Fr

Accounting Research: Relevance Lost

For research to have an impact, it has to exist in the first place. Moves in the UK to link University funding to research activity have reinforced the importance of research to academia – however, this may also have had adverse consequences. It is now very difficult for qualified accountants to obtain teaching and research positions at UK universities because of the lack of a research background. Institutional pressures on those conducting research may also have resulted in dysfunctional behaviour regarding the nature of the work conducted and the output. In the 1960s there was an attempt to make accounting research more “scientific”, however, this seems to resulted in the emphasis on research methodology rather than the importance of making a contribution to knowledge. The lack of emphasis on the reliability (the reproducibility of the results) and validity (whether you are testing what you think you are testing) of statistical findings merely appears to have resulted in the application of pseudoscience to accounting research. All these factors appear to have combined to bring into question the relevance of the accounting research produced.

Keywords: Research, publications, impact, pseudoscience

Fr

Who Influences Whom? An Exploratory Analysis of the Interrelations between Accounting Research and the IASB’s Standard Setting Activity

This study investigates the interrelations between accounting research and the IASB activity. Prior research shows a significant gap between academia, the standard setters and the accounting profession and underlines the failure of academic papers to contribute to accounting practice. Although we find some evidence of the intention of the IASB to fill the gap between accounting theory and practice, our analysis confirms the existence of a significant distance between financial accounting research and the IFRSs. The IASB ‘due process’ definitely influences the academic activity, but the accounting literature does not seem to represent a cornerstone for the IFRSs. Particularly, during the ‘due process’ steps that precede the P.I.R. phase, the IASB only quotes few papers. With the P.I.R. process, the number of research papers analysed by the IASB significantly increases, but it is not yet clear how this ex-post activity might really influence the IFRSs statements. Finally, we find that the traditional academic ranking systems are not a key factor driving the IASB selection of the articles to analyse during the P.I.R. process. This evidence sheds light on the risk of an unfruitful self-referentiality of the accounting academic literature and on the self-feeding nature of the academic world.

Keywords: Academic research, academic ranking systems, accounting practice, standard setting, post-implementation review

Fr

Accounting Theory and Accounting Practice as Loosely Coupled Systems: A Historical Perspective on the Italian Case (1930-1990)

Despite its crucial role for a practically oriented discipline such as accounting, the relationship between theory and practice in this domain appears to be relatively unexplored, and even more so it is in comparative terms. Adopting a longitudinal approach, the paper aims to investigate this relationship referring to the Italian experience in the period 1930-1990, which is set against the background of a well-known interpretation of the theory-practice interplay proposed for the USA, i.e. the “market for excuses” model (Watts and Zimmerman, 1979). In the Italian environment, the relationship between accounting theory and accounting practice shows contents and trajectories which are rather dissimilar from those implied by positive researchers with reference to the American context. In particular, it emerges that in Italy accounting theory, that has an inherent ex ante nature and is encapsulated into a wider institutionally-veined body of knowledge called ‘economia aziendale’, has been in the main detached from practice and operational needs. Thus, Italian theory and practice could be fruitfully described as two loosely coupled systems with occasional and unintended intersections, each of which has its own internal logics and its own “demand-supply” dynamics. In this respect, the Watts and Zimmerman’s model denotes a limited explanatory power when applied to contexts – such as the Italian one – presenting socio-economic features, as well as a theoretical tradition, which are distinctively different from the USA.

Keywords: Accounting theory and practice, Italian accounting, Italian economia aziendale, loosely coupled systems

Fr

Indice

Financial Reporting

n. 2/2015

 

Sommario

Reflections about Italian academic life in Economia Aziendale and its evolution

Sven-Olof Yrjo Collin

pag. 5
     
Corporate governance and information asymmetry between shareholders and lenders: an analysis of Italian listed companies

Sabrina Pisano, Luigi Lepore, Rocco Agrifoglio

» 27
     
Comprehensive Income: which potential effects on firms’ performance evaluation and users’ decision process?

