Exam Flash Cards
(R. Ball) IFRS wants? 3 Answers
Lower cost of capital, Information Transparency, More efficient cross-boarding transactions
(R. Ball) Example of cost reduction by adapting IFRS?
Less analytical costs, less cost of creating standardized international financial databases
(R. Ball) Less risky for the investors mean?
Lower required return on equity.
(R. Ball) From a Social Welfare perspective?
The anticipated outcome would be increased wealth, due to increased valuation of existing capital and increased capital creation.
(R. Ball) Adaption of IFRS: Corporate governance?
Improve corporate governance via several channels. More transparent could enhance monitoring by boards, investors, analysts, rating agencies, press, etc.
(R.Ball) Mergers crossboard?
Enhance mergers with the higher information transparency.
Conclusion of (R.Ball)?
For IFRS to work, it has to be adapted in many countries. Many countries still stay with their local GAAP, which makes it hard. US and China is two key countries that need to adapt before IFRS really will work.
(Cormona and Trombetta) “Consequences” of IFRS/IAS? 2 answers. (Principle-based)
Accountants and auditors needs to have more knowledge(good knowledge), Only Big 4 auditors (costly)
Label users? (Cormona and Trombetta)
Label users = uses the flexibility of IAS/IFRS standards to keep on using their usual financial reporting strategy under the new international label
Label users good or bad? (Cormona and Trombetta)
The positive effects of adoption are more pronounced for serious adopters than label adopters.
Mandatory vs voluntary? (Cormona and Trombetta)
It’s shown that voluntary adaption to IFRS/IAS is better than mandatory.
Mandatory vs voluntary, why? (Cormona and Trombetta)
Higher accounting quality. (Small companies maybe don’t have the resources to adopt IFRS because of higher educational costs?)
Harmonisation process? (Read only) (Cormona and Trombetta)
The harmonization process will also benefit from the ‘‘global” nature of both auditors and their clients. Arguably, auditors and clients will drive forward common interpretations and practices around the world. Global clients willing to reduce the steps needed to unify the accounting information produced by local subsidiaries will promote this process. Consequently, global auditors may push forward harmonization through consistent interpretation to accommodate the needs of global clients. In this manner, auditors will also be facilitating the global character of business. In turn, the number of global clients in favor of globally harmonized interpretations will arguably increase and this will enhance the comparability of financial statements across countries.
Consequences with “combining” IFRS and local GAAPs (Cormona & Trombetta)
Different views on accounting standards and practices could result in difficulties.
Emerging Markets? (Cormona)
Lobbying is a problem with big emerging countries who wants to influence IFRS/IAS
Result from Bessemir, (2018)?
Benefits more than costs.
Private companies who adapts IFRS, pros? Bessemir, (2018)
Higher growth rate, higher leverage alternatives, higher capital raise in public debt and equity markets
Private companies who adapts IFRS, pros continue? Bessemir, (2018)
Companies adopt to IFRS to lower the risk of asymmetric information and avoid adverse selection and moral hazard problems
Important factors as legal form and ownership type? (Bessemir)
Public companies and PE companies are more likely to adopt to IFRS for lower their potential agency costs arising from the separation of ownership and control.
Differences between a public market and privat market? (Bessemir)
Transparency and high-quality financial reporting in the private market is relatively low, because information asymmetries between the firm and the key contracting parties are typically resolved via private information channels.
Economic Theory suggets what for PE companies vs. IFRS/IAS? (Bessemir)
PE companies only adopts IFRS/IAS if the benefits are higher than the costs
Big Multinational PE companies should adopt IFRS because? (Bessemir)
Information transparency for investors and other international stakeholders
Costs of IFRS adoption? (Bessemir)
Transition costs (educate employees, new research team), Big 4 auditor because of their higher knowledge
High Tech industry and IFRS? (Bessemir)
Higher adoption because of information complexity and wants to lower their information asymmetry towards stakeholders
Percentage of German PE companies who adapts IFRS?
10%
Sustainability reporting needs from its writer? (La Torre)
More education
One important factor from the article between stakeholder and the company? (La Torre)
Trust
Accountability ? (La Torré)
Ansvarsskyldighet
La Torre wants for NFR?
NFR regulation in Europe needs to move towards an accountability-based reform of accounting and reporting.
