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So far Financial Reporting has created 115 blog entries.

Discretionary Accruals in Italian Private Firms and Non-Linear Bank Loan Granting

By | 2017-12-22T10:25:33+01:00 December 6th, 2017|

Mafrolla Elisabetta, Nobili Viola/ Financial Reporting, Riviste / Fascicolo: 1-2017

This paper investigates whether and at what extent private firms reduce the quality of their accruals in order to signal a better portrait to the bank and obtain new or larger bank loans. We measure earnings discretionary accruals of a sample of Italian private firms, testing whether new and larger bank loans are associated with a higher (lower) quality of earnings in borrowers’ financial reporting. We study bank loan levels and changes and how they impact discretionary accruals and found that, surprisingly, private firms’ discretionary accruals are systematically positively affected by an increase in bank loans, although they are negatively affected by the credit worthiness rating assigned to the borrowers. We find that the monitoring role of the banking system with regard to the adoption of discretionary accruals is effective only when the loan is very large. This paper may have implications for policy-makers as it contributes to the understanding of the shortcomings of the banking regulatory system. This is an extremely relevant issue since the excessive amount of non-performing loans held by Italian banks recently threatened the stability of the European Banking Union as a whole.

Keywords: Discretionary accruals, private firms, bank loans, non-performing loans, private loans.

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The Association between Big4 and Cost of Debt in Private Firms

By | 2017-12-22T10:24:25+01:00 December 6th, 2017|

Azzali Stefano, Mazza Tatiana/ Financial Reporting, Riviste / Fascicolo: 1-2017

This study investigates the association between choice of a Big4 audit firm and Cost of Debt compared with non-Big4 in Italian firms. Based on a sample of Italian companies audited by an audit firm in the period 2007-2012, we perform OLS regressions to test the Big4 association with Cost of Debt. Results confirm our expectation that audit firm size is a significant criterion of audit firm choice and we find that Big4 is associated with lower Cost of Debt than non-Big4 in private firms. The choice of Big4 audit firm reduce the specific agency conflict between banks and owner/management in private firms. We also find that private firms benefit from lower Cost of Debt than public companies. This research makes a contribution to the literature by extending previous results (Gul et al., 2013, Cano Rodriguez and Alegria, 2012, Karjalainen, 2011) to private firms and to the setting of Italy. Results may also be useful for companies choosing auditors in private firms and in the mitigation of agency conflict.

Keywords: Big4, cost of debt, private firms.

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Concerned about Going Concern: When do Entities in Liquidation have to be Considered a Non-Going Concern According to IFRS?

By | 2017-12-06T12:54:22+01:00 December 6th, 2017|

Hasslinger Marius, Olbrich Michael, Rapp David/ Financial Reporting, Riviste / Fascicolo: 1-2017

The rejection of the going concern premise as the underlying assumption of financial statements has far-reaching consequences for accounting. For that reason, it is vitally important to identify the appropriate point in time at which the entity can no longer be regarded as a going concern. Focussing on entities that voluntarily decided to liquidate their operations, the analysis shows that both the IFRS taxonomy and the accounting literature are rather vague on the question of the point in time at which the going concern premise is no longer appropriate. Therefore, we identify the reporting stages that are necessary in the liquidation phase. Contrary to expectations, the paper argues that the going concern assumption should not be immediately abandoned, as retaining it can provide users of financial statements with decisionuseful information. In fact, the paper recommends a value chain based approach. Accordingly, the going concern assumption should not be rejected before the entity has terminated its activities at all stages of its value chain.

Keywords: going concern, liquidation, IFRS, winding-up.

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The Reporting Entity in Private-Public Accounting Harmonisation. Is Control Enough for the Local Government Consolidated Financial Statements?

By | 2017-12-06T12:54:59+01:00 December 6th, 2017|

Carini Cristian, Rocca Laura,Teodori Claudio, Veneziani Monica/ Financial Reporting, Riviste /Fascicolo: 1-2017

The European Commission initiated a discussion on the expediency of using the International Public Sector Accounting Standards (IPSAS), based on the IAS/IFRS,as a common base for harmonizing the public sector accounting systems of the member states. However, literature suggests that accounting is not neutral with respect to the economic, social and political dimensions. In the perspective of evolution of the accounting regulation outlined, balanced between accountability, with the need to represent phenomena for reporting purposes, and decision-making issues, which concentrates on the quantitative importance of the values, the paper aims to analyse the effects of the application of different criteria for the definition of the reporting entity of the local government consolidated financial statements (CFS). The Italian PCA 4/4, the test of control and the financial accountability approaches are examined. The evidence that emerged from the case studies examined identifies several criticalities in the Italian PCA 4/4 and support the thesis that the financial accountability approach is more effective in providing a complete representation of the public resources entrusted to and managed by the group, whereas the control approach better approximates quantification of the group results in terms of central government surveillance. The analysis highlights the importance of the post implementation review period and the opportunity to contextualize the adoption of the consolidated financial statement in the broader spectrum of the accounting harmonization process, participating in the process of definition of the European Public Sector Accounting Standards (EPSAS).

Keywords: accounting regulation, accounting harmonisation, consolidated financial statement, IPSAS, public sector accounting.

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Country effects on European mandatory disclosure of financial key performance indicators (Gli effetti dell’ambiente sulla disclosure obbligatoria di indicatori di prestazione economico-finanziaria)

By | 2017-12-22T12:20:23+01:00 December 6th, 2017|

Bini Laura, Dainelli Francesco, Giunta Francesco/ Financial Reporting, Riviste / Fascicolo: 1-2011

European Union Directive 51/2003 requires the publication of Financial Key Performance Indicators (FKPIs) in order to standardize this practice. We aim to test whether and to what extent the directive realizes the standardization of FKPIs. Because country factors are obstacles that the international standardization process intends to remove, we study their influence on disclosure practices in two very different countries in terms of cultural, economic, and regulation environments: Italy and the United Kingdom. Disclosure practices involve two dimensions: the quantity of indicators published and their quality. Quality is measured in terms of compliance with qualitative characteristics advocated by the IASB’s Framework. We select a representative sample of listed companies in both countries. The FKPI quantity and quality are hand collected from their 2008 annual reports. After controlling for leverage, industry, size, and profitability, we find that the number of indicators published in an annual report does not vary by country. The Directive may have helped this process. On the other hand, country factors drive the quality of FKPI communication. Thus, this finding suggests that standard setters and regulators should shift their attention to the quality aspects of FKPIs.

Keywords: financial ratios, mandatory information, management commentary, information quality

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