Pier Luigi Marchini, Carlotta D’Este

» 55
     
Managerial discretion in authorising open market share repurchases: empirical evidence from the Italian context

Elisa Roncagliolo

» 95
     
Acquisition-type or merger-type accounting? Further insights on transactions involving businesses governed by the same party(-ies)

Tiziano Onesti, Mario Romano, Marco Taliento

» 117
     
Book Review

Fabrizio Granà

» 139
Fr

Reflections about Italian academic life in Economia Aziendale and its evolution

Applicants for habilitation to Associate and Full professor in Economia Aziendale has during two years been evaluated by a commission, containing four Italian professors and one international professor. Me, being the international evaluator, present here some of my observations and impressions from the evaluation and present some reflections about the evolution of the Italian academic system and the subject, Economia Aziendale. My main conclusion, that the tradition of the subject is, at least in the short run, at threat due to the push towards internationalisation, could be regarded as rather pessimistic. But it is also a call for governed development, which should benefit all of us in the area, the whole international community.

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Keywords: Research evaluation, academic career, economia aziendale, scientific journals.

Fr

Corporate governance and information asymmetry between shareholders and lenders: an analysis of Italian listed companies

This paper analyzes the information asymmetry between owner/manager and lenders. More specifically, the research investigates the role of corporate governance mechanisms in reducing the agency costs of debt. The findings show that lenders perceive higher agency costs of debt if the controlling shareholder owns a percentage of capital greater than 66%. Results also show that the presence of independent directors elected by minority shareholders on the board mitigates the agency conflicts between borrowers and lenders. In the same way, the audit committee independence reduces the agency costs of debt. Moreover, the study shows that when the audit committee chairman coincides with the board chairman banks perceive more risk and, therefore, a bigger asymmetry. This coincidence increases the concentration of power in the hands of just one person and this enhances the likelihood of opportunistic actions by the management that could damage lenders. This means that it is costly for companies to concede to just one person too much influence over the board activities, because it reduces the effectiveness of the monitoring role played by independent directors, increasing the information asymmetry between borrowers and lenders.

_

Keywords: Agency costs of debt, board of directors, audit committee, ownership concentration

Fr

Comprehensive Income: which potential effects on firms’ performance evaluation and users’ decision process?

The reporting of comprehensive income is becoming increasingly important. After the introduction of Other Comprehensive Income (OCI) reporting, as required by the 2007 IAS 1-revised, the IASB is currently seeking inputs from investors on the usefulness of unrealized gains and losses and on the role of comprehensive income. This circumstance is of particular relevance in code law countries, as local pre-IFRS accounting models influence financial statement preparers and users. This study aims at investigating the role played by unrealized gains and losses reporting on users’ decision process, by examining the impact of OCI on the Italian listed companies RoE ratio and by surveying a sample of financial analysts, also content analysing their formal reports. The results show that the reporting of comprehensive income does not affect the financial statement users’ decision process, although it statistically affects Italian listed entities’ performance.

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Keywords: Comprehensive income statement, users/investors, International Financial Reporting Standards (IFRS), performance evaluation, analysts’ reaction

Fr

Managerial discretion in authorising open market share repurchases: empirical evidence from the Italian context

This paper contributes to existing literature on open market share repurchases in Italy by studying authorisations that the board of directors needs to obtain from the shareholders’ general meeting in order to acquire company’s own shares. In such a context, I investigate whether the buyback purpose that managers disclose in their report affects number of shares to be repurchased. Particularly, since managers could potentially benefit from share repurchase programmes carried out in the presence of stock option plans, I explore whether this motivation influences the number of shares they require to include in the buyback programme. In pursuit of my objectives, I analyse reports managers provide shareholders’ meeting to obtain the authorisation to acquire company’s own shares over a 6-year period (2004-2009) in Italian listed companies. Main results suggest that the buyback motivation affects number of shares managers intend repurchasing, highlighting the role of the quality of the board of directors in this issue.

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Keywords: Buyback, stock option plans, management, board quality

Fr

Acquisition-type or merger-type accounting? Further insights on transactions involving businesses governed by the same party(-ies)

[Dialogue with standard setters]

This paper – aiming at encouraging a fruitful debate – intends to highlight the discontinuous evolution of the accounting solutions explored by notable bodies (Efrag-Oic, Iasb, Fasb, Kasb, etc.) with reference to transactions involving businesses under common control. The work finally recompose them in two basic categories (discussing their pros/cons as well), here analyzed: acquisition-type accounting, which emphasizes fair value (emergence of exchange or current amounts) vs. merger-type accounting, linked to historical costs (continuity values approach). The first cluster includes the pure-acquisition and the fresh-start method, whereas the second the predecessor basis and the pooling of interests techniques. The concrete identification of the proper methodology, in this regard, essentially requires the profound understanding of the underlying economics, architecture and key elements of a specific transaction shedding light on the most relevant and reliable information useful to stakeholders.

