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FINANCIAL STATEMENTS & ACCOUNTING STANDARDS
A brief overview of financial statements
Some issues in the setting of International Accounting Standards
The ASB's draft statement of principles
Summary of IFRS 2 "Share based payment"
Associated companies and joint ventures
An introduction to accounting for financial instruments
An introduction to accounting for loan finance
An introduction to pension accounting in IAS17, FAS87 and FRS19
Accounting for post balance sheet events, provisions & contingencies
An
introduction to comprehensive income
based on:
· Maines &McDaniel,
"Effects of comprehensive income characteristics on non-professional
investors' judgements: the role of financial statement presentation
format", Accounting Review, April 2000.
Accounting for restructuring costs: an example of reduced
earnings quality
based on:
· Bart Kamp, "Earnings
quality assessment by a sell-side financial analyst", Issues in Accounting Education, 17/4,
November 2002, 361-368
Classifying complex financial instruments in the balance
sheet as a liability or equity
based on:
· Ryan and Schrand
(principal authors), "Evaluation of
the FASB's proposed accounting for financial instruments with
characteristics of liabiities, equity, or both", Accounting
Horizons, December 2001, 387-400
Are
international accounting standards necessary and feasible?
based on:
· Goeltz, "International accounting harmonisation: the impossible
(and unnecessary) dream", Accounting Horizons, March
1991, 85-88
Measuring performance under IAS
Do variations in domestic GAAP around the world help
or hinder financial markets?
based on:
· Ball, Kothari & Robin, "The effect of international
institutional factors on properties of accounting earnings",
Journal of Accounting & Economics, vol 29/1 Feb 2000, 1-51.
· Rees, "The information contained in reconciliations
based on US accounting principles by non US companies", Accounting
& Business Research, Autumn 1995, 301-310.
· Chan & Seow, "The association between stock
returns and foreign GAAP earnings versus earnings adjusted to
US GAAP", Journal of Accounting & Economics, February
1996 vol 21/1, 139-158.
Does the Basu (1997) model really measure conservatism
in earnings?
based on:
A discussion of Basu, "The conservatism principle and the
asymmetric timeliness of earnings", Journal of Accounting
& Economics, 1997, 3-37. The
analysis argues that since the characteristic which Basu finds
in earnings is largely attributable to cash flow rather than accruals,
the results cannot be interpreted as accounting conservatism.
Has accounting earnings become more conservative over
time?
based on:
· Givoly & Hayn,
"The changing time series properties of earnings, cash flows
and accruals: has financial reporting become more conservative?",
Journal of Accounting and Economics, June 2000, Vol 29/3, 287-320.
More on the declining relevance of earnings
based on:
· Ryan & Zarowin,
"Why has the contemporaneous linear returns-earnings relation
declined?", Accounting Review, April 2003, Vol 78/2, 523-553.
GAAP & non GAPP information in practical investment
analysis
based on:
· Bouwman, Frishkoff
& Frishkoff, "The relevance of GAAP based information:
a case study exploring some uses and limitations",
Accounting Horizons, December 1995, 22-47.
· Richard Barker, "FRS3 and analysts' use of earnings,
Accounting & Business Research, Spring 2000, Vol 30(2),
95-109.
· Breton & Taffler, "Accounting information and
analyst stock recommendation decisions: a content analysis approach",
Accounting & Business Research, Spring 2001, Vol 31(2),
91-101.
The quality of accounting information
based on:
· Morris and Nichols,
"Consistency exceptions: materiality judgements and audit
firm structure", Accounting Review, April, 1988.
· Dechow, Sloan
& Sweeney, “Detecting earnings management”, Accounting
Review, April, 1995
· Peasnell, Pope
& Young, "Detecting earnings management using cross sectional
abnormal accruals models", Accounting and Business Research,
Autumn, 2000
· Degeorge, Patel
& Zeckhauser, "Earnings management to exceeds thresholds",
Journal of Business, 1999, vol 72(1).
· Gore, Pope & Singh, "Discretionary accruals
and the distribution of earnings relative to targets", Lancaster
Management School Working Paper, 2001.
ACCOUNTING NUMBERS AND STOCK PRICES
Valuation models
Does research and development have a market value?
based on:
· Akbar
and Stark, "UK evidence onthe market valuation of research
and development expenditures", Journal of Business Finance
and Accounting, Nov-Dev 2003.
· Shi, "On
the trade-off between the future benefits and riskiness of R&D:
a bondholders' perspective, Journal of Accounting and Economics,
2003, volume 35, pp227-254.
