Accounting report
Mohammad Soleymani; Mohammad Arabmazar Yazdi; MohammadHosien SafarZade; Javad Shekarkhah
Abstract
This study aims to investigate how a change in the accounting method of calculating bank loan loss provisions affects financial reporting quality of banks. In doing so, the current theoretical literature on the topic of the research has been described and the conflicting arguments in the previous research ...
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This study aims to investigate how a change in the accounting method of calculating bank loan loss provisions affects financial reporting quality of banks. In doing so, the current theoretical literature on the topic of the research has been described and the conflicting arguments in the previous research have been expressed. Subsequently, using the transfer matrix method, loan loss reserves have been calculated for a sample of 17 banks, assuming that the method approved by international accounting standards (expected credit loss model) has been applied. Then, the research variables’ data, spanning from 2017 to 2021, was collected and analyzed under two assumptions: employing the current method and using the expected credit loss model. Then, the research hypothesis was tested using the least squares method. The results of the research show that the relationship between the change in the reporting system and discretionary accruals as an indicator of the financial reporting quality is negative and significant. Therefore, a change in the current accounting methods used for the calculation of loan loss reserves causes reduction in discretionary accruals and improvement of financial reporting quality. On the other hand, the results of this research show that large banks are more interested in using discretionary accruals and applying profit management than small banks, which can be caused by the "political costs theory". IntroductionThe quality of financial reports remains an important issue, garnering serious attention from regulators, professional accountants and other users of financial information. This is due to the irreplaceable role of financial reporting quality in reducing agency problems and information asymmetry (Anto & Yusran, 2023). In the banking system, the method used for calculating loan loss reserves is one of the most important factors affecting the quality of financial reporting. This is because the loan loss provision, typically the largest bank accrual, is highly correlated with banks' net income and represents the most prevalent accrual. Loan loss provisions are accruals of fundamental importance to bank performance, and they also reflect information asymmetry (Beatty & Liao, 2014).Despite the great importance of loan loss calculation method on banks’ financial reporting, few studies have examined the effectiveness of the current method used in Iranian banks. Additionally, research exploring the impact of changes in the loan loss calculation method on the quality of banks' financial reporting has been limited. Given this context, it becomes imperative to investigate the influence of this crucial variable on the quality of bank financial reporting. Conducting this research, particularly in Iran with its bank-oriented economy, can enhance the quality of financial reporting. This improvement would be achieved by selecting the optimal method for calculating loan loss reserves, thereby increasing the transparency of information in banks.Research Question(s)The main question of this research is as follows:Does the change in the bank loan loss reserves calculation method have a significant effect on the quality of banks financial reporting? Literature ReviewIn the current literature, two predominant views exist regarding the impact of changes in accounting methods on the quality of financial reporting. The first view posits that changing accounting methods, equated to adopting international accounting standards, enhances financial reporting quality. Conversely, the second view contends that there is either no relationship or a negative relationship between the adoption of new accounting methods and financial reporting quality. Mensah (2021) demonstrated a significant negative relationship between the use of new accounting methods and profit management, suggesting that methods endorsed by international accounting standards elevate the quality of companies’ financial reporting. This finding aligns with the conclusions of researchers like Nikhil et al. (2023), Ozili and Outa (2019), and Haapamakia (2018). On the contrary, Oppong & Bruce-Amartey (2022) examined the effects of new standards and corporate governance on accounting quality in Ghana, discovering that the implementation of new standards adversely impacts accounting quality. Similar conclusions were drawn by researchers like Suadiye (2017) and Campa & Donnelly (2016). MethodologyThis research employed a quantitative approach to examine the effect of changes in accounting methods on the quality of financial reporting. Initially, data was gathered using the current numbers of the financial statements of selected banks. Subsequently, the loan loss reserve calculation method was altered, and the