_

Keywords: Common control, consolidation, financial reporting, acquisition accounting, fresh start, predecessor basis, pooling of interests, IAS/IFRS

Fr

Indice

Financial Reporting

n. 1/2015

 

Sommario

Directive 2013/34/EU, Article 6 An Analysis and some Implications. A Research Note

David Alexander

pag. 5
     
Why Do Firms Write Off Their Goodwill? A Comparison of Different Accounting Systems

Francesco Avallone, Claudia Gabbioneta, Paola Ramassa, Marco Sorrentino

» 23
     
Disclosures in Local Healthcare Organizations’ Social Reports. ‘What?’ and ‘Why?’ An Empirical Analysis of the Italian National Healthcare System

Elisa Bonollo

» 41
     
Graphical Reporting in Italian Annual Reports during the Financial Cri-sis: Impression Management or Incremental Information?

Simone Aresu

» 77
     
Dialogue with standard setters. Business Combinations under Common Control: Concerns, Criticisms and Strides

Raffaele Fiume, Tiziano Onesti, Mauro Romano, Marco Taliento

» 107
     
Book Review

Roberto Di Pietra, Stefano Zambon

» 127
     

 

 

Fr

Directive 2013/34/EU, Article 6 An Analysis and some Implications. A Research Note

[Opinion]

This research note analyses a number of implications of Article 6 of the new EU accounting Directive. Two avenues are explored in some detail. The first is the meaning, or non-meaning, of the measurement basis provisions of the Directive, covered in Article 6 with derogations in Articles 7 and 8, in the context of the previously declared intention to no longer allow the use of current replacement cost. The second relates to the extraordinary flexibility, indeed confusion, relating to the substance/form distinction, both in principle from Article 6, and by example relating to consolidation in Article 22. The Directive is argued to be sufficiently incompetent, ambivalent, and at times internally inconsistent, to allow a considerable degree of de facto carte blanche to Member States. Perhaps it should be called the anti-harmonisation directive.

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Keywords: Directive 2013/34/EU, measurement bases, substance, dis-harmonisation.

Fr

Why Do Firms Write Off Their Goodwill? A Comparison of Different Accounting Systems

Increased comparability of financial statements across adopting countries is one of the main objectives of IFRS adoption. The level of achievement of this objective, however, is still debatable. While some studies have documented that crosscountry comparability of financial statements has increased after IFRS adoption, other studies have found that comparability has actually decreased since 2005. We contribute to this debate by studying whether the motivations for goodwill writeoff are the same or vary across countries with different accounting systems. Although a good deal of research has investigated the motivations for goodwill writeoff, our study is the first to analyze whether these motivations vary across countries with different accounting systems. We find that firms that expect low cash flows in the future are more likely to report goodwill write-offs if they are located in countries with an Anglo-Saxon accounting system than if they are located in countries with a Continental accounting system. These results suggest that IFRS are “interpreted” differently in different countries and that harmonization of financial statements has not been fully achieved yet.

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Keywords: Goodwill, impairment, IFRS, accounting systems

Fr

Disclosures in Local Healthcare Organizations’ Social Reports. ‘What?’ and ‘Why?’ An Empirical Analysis of the Italian National Healthcare System

In recent years, public administration reform and the increase in information requests from citizens has drawn attention to the issue of reporting information (other than ‘financial’). Local healthcare organizations, as well as public administrations, have been affected by these developments. This paper presents the results of content analysis conducted on social reports published by Italian local healthcare organizations from 2009-2013 with the purpose of verifying the actual significance of the elements that according to the literature and standard setters, should define the scope and content of social reporting. The study highlights the fact that the healthcare organizations analysed tend to focus on the type and volume of the services provided, while neglecting the connection between predefined objectives and actual performance – as well as stakeholder engagement in the social reporting process. Social reports have the role therefore of being merely a tool for unidirectional communication by the healthcare organization to its stakeholders.

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Keywords: Social reporting, local healthcare organizations, accountability

Fr

Graphical Reporting in Italian Annual Reports during the Financial Crisis: Impression Management or Incremental Information?

