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“Accounting quality”Mid Term review

February 2009, Valencia

Zoltan Novotny-Farkas (ESR, Frankfurt)

Beatriz García Osma (ER, Lancaster)

Joao Toniato (ESR, Ljubljana)

Yachang Zeng (ESR, Tilburg)

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Accounting quality

Accounting quality is a widely used term for certain accounting metrics that are assumed to capture dimensions of accounting quality

Typically, these include earnings management, timeliness, (asymmetric) conservatism, value relevance, predictability

Is there a difference in accounting quality before and after IFRS adoption?

Are changes in accounting quality related to country-level or sector-level legal/institutional/governance factors?

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Background

Zoltan Novotny-FarkasZoltan Novotny-Farkas

Since 05/2007 INTACCT ESR, Goethe University Frankfurt

Since 5/2007 PhD Studies, Goethe University Frankfurt

01/2006 Diploma in International Business Administration, University of Vienna

PhD supervisor: Günther Gebhardt (Goethe University Frankfurt)

INTACCT supervisors: Günther Gebhardt, Holger Daske (University of

Mannheim/Frankfurt)

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Experiences

FrankfurtExcellent research environment

Probably most beautiful campus

in Europe

INTACCTGreat training workshops

Transfer of knowledge

Networking opportunities

Research and social community

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Current research

Main Research Topic: The Effects of IFRS adoption on the loan loss provisioning of banks

Motivation: Banks play a key role in economy, but due to the peculiarities of the industry banks are most often left out in empirical accounting researchFocus on loan loss provisioning, as it determines significantly the quality of financial statements and the way banks are communicating credit riskIFRS adoption changes bank accounting significantly – for better or worse?

Method:Assemble a proprietary database on European banksAnalyze the transitional effects on key bank accounting variablesEarnings management pre- versus post IFRS using bankspecific accrual models

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Preliminary results/Future work

Preliminary results: IFRS adoption effects vary across European countriesDiversity in the effects are due to different pre-IFRS loan loss provisioning behaviour and differences in bank portfolio characteristicsExisting bank regulatory regimes have an IFRS “overriding” effectIFRS loan loss provisioning is less conservative and less forward-looking

Future work:How do financial statement users perceive the above mentioned changes?Collaborative projects with ESRs

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Background

Beatriz García OsmaBeatriz García Osma

2000 BA (Lda) Business Administration, U Autonoma de Madrid

2002 MPhil (DEA) Financial Economics and Accounting, UAM.

2006 PhD Accounting and Finance, Lancaster University

Current position:Lecturer in Accounting and Financial Economics, UAM.

INTACCT visits: October-December 2007 (3 months)October-December 2008 (3 months)

INTACCT Supervisors: Peter F. Pope & Steve Young

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Experiences

INTACCT ER Lancaster:INTACCT ER Lancaster:

INTACCT workshops in Tilburg and Valencia.

Weekly research seminars and PhD seminar. Courses on staff development whilst at Lancaster.

Access to best available databases, opportunity to discuss research with INTACCT researchers and faculty.

Weekly meetings and discussions.

Excellent research climate: Lancaster (UK) > 3200mm of rain each year (230 ‘wet’ days/year).

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Current Research

Main research topic: Main research topic: “Earnings quality effects of mandatory IFRS adoption” (coordinator: P.F. Pope, Lancaster).

Motivation:Motivation:

IFRS increase transparency and comparability (Reg. EC 2002/1606)

Earnings are a key variable for investors and managers (Biddle et al. 1995, Barth et al. 2002, Graham et al. 2005).

Legal, institutional, cultural and political forces have remained local: Can accounting practice be harmonized? (Ball 2006).

Method:Method:

Study changes in world-wide accounting quality as measured by earnings management (Leuz et al. 2003, Burghstahler et al. 2006).

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Results and Future Research

Main resultsMain results:IFRS adoption represents significant changes to NI, TA and SE. Overall, ROE (ROA) is 12% (14%) greater under IFRS.However, countries with the largest regulatory distance to IFRS (e.g., Spain, Greece) show the least significant adjustments. IFRS transition predicts changes to overall quality post-IFRS.Evidence suggest uneven implementation and enforcement and heterogenous earnings quality effects.

Future researchFuture research:“A practical guide to using financial statement data from commercial databases” (with P. Alves, W. Beekes & S. Young).“First-time adoption policy for plant, property and equipment” (with S. Young).

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Background

JoJoãão Toniatoo Toniato

Since 10/2008 INTACCT ESR, University of Ljubljana – Slovenia

Since 10/2006 PhD Studies, University of Lancaster – UK 07/2006 BA (Honours) Accounting and Finance,

Manchester Business School – UK 12/2001 BSc Computer Science, Federal University of

Espirito Santo – Brazil

PhD Thesis: “Predictability and Pricing of Accounting Information under IFRS”

PhD supervisors: Ken Peasnell and Young-Soo Choi (Lancaster University)

INTACCT supervisor: Aljoša Valentinčič (University of Ljubljana)

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Experiences

Lancaster:

• PhD and Research Seminars• Great research environment

INTACCT:

• Workshops / Colloquia• Focused supervision• International cooperation with Frankfurt University• Challenging environment • Contact with distinguished academics

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Output

Research:

• “Predictability and Pricing of Accounting Information under IFRS” (with Ken Peasnell and Young-Soo Choi)

• “Can Analyst Forecast Error Help Explain the Mispricing of Dividends?” (with Aljoša Valentinčič)

Other Activities:

• Coordination of reporting activities• Conference and seminar attendance• ESR/ER group projects

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Future Plans

Research:

• Finish current projects• Initiate new projects in

collaboration with Frankfurt

University researchers• Project on write-offs and IFRS

After INTACCT (10/2010) job market

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Background

Yachang ZengYachang ZengSince Oct 2008 ESR with INTACCT, Tilburg UniversitySince Oct 2005 PhD in Accounting & Finance, Lancaster University2004 - 2005 MSc in Accounting & Finance, Lancaster University2001 - 2004 Senior Accountant (CPA), China. 1997 - 2001 Bachelor in Auditing, Sun Yat-Sen University (China)

PhD Thesis: “Analysts’ ability to detect and disclose low accounting quality”

PhD Supervisor: Steve Young and Daphne Lui (Lancaster University)INTACCT Supervisor: Willem Buijink and Philips Joos (Tilburg University)

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Experiences

Practical Matters in Settling Down

Training

Expectation

Expectation

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Experiences

Research Environment

Expectation

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Experiences

Networking Opportunities

Expectation

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Experiences

Interaction in the Host Institution

Responsibilities in the Network

Expectation

Expectation

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Output

Current ProjectImpact of IFRS on the feasibility of using global firms as comparable firms

Working paperAnalysts’ ability to detect and disclose low accounting quality

Factors explaining analysts’ disclosure of low accounting quality

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Future Plans

Future StudiesContent analysis about the valuation models that analysts used and the source of comparable firms chosen by analysts after the adoption of IFRS

After INTACCTAcademic job market