research data was re-estimated using the new accounting method, aided by a transition matrix and the IFRS 9 formula. The research hypothesis was then tested using both datasets. The sample comprised data from 17 Iranian banks spanning the years 2017 to 2021. This data was collected using the Rahavard Novin database, the banks' financial statements, and analyzed using SPSS version 27 and EViews version 10 software, employing the least squares regression method. ResultsThe research findings reveal a significant negative relationship (at a significance level of 0.000) between the financial reporting system and discretionary accruals. This outcome suggests that a change in the method of calculating bank loan loss reserves, coupled with the adoption of a new method, leads to a decrease in discretionary accruals and in banks' earnings management practices. Additionally, the research indicates that the relationship between discretionary accruals and cash flow from operating activities, banks' profitability, and financial leverage is significantly negative. In contrast, the relationship between discretionary accruals and bank size is positive and significant. However, there appears to be no significant relationship between growth rate and asset turnover with discretionary accruals at the 5% significance level. DiscussionThe results of this research show that adopting the expected loss method, as opposed to the current method used in Iranian banks for calculating loan loss reserves, enhances the transparency of bank information and improves the quality of financial reporting. By reducing discretionary accruals, the new reporting system encourages banks to utilize fewer accruals, likely leading to a decrease in the use of profit management methods. Consequently, the adoption of IFRS in Iranian banks positively impacts the industry and its stakeholders. Furthermore, the research reveals that larger banks tend to employ discretionary accruals and engage in profit management more than smaller banks, a phenomenon potentially explained by the "political cost theory". ConclusionThe relationship between the quality of financial reporting and changes in bank loan loss reserves is positive and significant. Thus, the research hypothesis is confirmed, supporting the perspective of the first group (as discussed in the Literature Review section) in the context of Iranian banks. Based on these findings, it is recommended that the central bank mandate banks to disclose their reserves using the expected credit loss method as an initial step. Subsequently, banks whose reserves significantly deviate from the amounts calculated according to IFRS standards should be compelled to adjust their reserves over several years. This gradual approach aims to align the current reserves more closely with those calculated using the expected credit loss method.
Ghasem Blue; Mohammad Marfou; Arian Ghahremani
Abstract
The purpose of the present study is to explain the effect of accounting information quality on corporate equity cost and to investigate the moderating role of information asymmetry and the simultaneous moderating role of this variable and the comparability of financial statements in this context. The ...
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The purpose of the present study is to explain the effect of accounting information quality on corporate equity cost and to investigate the moderating role of information asymmetry and the simultaneous moderating role of this variable and the comparability of financial statements in this context. The research timeframe for this period is 5 years from the beginning of 2013 until the end of 2017 and the sample includes 91 companies listed in Tehran Stock Exchange. Multivariate regression was used for statistical analysis. The results of the analysis indicate that the quality of accounting information has an adverse effect on equity cost, so that the higher the quality of accounting information, the lower the cost of equity; and vice versa. Also, information asymmetry has a direct relationship with this effect. But the simultaneous impact of comparability of financial statements and information asymmetry on the impact of accounting information quality on equity costs is not confirmed. The results of the first two hypotheses are similar to those of Emof et al. (2018), which examined the effect of accounting information quality on equity cost in the United States, but the third hypothesis suggests that it is inconsistent.
Hamid Haghighat; Mohammad Rahimpoor; Nikoo Khansari; Ramin Ghorbani
Abstract
Investigating the Effect of Correlation between Firms'''''''''''''''' Earnings and Announcement Timing on the Accruals
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Investigating the Effect of Correlation between Firms'''''''''''''''' Earnings and Announcement Timing on the Accruals
Hamid Haghighat
Abstract
Abstract declaration of Accounting profit Or any of the published information, if it is properly be published between capital investors, to a large extent reduce the information asymmetry. In this paper, the relationship between Relative earnings performance and discretionary accruals firms were studied ...
