Arguments for marking to market would be overwhelming in the context of frictionless, textbook competitive markets. In such a world, valuation would be a matter of reading off the competitive prices that are common knowledge to all, and that would be the end of the matter. No further debate would be needed. On the other hand, if we had such a world, then accounting would be irrelevant; acc…
In this paper, we focus on the relationships between international accounting harmonization (IAH) and the paradigm of Fair Value Accounting (FVA). Accountants rely on the accounting concept of comparability in defining IAH and are in agreement that a set of internationally implemented Generally Accepted Accounting Principles (GAAP) is required for a ‘‘complete harmonization.’’ We a…
Financial institutions have been at the forefront of the debate on the controversial shift in international standards from historical cost accounting to mark-to-market accounting. We show that the trade-offs at stake in this debate are far from one-sided. While the historical cost regime leads to some inefficiencies, marking-to-market may lead to other types of inefficiencies by injecting …
We examine whether application of International Accounting Standards (IAS) is associated with higher accounting quality. The application of IAS reflects combined effects of features of the financial reporting system, including standards, their interpretation, enforcement, and litigation. We find that firms applying IAS from 21 countries generally evidence less earnings management, more tim…
International harmonization of accounting standards appears to be inevitable. However, little evidence exists regarding whether harmonizing accounting standards will result in actual harmonization of accounting practices. Using a sample of non-U.S. firms that adopt U.S. Generally Accepted Accounting Principles (GAAP) to provide evidence on this issue, we find that most firms that adopt U.S…
ABSTRACT: This assignment will provide you with a better understanding of the costs and benefits of management’s use of judgment in financial reporting. First, you will look at the differences in depreciation policies among three firms in one industry (airlines). This provides an opportunity to examine why firms in the same industry might adopt different depreciation policies for similar …
SYNOPSIS: A broad consensus in accounting favors principles over rules to guide creation of a uniform high-quality set of standards for use everywhere, and granting monopoly power to a single body for this purpose. If implemented into policy, this consensus will discourage discovery of and evolution toward better methods of financial reporting, make it difficult to conduct comparative studi…
Analysts generally view the income statement as the centerpiece of fínancial reporting. It supplies the primary data in the forecasting of subsequent periods' earnings. To appreciate the primary data, analysts must assess the impact of the underlying accounting principles on reported eamings: not all components of eamings have the same predictive consequences. Of particular concern is the …
This researcb examines the information content of historical cost and fair value reporting using a sample of gold firms. Tbe gold industry has had a long-standing history of relying on industry practice to justify the recognition of revenue at the completion of production (the production method), before the identification of a specific purchaser.! The mechanics of this method of revenue rec…
We examine the effect of the Sarbanes-Oxley Act (SOX) on the extent of aggressive versus conservative reporting behavior of public companies. SOX imposes considerably greater potential penalties on chief executive officers (CEOs) and chief financial officers (CFOs) who engage in financial wrongdoing. Therefore, risk-averse managers are likely to report lower earnings by reducing discretion…