This paper investigates whether, before and during the global financial crisis, Italian firms have used financial key performance indicators graphs in the annual reports as impression management tools, to portray a more favourable picture of the firm’s performance than is warranted. This study shows that, during the financial crisis, firms have increased the number of graphs and decreased favourable distortions, although graphs continued to be designed inaccurately. The findings could reflect an increased public scrutiny on the firm’s performance, during the financial crisis. As a theoretical implication, this paper contributes to the existent financial reporting literature by showing that graphs are not necessarily used in line with an agency theory-based impression management, which is the dominant perspective to explain the graphs’ usage in the annual reports during periods of performance upturn. Moreover, it shows that the institutional context can affect voluntary disclosure practices at a firm-level. As a practical implication, this study suggests to annual reports’ readers not to necessarily consider managers as self-serving preparers in their graphical reporting strategies. The study also suggests accounting associations, audit firms and other regulatory bodies to create a set of guidelines for a correct graph’s use and design.

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Keywords: Financial crisis, financial key performance indicators graphs, impression management, incremental information

Fr

Business Combinations under Common Control: Concerns, Criticisms and Strides

[Dialogue with standard setters]

Although excluded from the scope of IFRS 3, business combinations under common control (BCUCCs) are widespread transactions that take place all over the world in different forms, often as a reorganization or restructuring among related parties. These transactions occur when entities are ultimately – not transiently – controlled by the same party/ies before and after the combination (which is neither a capital market nor an arm’s length transaction and devoid of economic substance: indeed, no change of control is entailed). The scarce and fragmentary literature, not to mention the lack of clear consensus on the topic, contributes to the prevailing concerns on how to account for BCUCCs. In this complex context, the purpose of this work is to assess the possible and various accounting methods and identify the most suitable, accredited and consistent techniques. […]

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Keywords: Common control, consolidation, financial reporting, acquisition accounting, fresh start, predecessor basis, pooling of interests, IAS/IFRS

 

Fr

Indice

Financial Reporting

n. 2/2014

 

Sommario

Detecting Earnings Manipulations: Time think about european SMEs. A call for a Joint International Research Project

Francesco Giunta

pag. 5
Comparing the effects of IASB Proposal on leasing: an impact assessment of EU listed Companies

Tommaso Fabi, Enrico Laghi, Marco Mattei, Alessandro Sura

» 17
 
Estimating credit default swap spreads using accounting data, market quotes and credit ratings: the European Banks Case Enrico Laghi, Michele Di Marcantonio, Eugenio D’Amico » 59
 
The value relevance of earnings and book value across the EU. A comparative Analysis

Alessandro Mechelli, Riccardo Cimini

» 83
 
Impairment estimates for available-for-sale equity instruments under IFRS: evidence from italian Banks

Giuseppe Sannino, Gianluca Ginesti, Carlo Drago

» 115
 
Dialogue with standard setters

Vincenzo Sforza

» 141
 
Towards the international convergence of accounting standards: the case of Business Combinations and Goodwill

Maria Elena Olante

» 155
 

 

Fr

Detecting Earnings Manipulations: Time think about european SMEs. A call for a Joint International Research Project

[Opinion]

A large part of the world economic system is in a state of crisis. The financial system has paid very close attention to this problem, developing specific models to predict insolvency. All of the rating systems related to the Basel Accords use these kinds of models. The insolvency prediction models represent a broad research area, which many researchers have been delving into for many years. These models are largely based on accounting data. As a consequence, the effectiveness of any model depends on the accounting data quality. The accounting data quality is menaced by accounting manipulation actions carried out by mangers. Considering many accounting scams, all over the world, it is evident that sometimes managers cope with the crisis by doctoring their accounting data. That is the reason why, in this period of dire straits, many rating systems have shown strong limitations. According to Healy-Wahlen (1999) , earnings management occurs when mangers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers. On the same wavelength, the Association of Certified Fraud Examiners (ACFE) maintains that a company is engaged in earnings manipulation when it asks itself  “How can we best report desired results?”, instead of “How can we best report economic reality?”. […]

Fr

Comparing the effects of IASB Proposal on leasing: an impact assessment of EU listed Companies

In August 2010, the IASB and the FASB jointly released an exposure draft proposing a “right-of-use” model for the recognition of lease-related assets and liabilities. The literature shows that leasing is a relevant subject for study. Many studies have investigated the point of view of users and preparers about lease accounting. Moreover, significant studies on the impact assessment of new accounting models for leases have been conducted. The objective of this paper is to perform an impact assessment of the new standard on leases that takes into account companies listed on the main EU stock exchanges. Specifically, this paper try to estimate the magnitude of the change in some ratios that would have been produced by the new treatment with reference to 2011. The results of the paper show that the debt-to-equity ratio increased significantly and, subject to the IASB final decisions on profit or loss accounting, the EBITDA should also have increased, while ROA should not significantly be affected. Furthermore, the results show that the impact of the introduction of the IASB proposal on financial ratios will differ both among industries and among European Union countries.