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Abstract declaration of Accounting profit Or any of the published information, if it is properly be published between capital investors, to a large extent reduce the information asymmetry. In this paper, the relationship between Relative earnings performance and discretionary accruals firms were studied in Tehran Stock Exchange.The aim of this study was to evaluate The effect of firm-industry earnings correlation and announcement timing on firms’ accrual decisions used by the management of the company. The study period from 1387 to 1392 included 108 companies. The results showed a negative significant relationship between discretionary accruals and the relative performance of the company's earnings. Also, the results showed that those companies that their earnings had high correlation with industry earnings and had a low relative performance possess stronger relationship between discretionary accruals and the relative performance earnings. But the delay in the announcement of the company's profits is not a factor in the identification of the possible adjusted discretionary accruals in order to manage earnings.
Abstract
Considering the importance of discretionary accruals in reporting and its influenceon stock return, and also growth opportunities and information assymetry in highgrowth companies, it is expected that management of high growth companies haveincentives to use discretionary accruals for signaling positive ...
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Considering the importance of discretionary accruals in reporting and its influenceon stock return, and also growth opportunities and information assymetry in highgrowth companies, it is expected that management of high growth companies haveincentives to use discretionary accruals for signaling positive fiture performance ofthe firm. The purpose of this study is to investigate the impact of growth changes onstock return sensitivity to discretionary accruals, positive accruals and the quality ofaccruals. The study is performed in TSE listed companies and 192 companies databetween 1388 to 1394 were selected. The coefficient and multivariate regressionwere used for hypothesis testing. The results revealed that the sensitivity of stockreturn to discretionary and positive accruals and accruals quality is high for highgrowth companies compared to low growth ones.
Shadi Jandaghyan; Shadi Jandaghyan
Abstract
Financial reports are tools that transfer accounting information to users,particularly investors. When the reporting quality is poor, investors rely on industry and market-level information. This action contributes to greater stock return movement with market and industry return, and Increases ...
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Financial reports are tools that transfer accounting information to users,particularly investors. When the reporting quality is poor, investors rely on industry and market-level information. This action contributes to greater stock return movement with market and industry return, and Increases stock return synchronicity. Factors such as free cash flow agency problem may cause distortion of information quality by managers as a result outsider investors are misled. The purpose of this study is to investigate the effects of free cash flow agency problem on stock return synchronicity and financial reporting quality. In order to test the hypotheses, data of 105 firms listed in Tehran Stock Exchange during the years 1388 to 1392 were used. Findings of research signify that companies with strong free cash flow agency problem have a greater stock return synchronicity. Results also indicate that free cash flow agency problem has a significant and negative impact on the financial reporting quality. Thus investors who invest in the stock exchange and their main attention is focused on free cash flow, must to consider free cash flow agency problem as a factor affecting decisions.
Naser Izadiniya; Naser Izadiniya
Volume 12, Issue 45 , April 2015, , Pages 31-80
Abstract
In this study ,the impact of highly valued equity on the relationbetween audit quality and Discretionary Accruals in the companieslisted in Tehran Stock Exchange is investigated .Audit quality ismeasured by using of the audit firm size, audit industry specialization,the length of the auditor-client relationship ...
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In this study ,the impact of highly valued equity on the relationbetween audit quality and Discretionary Accruals in the companieslisted in Tehran Stock Exchange is investigated .Audit quality ismeasured by using of the audit firm size, audit industry specialization,the length of the auditor-client relationship and industry specialistaudit firms with long tenure. Also, Discretionary Accruals is estimatedusing the Jones model (1991). The results of investigating a sample of153 firms during the years of 1386 to 1392 shows that interactioneffect of highly valued equity and audit quality proxies is positive andsignificant. This means that, magnitude of the negative effect of auditquality on the discretionary accruals in the highly valued firmsdecreases and high quality auditors not reducing amount ofDiscretionary Accruals in highly valued firms. Thus, in thenegotiation between auditors and managers about preparation offinancial statement in the highly valued equity, managers by using ofbetter information about its firm can success on auditors.
mehdi nirzaie; naser izadinya
Abstract
In this study ,the impact of highly valued equity on the relation between audit quality and Discretionary Accruals in the companies listed in Tehran Stock Exchange is investigated .Audit quality is measured by using of the audit firm size, audit industry specialization, the length of the auditor-client ...
