analyze the effects of disclosed versus recognized pension information on audit fees and costs. We show that disclosed pension liabilities are processed similarly to recognized previously off-balance sheet pension liabilities when audit fees are determined. However, we find that associations with audit costs differ between disclosed and recognized pension liabilities. We also find that audit costs’ differential relations with disclosed and recognized pension liabilities are particularly pronounced for firms with a large pension plan deficit. Overall, our results suggest that auditors scrutinize recognized amounts more closely than disclosed financial information, thereby increasing the reliability of accounting information.
{"title":"Recognition versus Disclosure and Audit Fees and Costs: Evidence from Pension Accounting in Japan","authors":"M. Kusano, Yoshihiro Sakuma","doi":"10.2308/JIAR-19-082","DOIUrl":"https://doi.org/10.2308/JIAR-19-082","url":null,"abstract":"Statement No. 26, Accounting Standard for Retirement Benefits, requires Japanese firms to recognize previously off-balance sheet pension liabilities on their balance sheets. We explore auditors’ responses to recognized versus disclosed pension liabilities in the Japanese audit market. We use a pre-Statement No. 26 versus post-Statement No. 26 setting to analyze the effects of disclosed versus recognized pension information on audit fees and costs. We show that disclosed pension liabilities are processed similarly to recognized previously off-balance sheet pension liabilities when audit fees are determined. However, we find that associations with audit costs differ between disclosed and recognized pension liabilities. We also find that audit costs’ differential relations with disclosed and recognized pension liabilities are particularly pronounced for firms with a large pension plan deficit. Overall, our results suggest that auditors scrutinize recognized amounts more closely than disclosed financial information, thereby increasing the reliability of accounting information.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":" ","pages":""},"PeriodicalIF":1.2,"publicationDate":"2020-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47478990","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ownership structure, an important feature of corporate governance, acts as a determinant of the opacity of firms. This study penetrates the “black box” of the ownership structures of Russian corporations, identifies their salient features, and examines the effects of those features on the information environment (stock price synchronicity) of the corporations. Examining a sample of companies listed on the Moscow Exchange, we find that stock price synchronicity is: (1) positively associated with divergence between control and cash-flow rights of the ultimate owner; (2) negatively associated with the ownership concentration of the ultimate owner; (3) negatively associated with companies controlled indirectly by the state through holding corporations with the presence of oligarchs; and (4) negatively associated with firms with transparent oligarchs. Analyzing the economic impact of the results, we find the presence of non-transparent oligarchs and foreign-offshore holdings has the most adverse effect on stock price synchronicity.
{"title":"Inside the “Black Box” of Ownership Structures in Russia: Evidence from Stock Price Synchronicity","authors":"M. Khattak, A. Rahman, Ahsan Habib","doi":"10.2308/jiar-19-532","DOIUrl":"https://doi.org/10.2308/jiar-19-532","url":null,"abstract":"\u0000 Ownership structure, an important feature of corporate governance, acts as a determinant of the opacity of firms. This study penetrates the “black box” of the ownership structures of Russian corporations, identifies their salient features, and examines the effects of those features on the information environment (stock price synchronicity) of the corporations. Examining a sample of companies listed on the Moscow Exchange, we find that stock price synchronicity is: (1) positively associated with divergence between control and cash-flow rights of the ultimate owner; (2) negatively associated with the ownership concentration of the ultimate owner; (3) negatively associated with companies controlled indirectly by the state through holding corporations with the presence of oligarchs; and (4) negatively associated with firms with transparent oligarchs. Analyzing the economic impact of the results, we find the presence of non-transparent oligarchs and foreign-offshore holdings has the most adverse effect on stock price synchronicity.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":"1 1","pages":""},"PeriodicalIF":1.2,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41483966","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines the association between world religions and the earnings attribute of conservatism. I group the major world religions into two sub-groups, Western and Eastern. Prior literature documents that followers of Western religions have a lower preference for risk relative to followers of Eastern religions. Prior literature also finds a lower preference for risk is associated with more conservative reporting. Using a large sample of firms listed on exchanges around the world, I find earnings of firms domiciled in countries with larger Western religious presence are more conservative. The results hold after using an indicator for whether the predominant religion in the country is a Western religion, controlling for religiosity, and using a sample of U.S. foreign registrants that file a 20-F reconciliation with the SEC. My study contributes to our understanding of how social norms affect financial reporting. JEL Classifications: G14; G15; M41.
{"title":"The Impact of World Religions on Conservatism","authors":"Laura Swenson","doi":"10.2308/jiar-2020-048","DOIUrl":"https://doi.org/10.2308/jiar-2020-048","url":null,"abstract":"\u0000 This study examines the association between world religions and the earnings attribute of conservatism. I group the major world religions into two sub-groups, Western and Eastern. Prior literature documents that followers of Western religions have a lower preference for risk relative to followers of Eastern religions. Prior literature also finds a lower preference for risk is associated with more conservative reporting. Using a large sample of firms listed on exchanges around the world, I find earnings of firms domiciled in countries with larger Western religious presence are more conservative. The results hold after using an indicator for whether the predominant religion in the country is a Western religion, controlling for religiosity, and using a sample of U.S. foreign registrants that file a 20-F reconciliation with the SEC. My study contributes to our understanding of how social norms affect financial reporting.\u0000 JEL Classifications: G14; G15; M41.","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":"19 1","pages":"197-218"},"PeriodicalIF":1.2,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41433364","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the impact of firms' dissemination of corporate social responsibility (CSR) information through Facebook on corporate reputation. We investigate this relationship empirically by...
{"title":"Does Firms' Dissemination of Corporate Social Responsibility Information through Facebook Matter for Corporate Reputation?","authors":"Janine Maniora, Christiane Pott","doi":"10.2308/jiar-19-070","DOIUrl":"https://doi.org/10.2308/jiar-19-070","url":null,"abstract":"This paper examines the impact of firms' dissemination of corporate social responsibility (CSR) information through Facebook on corporate reputation. We investigate this relationship empirically by...","PeriodicalId":45457,"journal":{"name":"Journal of International Accounting Research","volume":"19 1","pages":"167-196"},"PeriodicalIF":1.2,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41629388","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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