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Keywords: IAS 17, leasing, right of use, impact assessment, lease capitalization

 

Fr

Estimating credit default swap spreads using accounting data, market quotes and credit ratings: the European Banks Case

The aim of this paper is to define a model for estimating the theoretical Credit Default Swap spread of European banks considering firms’ accounting data, market quotes, official ratings and macroeconomic variables. We detect a significant log-linear relation between Credit Default Swaps spreads and four explanatory variables determined on the basis of the stock price, the financial structure, the equity composition, the incidence of the reserve for loan losses on total loans, the official ratings and macroeconomic indicators of the country of domicile of each company. The empirical results show that for the period from 2008 to 2013 the model has a high statistical significance and a remarkable explanatory power. Our main contribution to the existing literature is the exploration of new determinants of banks’ credit risk and the provision of new evidence on the determinants of banks’ default risk in the crisis and post-crisis European context. Furthermore, we define a practical model for estimating Credit Default Swap spreads of banks suitable for professional use.

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Keywords: Credit default swaps, credit risk, default risk determinants, structural models

 

Fr

The value relevance of earnings and book value across the EU. A comparative Analysis

This paper aims to investigate whether the value relevance of accounting amounts differs across nations depending on the country characteristics identified by Nobes (2008) and Nobes and Parker (2010) that is the source of funds, the legal system and the fiscal legislation that led them to identify, in the EU, the so-called strong-equity and the weak-equity countries. Because of the different disclosure needs, our hypothesis is that insiders, within the strong-equity countries, disclose more relevant information than in weak-equity countries. To test this hypothesis, we analysed a sample including all the listed entities belonging to the EU at the time of the issuance of EU Regulation 1606/2002. The sample covered the period of 2006-2011 and included 16,513 firm-year observations. Our sample selection strategy allowed us to include entities required to comply with the same accounting standards (IAS/IFRS), so our findings do not depend on differences between requirements of different standard setters. Comparatively, our findings demonstrate that the value relevance of accounting amounts not only is higher in strong-equity countries than in weak-equity countries – validating our research hypothesis – but also that it is not driven by specific firms’ characteristics that are the size, the future growth opportunity and the source of funds of the single entity.

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Keywords: Value relevance, weak-equity countries, strong-equity countries, IFRS.

Fr

Impairment estimates for available-for-sale equity instruments under IFRS: evidence from italian Banks

Literature indicates that accounting choices under a given set of standards is an important topic due to the different economic implications. Daske et al. (2013) suggest that firms have substantial discretion in applying IFRS. Despite the implications on how the firms apply IFRS have motivated many studies, to our knowledge, little is known about the impairment estimates for the Available-for- Sale (AfS) equity instruments. Using a sample of Italian banks over the period 2010-2011, we investigate the determinants of the accounting decisions for impairment estimates. We find that the reporting quality and profitability are explanatory factors of the banks’ decisions to modify the thresholds of the impairment indicators used to assess AfS equity instruments. Our study also suggests that banks use a substantial discretion in implementing the IAS 39 for the AfS equity instruments.

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Keywords: Financial instruments, IAS/IFRS, accounting choices, impairment, financial reporting.

Fr

The harmonization of public sector accounting in the European Union: The EPSAS Project

[Dialogue with standard setters]

On 25 November 2013, the European Commission and its Directorate-General (DG) for Statistics, Eurostat, officially launched a public consultation paper to issue a Framework Regulation related to the EPSAS, the European Public Sector Accounting Standards (Eurostat, 2013a). This is a novelty, which indisputably recognizes the need to provide harmonized accounting standards for the public sector of EU member states. The sovereign debt crisis, especially with reference to the situation in Greece (European Commission, 2010), opened a debate to find solutions to demonstrate government financial stability and improve accuracy and transparency of financial reporting: a) for that which regards the EU institutions, to strengthen the economic governance for the Euro zone, so far rather weak, in order to safeguard economic and monetary union; b) with regard to market participants, to provide owners of government debt securities, potential investors and other stakeholders a full and accurate disclosure of government financial statements, useful to more carefully assess the risk level associated with their investments.  In order to illustrate the reasons for which the European Commission/Eurostat have released their consultation, we will proceed, first of all, by defining the context within which the consolidation of accounts of the EU governments takes place, evidencing the existing accounting diversity: […]