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In this study ,the impact of highly valued equity on the relation between audit quality and Discretionary Accruals in the companies listed in Tehran Stock Exchange is investigated .Audit quality is measured by using of the audit firm size, audit industry specialization, the length of the auditor-client relationship and industry specialist audit firms with long tenure. Also, Discretionary Accruals is estimated using the Jones model (1991). The results of investigating a sample of 153 firms during the years of 1386 to 1392 shows that interaction effect of highly valued equity and audit quality proxies is positive and significant. This means that, magnitude of the negative effect of audit quality on the discretionary accruals in the highly valued firms decreases and high quality auditors not reducing amount of Discretionary Accruals in highly valued firms. Thus, in the negotiation between auditors and managers about preparation of financial statement in the highly valued equity, managers by using of better information about its firm can success on auditors.
Mehdi Sadidi; Sajad Ebrahimidardeh
Volume 8, Issue 32 , January 2011, , Pages 103-119
Abstract
Managers are trying to decrease the environmental impact of uncertainty in the reported digit of accounting earnings using their authorities and the flexibility from the accounting standards. This paper aims to examine the relationship between environmental uncertainty and accruals. In doing ...
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Managers are trying to decrease the environmental impact of uncertainty in the reported digit of accounting earnings using their authorities and the flexibility from the accounting standards. This paper aims to examine the relationship between environmental uncertainty and accruals. In doing so, the research methodology was conducted on the basis of using multiple regression and correlation analysis.
The research hypotheses were analyzed through using the data related to 159 companies from Tehran Stock Exchange during the period 1379-1387. The research findings show that there is a significant relationship between environmental uncertainty and accruals and in the uncertain conditions, the size of discretionary accruals are more than the size of non-discretionary accruals. But under these conditions, it cannot be claimed that the variation of non-discretionary accruals are more than discretionary accruals.
V. Mojtahedzadeh; S. Sadeghi Askari
Volume 8, Issue 31 , October 2010, , Pages 33-60
Abstract
This study examines the impact of earnings management on the value -relevance of financial statement information by considering short-term and long-term discretionary accruals. This study uses valuation framework, developed by Ohlson (1995) and Jones (1991) as basis for developing two distinct models ...
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This study examines the impact of earnings management on the value -relevance of financial statement information by considering short-term and long-term discretionary accruals. This study uses valuation framework, developed by Ohlson (1995) and Jones (1991) as basis for developing two distinct models to examine short-term and long-term discretionary accruals.10 hypotheses have been designed for this purpose. To examine these hypotheses we use the information of 100 companies listed on Tehran - Stock -Exchange during 1383–1387 and Pierson correlation. The results demonstrate that, both Earnings and Book Value have value-relevance information about firms' value. Moreover, earnings management via short-term, long- term and total discretionary accruals reduce value relevance of earnings but value relevance of book value reduce only in presence of earnings management via long-term discretionary accruals.
M. A. Aghaei; A. A. Javan; M. Nazemi Ardakani; E. Mousavi
Volume 7, Issue 25 , April 2009, , Pages 87-103
Abstract
Decision making about capital structure and determining its effectiveness is increasingly important subject in managing of firms. In addition, earnings management is one of the effective factors on capital structure in corporate governance subjects. This study aimed to investigate the impact of earnings ...
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Decision making about capital structure and determining its effectiveness is increasingly important subject in managing of firms. In addition, earnings management is one of the effective factors on capital structure in corporate governance subjects. This study aimed to investigate the impact of earnings management, Profitability ratios and firm size on the capital structure of listed companies of Tehran Stock Exchange (TSE) in the period of 1382-1386. A sample of 125 companies of TSE was taken for research study. For the analysis of data, multiple regression model approach was applied. Gearing ratio was taken as dependent variable whereas absolute discretionary accruals, ROA, ROE, and Size were used as independent variables. The results indicate that absolute discretionary accruals have insignificant effect on dependent variable. According to the results, Size, and ROE have positive Impact on the capital structure of the listed companies in Tehran stock exchange.