How do you achieve higher accountability in the report? (La Torre)
Intern auditing, a good dialog with the stakeholders, adopting of other non-accounting tools (social media etc).
Dialogical accountability? (La Torré)
Dialogic accounting stands for the legitimacy of the political in accounting; the need for systems that are responsive to the diversity of stakeholders’ values and interests. As such, it is receptive to the needs of a plural society. They talked with their most important stakeholders and discussed NFI.
Materiality ? (La Torré)
Key factor for the NFI. But it might be hard to know what recognizes as materiality in the report. (Non-financial information)
Double- Materiality? (La Torré)
Both investors and other stakeholders’ interests in what information that’s materially.
Double-Materiality Risks? (La Torré)
You involve all stakeholders, but prioritise the financial sustainability aspect over social and environmental sustainability. (Managers have different rankings for their stakeholders, some more important than others and could choose to pick the interest of the more important stakeholders over the others.)
How to solve the Double - Materiality risk? (La Torre)
Monitoring
Results of La Torré
EU needs to give firm directions on not only what to report, but how to report and how to produce NFI
Bradbury (2012) is about?
Principle vs. Rule-based Accounting-standards
(Bradbury, 2012) American accounting standards is? And International accounting standard is?
US = Rule IAS = Principle
(Bradbury,2012) Proposition 1 (Rules (proposition 1 more rules for rule-based standards than principal standards) True or false?
False, weak evidence. (NOTE: FAS 34 has 2x more rules principle based standards)
(Bradbury, 2012) - Justification (proposition 2 is that principles-based standards will have relatively more references to conceptual framework qualitative characteristics.)
Not supported, but AS 34 contains more “justification” phrases than FAS 34R and IASB Standards
Performance Management Systems (PMSs) contains? (Ferreira)
Internal: Vision & Mission, Key Success Factors, Organisational structures, Strategies & Plans, Key Performance Measures, Target Setting, Performance evaluation, Reward system
External: (Information flows, Systems & Networks) (PMSs use) (PMSs Change) (Strength and Coherence)
Key Performance Measures (for PMSs) (Ferreira)
Either you measure performance (profit) or you look at for example efficiency. You can measure a lot of different areas. Financial outcome vs. measurement of processes.
Closed Loop Management, what are the stages? (Kaplan & Norton)
Develop a strategy, Translate the strategy, Plan Operations, Monitor & Learn, Test & Adapt the strategy
In the Closed Looped Management - what happens in Stage 2 (Translate the strategy)? (Kaplan & Norton)
You create a strategy map (Balanced Score Card)
In Stage 4 - Monitor and Learn, what do you have to think about? (Kaplan & Norton)
Review meetings is important.
The performance improvement perspective? (Maas)
It’s all about decision making. (Inside-out)
Which are the stages in the framework from (Maas)
Performance improvement perspective - Sustainability Strategy - Sustainability Management accounting - Sustainability Management Control - Sustainability Reporting - Transparency perspective (Sustainability Assessment)
Criticism for budgeting? (Libby and Lindsey)
Time - consuming, budget gaming, Principle-Agent problem etc.
What are the differences between target setting and planning? (Østergren)
See picture.
Major take-aways from Beyond Budgeting?(Østergren)
-From cost reduction to value-creation
-Performance based = Centralised power, decentralised action
-From controlling costs to controlling action
-From reactive to proactive planning
-Focus on big numbers rather than nitty-gritty details has thereby been eased into the mind-set of people.
-Empowerment for the employees! More creativeness and responsibilities for the lower level employees.
- More horizontal interaction between sub-managers.
-Holistic overview of the company
Public Interest Theory and Regulation?
See PIC
Capture Theory and Economic interest group theory of regulation?
2) The market will be efficient. If you produce a lot of accounting rules there will be regulations that are not necessary for the stakeholders and create costs for companies that are not useful for any stakeholder. Instead, we should rely on principal-agency theory.
a. The free market perspective: There will not be any demand for a company if they do not provide the necessary information that the market demands.
b. Capture theory: Even though a regulation is put in place for the public interest it will eventually be captured (controlled) by the parties that it is supposed to control.
i.Private/Economic Interest theory: It can be captured since the regulators are not independent. They can be affected through lobbying. They act in order to increase their own wealth. And the regulators may focus on their own re-election.