Fr

Towards the international convergence of accounting standards: the case of Business Combinations and Goodwill

Accounting for business combinations and for goodwill has profoundly changed during the last ten years both in the US and in Europe, as a consequence of the common effort of the FASB and the IASB towards the international convergence of accounting standards. The Business Combinations project has been the first major project undertaken jointly by the accounting standard setters and it has resulted in the issue of substantially converged accounting standards with some remaining differences. The aim of this paper is to review and comment the evolution and the major changes occurred in accounting for business combinations and for goodwill and their current status in the light of the process of convergence of accounting standards on these crucial economic transactions.

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Keywords: Business combinations, goodwill, IFRS, USGAAP

Fr

Indice

Financial Reporting

n. 1/2014

 

Sommario

Do Corporate Governance Characteristics Affect Non-Financial Risk Disclosure in Government-owned Companies? The Italian Experience

Alessandra Allini, Francesca Manes Rossi, Riccardo Macchioni

pag. 5
     
The relation between R&D accounting treatment and the risk of the firm: Evidence from the Italian market

Riccardo Cimini, Alessandro Gaetano, Alessandra Pagani

» 33
     
The Severity of Internal Controls over Financial Reporting Deficien-cies: Differences among Types and Industries

Tatiana Mazza, Stefano Azzali

» 55
     
Business Model Literature Overview

Ales Novak

» 79
     
Dialogue with standard setters. Removing ‘reliability’ from the IAS/IFRS framework. The EFRAG’s viewpoint

Raffaele Fiume, Tiziano Onesti, Giuseppe Sannino

» 131
     

 

 

 

 

 

 

Fr

Do Corporate Governance Characteristics Affect Non-Financial Risk Disclosure in Government-owned Companies? The Italian Experience

While a considerable amount of research has already been carried out into the corporate governance determinants of non-financial risk disclosure in companies in the private sector, such determinants in the annual reports of listed Governmentowned Companies (LGCs) have yet to be investigated fully. This study attempts to complete the picture. Italian LGCs have been selected for analysis and agency theory has been applied in the public sector under the accountability paradigm. The research investigates whether non-financial risk disclosure provided in the Management Commentary (MC) of Italian LGCs may be affected by ownership concentration, corporate governance mechanisms and company-specific features. The issue is of particular importance in a country where Government intervention has significantly affected its economic development since the nineteenth century. Our findings show that there is a relationship between the level of non-financial risk disclosure and Board diversity, leverage and sector. Our findings also reveal some useful insights concerning policy makers and standard setters.

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Keywords: Government-owned companies, accountability, non-financial risk disclosure, corporate governance.

Fr

The relation between R&D accounting treatment and the risk of the firm: Evidence from the Italian market

In this paper, we investigate the relation between the different accounting treatments of R&D expenditures and the risk of the entity in order to identify under which treatment insiders are more likely to carry out earnings management. By analysing the R&D investment strategies of a sample of 137 listed Italian entities that complied with the requirements of IAS 38 during fiscal year 2009, following Lantz and Sahut (2005), we calculate several indexes that show the preferences of insiders to account R&D expenditures as costs or capital assets, and we study the relation of such preferences with the risk of the entity, which we measure with the unlevered beta. We hypothesize that the entities, which considered the R&D investments as costs, are the riskiest ones due to the higher probability that insiders carried out earnings management. Our results confirm such hypothesis. This paper could have implications for academics and standard setters that could learn that behind accounting discretion, insiders could opportunistically behave against outsiders.

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Keywords: IAS 38, R&D accounting treatment, risk, earnings management.