Yahya Hassas Yeganeh; Saber Sheri; H. Khosrownejad
Volume 6, Issue 24 , January 2009, , Pages 79-115
Abstract
In order to solve the distrust problem of the moral hazard in information asymmetry issue in capital markets, corporate governance is introduced. This is an assumption that corporate governance results to a healthful life for organizations in a long horizon and protects the stockholders interests. International ...
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In order to solve the distrust problem of the moral hazard in information asymmetry issue in capital markets, corporate governance is introduced. This is an assumption that corporate governance results to a healthful life for organizations in a long horizon and protects the stockholders interests. International organizations and institutes, suggest the governance codes as a tool to develop the competition ability of corporate to access to the international capital sources, and it also affects economic and employment improvements.
This research studied some of the corporate governance mechanisms in TSE and examines the probable correlation between earning management and corporate governance mechanisms, debt ratio and firm size. The current study employs the cross-sectional modified version of Jones, where abnormal working capital accruals are used as proxy for earnings management. The study reveals that corporate governance mechanisms (board size, proportion of independent directors, competence of independent directors, separation of the roles of CEO and chairman, CEO membership, ownership structure and existence of audit dept.) have non-significant relation with earning management. It also shows that debt ratio and firm size have no significant relation with earning management.
Mohamad Arabmazar Yazdi; M. Mostafazadeh
Volume 6, Issue 23 , October 2008, , Pages 1-18
Abstract
This study provides events about the impact of Earnings Management on the Value-Relevance of Earnings and Book Value with comparison of short term and long-term discretionary accruals. According to the result of this study, in Tehran Stock Exchange (TSE), Earnings management reduces the value-relevance ...
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This study provides events about the impact of Earnings Management on the Value-Relevance of Earnings and Book Value with comparison of short term and long-term discretionary accruals. According to the result of this study, in Tehran Stock Exchange (TSE), Earnings management reduces the value-relevance of earnings and increases the value-relevance of book value and also the effect of long-term discretionary accruals on the value relevance of earnings and book value is greater than the effect of short-term discretionary accruals on the value relevance of earnings and book value.
Mohammad Arabmazar Yazdi; Mohammad Talebian
Volume 6, Issue 21 , April 2008, , Pages 1-30
Abstract
This paper examines the relation between the quality of financial reporting, information risk and cost of capital for a sample of firms listed in TSE's during 1380-1384.Using accruals quality as a proxy for financial reporting quality and information risk; prior research suggests ...
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This paper examines the relation between the quality of financial reporting, information risk and cost of capital for a sample of firms listed in TSE's during 1380-1384.Using accruals quality as a proxy for financial reporting quality and information risk; prior research suggests that financial reporting quality affects information risk, and in tum, affects firm's cost of capital. We find that firms with poor accruals quality have higher cost of capital relative to firms with high accruals quality. We also find that the effect of discretionary accruals quality on cost of capital (cost of debt and cost of equity) is greater than for non-discretionary accruals (innate accruals) quality.
Hamid Bodaghi; HamidReza Bazaz Zadeh
Volume 5, Issue 17 , April 2007, , Pages 173-212
Abstract
The most investigation of earnings Management literature are about why and how earnings management are done and what the results of this behavior i s. But there have been very few researches on the ways to controlling this. This research pays attention to more and more complete disclosure as an approach ...
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The most investigation of earnings Management literature are about why and how earnings management are done and what the results of this behavior i s. But there have been very few researches on the ways to controlling this. This research pays attention to more and more complete disclosure as an approach for reducing earnings management.
In this research, disclosure quality is prepared and measured, using a check list containing 235 mandatory disclosure items (as Iranian accounting standards). Earnings management is also measured, using modified Jones Model, on discretionary accruals, and are finally used for testing the hypothesis. Hypothesis are tested as cross- sectional for the years 1382 to 1384 and accumulated.
The results in year to year investigations only for the year 1384 show statistically significant negative relationship between disclosure quality and earnings management. And in total of three years, investigations show no significant relationship.
