ACCOUNTING/PUBLIC POLICY

We investigated the link between tax laws and financial accounting standards by considering the attempt by the International Accounting Standards Committee (IASC) to ban the use of the LIFO inventory method. Our goal was to identify evidence of non-tax-motivated use of or ...

Numerous studies have examined the value relevance and other characteristics of international and country-specific accounting standards. This paper evaluates the experimental designs of selected studies with respect to the controls essential for effective research. Both cross-country and within-country research designs share a common need for controls. Perhaps the most distinctive element of effective design in these studies is the control for institutional, cultural, and structural differences between countries. Previous research shows that the key outputs of various country-specific accounting standards are functions of a variety of factors including accounting-related issues, legal origin, shareholder protection, the information environment, financial markets, and enforcement of these standards. In addition, effective studies of country-specific or international accounting principles require control for firm and industry-specific effects and for self-selection bias, as in conventional within-country examinations. When controls are not sufficient, observed differences in the outputs of alternative accounting standards may result from differences between countries or firms rather than from different accounting principles. We review a sample of recent research with attention to these control considerations.

The China Securities Regulatory Commission (CSRC) is the regulatory body that enforces securities laws and regulations in the People’s Republic of China. Somewhat akin to the SEC in the US, the CSRC carries out investigations to identify and prosecute securities fraud. The aim of this study is to provide some empirical evidence on the impact of the CSRC’s enforcement actions. We find that enforcement actions have a negative impact on stock prices with most firms suffering wealth losses of around 1–2% in the 5 days surrounding the event. Moreover, we find that firms have a greater rate of auditor change, a much higher incidence of qualified audit opinions, increased CEO turnover, and wider bid-ask spreads. The negative stock returns and the costly economic consequences for firms suggest that the CSRC has credibility and its actions have teeth.

This study examines the annual reports of 100 United States (US) institutions of higher education to determine identifiable and measurable factors associated with extent of disclosure. Each disclosure was weighted by its relative importance to users of college and university financial statements. The measurement construct for extent of disclosure was the ratio of an institution’s total disclosure score to its total possible disclosure score. Institution size and public/private status were associated with total extent of disclosure but leverage and audit firm size were not significant. Extent of disclosure of non-financial performance information (service efforts and accomplishments) was associated with high tuition rates and low dependence on tuition revenue and with state auditors as opposed to public accounting firm auditors. The findings are consistent with accountability and public interest tenets (Coy, D., Fischer, M., Gordon, T., 2001. Public accountability: a new paradigm for college and university annual reports. Critical Perspectives on Accounting 12 (1), 1–31). Highly visible institutions, those larger in size or audited by the state, disclosed more information. Moreover, some institutions used a corporate-style report to better promote their interests.