Fr

The Severity of Internal Controls over Financial Reporting Deficiencies: Differences among Types and Industries

This study analyzes the severity of Internal Control over Financial Reporting deficiencies (Deficiencies, Significant Deficiencies and Material Weaknesses) in a sample of Italian listed companies, in the period 2007- 2012. Using proprietary data the severity of the deficiencies is tested for account-specific, entity level and information technology controls and for industries (manufacturing and services vs finance industries). The results on ICD severity is compared with one of the most frequent ICD (Acc_Period End/Accounting Policies): for account-specific, ICD in revenues, purchase, fixed assets and intangible, loans and insurance are more severe while ICD in Inventory are less severe. Differences in ICD severity have been found in the characteristic account: ICD in loan and insurance for finance industry and ICD in revenue, purchase for manufacturing and service industry are more severe. Finally, we found that ICD in entity level and information technology controls are less severe than account specific ICD in all industries. However, the results on entity level and information technology deficiencies could also mean that the importance of these types of control are under-evaluated by the manufacturing and service companies.

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Keywords: Internal control, financial reporting, significant deficiencies, material weaknesses.

Fr

Business Model Literature Overview

The term “business model” has recently attracted increased attention in the context of financial reporting and was formally introduced into the IFRS literature when IFRS 9 Financial Instruments was published in November 2009. However, IFRS 9 did not fully define the term ‘business model’. Furthermore, the literature on business models is quite diverse. It has been conducted in largely isolated fashion; therefore, no generally accepted definition of ?business model’ has emerged. Therefore, a better understanding of the notion itself should be developed before further investigating its potential role within financial reporting. The aim of this paper is to highlight some of the perceived key themes and to identify other bases for grouping/organizing the literature based on business models. The contributions this paper makes to the literature are twofold: first, it complements previous review papers on business models; second, it contains a clear position on the distinction between the notions of the business model and strategy, which many authors identify as a key element in better explaining and communicating the notion of the business model. In this author’s opinion, the term ‘strategy’ is a dynamic and forward-looking notion, a sort of directional roadmap for future courses of action, whereas, ‘business model’ is a more static notion, reflecting the conceptualisation of the company’s underlying core business logic. The conclusion contains the author’s thoughts on the role of the business model in financial reporting.

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Keywords: Business model, literature overview, meaning of the term, strategy

Fr

Removing ‘reliability’ from the IAS/IFRS framework. The EFRAG’s viewpoint

[Dialogue with standard setters]

The IAS/IFRS conceptual framework (CF) describes the basic concepts underlying the preparation and presentation of financial reporting. Its main purpose is to assist the International Accounting Standards Board (IASB) in developing future IFRS and preparers in resolving those accounting issues directly not addressed in the IAS/IFRS, nor in their interpretations. The IAS/IFRS conceptual framework takes the form of a single document issued in 1989 by the IASB and recently (in 2010), substituted with another taking the many changes occurred in both the economic environment and in the management of firms into account. This new document (the 2010 framework) is the result of a complex project that the IASB and US FASB (Financial Accounting Standards Board) began jointly in October 2004 in order to share a common conceptual framework. The project is a part of the Norwalk Agreement signed by these two standard setters in 2002. In it both acknowledged their commitment to the develop highquality and compatible accounting standards. The 2010 framework appears nevertheless incomplete. It is divided into four chapters, concerning the following topics: Chapter 1: The objective of general purpose of financial reporting; Chapter 2: The reporting entity; Chapter 3: Qualitative characteristics of useful financial information; Chapter 4: The Framework (1989): the remaining text. Only the first and the third of these chapters, were completed while the second and the fourth are still in progress. […]

Fr

Balancing on a Tightrope: Customer Relational Capital, Value Creation and Disclosure

This paper documents and compares the perceptions of key functional specialists regarding the contribution of 16 customer relational capital components to value creation and the motivations underlying its external disclosure. Findings of questionnaire surveys to samples of UK listed company marketing directors (who create customer relational capital) and finance directors (who report customer relational capital) are supplemented by follow-up interviews. Marketing directors and finance directors broadly agreed on the relevant importance of the components to value creation. While companies attempted to internally collate information on those components of most value creation importance, there was a lack of correlation between perceived value creation importance and the extent of external disclosure. This suggests that external disclosure is a poor proxy for value creation importance. In terms of disclosure incentives, marketing directors prioritise trust creation among a range of stakeholders whereas finance directors take a more share holder-centric perspective. External disclosure attracts new customers and informs other stakeholders, yet may adversely affect relationships with existing customers and/or breach specific non-disclosure agreements or generic industry restrictions and regulations. Harming competitive position is considered the major disclosure disincentive. In the view of marketing directors, managing the external disclosure of relational capital is akin to balancing on a tightrope.

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Keywords: Customer relational capital, intellectual capital, value creation, marketing directors, disclosure.