· Green, Stark and Thomas, "UK
evidence on the market valuation of research and development expenditure,
Journal of Business Finance and Accounting, 1996, 191-216
Earnings and investment in
company valuation
based on:
· Miller & Modigliani,
“Dividend policy, growth and the valuation of shares”,
Journal of Business, October 1961
Book values in company valuation
based on:
· Ohlson, “A
synthesis of security valuation theory and the role of dividends,
cash flows and earnings”, Contemporary Accounting Research,
1990, 648-676
How does Ohlson's information dynamics match up with
observed stock prices?
based on:
· Dechow, Hutton
& Sloan, “An empirical assessment of the residual income
valuation model”, Journal of Accounting and Economics, 26/1-3,
January 1999, 1-34.
Does EVA or residual income outperform earnings?
based on:
· Biddle, Bowen
& Wallace, "Does EVA beat earnings? Evidence on associations
with stock returns and firm values", Journal of Accounting
& Economics , December 1997, 301-336.
Leads and lags between prices and accounting numbers
Market reaction to & anticipation of accounting
numbers
based on:
· Ball & Brown,
“An empirical evaluation of accounting income numbers”,
Journal of Accounting Research, Autumn, 1968, 159-178
The relationship between annual security returns and
earnings changes
based on:
· Beaver, Lambert
& Ryan “The information content of security prices”,
Journal of Accounting & Economics 1987, 139-157.
The lagged relationship between earnings and stock
prices
based on:
· Kothari &
Sloan, “Information in prices about future earnings”,
Journal of Accounting & Economics, 1992, 143-171
The information content of losses
based on:
· Carla Hayn, “The
information content of losses”, Journal of Accounting &
Economics, 1995, 125-153
Does the stock market fully understand the earnings
announcement?
based on:
· Bernard and Thomas,
“Evidence that stock prices do not fully reflect the implications
of current earnings for future earnings”, Journal of Accounting
& Economics, 1990.
· Ball and Bartov,
“How naive is the stock market's use of earnings information?”,
Journal of Accounting & Economics, 1996, 319-337
Does the market impound balance sheet information?
based on:
· Ou & Penman,
"Financial statement analysis and the prediction of stock
returns", Journal of Accounting & Economics, November
1989, 295-329.
· Stober, “Summary
financial statement measures and analysts' forecasts of earnings”,
Journal of Accounting & Economics, 1992, 347-372
Accounting policy
Does the market undo some of the accounting in GAAP?
based on:
· Bradshaw and Sloan,
"GAAP vs The Street: an expirical assesment of of two alternative
definitions of earnings", Journal of Accounting Research,
40/1, March 2002.
Predicting cash flows with cash flows and accruals
based on:
· Barth, Cram &
Nelson, "Accruals and the prediction of future cash flows",
Accounting Review January 2001, 27-58
Predicting earnings with cash flows and accruals
based on:
· R G Sloan, “Do
stock prices fully reflect information in accruals and cash flows
about future earnings?”, Accounting Review, 1996, 289-315.
Are earnings more informative than cash flows?
based on:
· P M Dechow, “Accounting
earnings and cash flows as measures of firm performance: the role
of accounting accruals”, Journal of Accounting & Economics,
1994, 3-42.
Nonfinancial information
based on:
· Amir & Lev,
“Value relevance on nonfinancial information: the wireless
communications industry”, Journal of Accounting & Economics,
1996, 3-30.
The (ir)relevance of financial statements?
based on:
· Francis &
Schipper, "Have financial statements lost their relevance?",
Journal of Accounting Research, Autumn 1999.
· Lev & Zarowin,
"The boundaries of financial reporting and how to extend
them", Journal of Accounting Research, Autumn 1999. The discussion argues that the Francis
& Schipper finding, that accounting has become more relevant
over time, is due to their mismeasurement of relevance in the
early period (see page 8 of the notes).
MARKET ANOMALIES, THEIR EXPLANATION AND THE PERFORMANCE OF ANALYSTS
Is there too much volatility in stock prices?
based on:
· Shiller, “Do
Stock Prices Move Too Much to be Justified by Subsequent Changes
in Dividends?”, American Economic Review, June 1981, 421-436.
· Bulkley and Tonks,
“Are UK stock prices excessively volatile?”, Economic
Journal, December 1989, 1083-1098
Contrarian investment strategies using financial ratios
based on:
· Lakonishok, Shleifer
and Vishny, "Contrarian investment, extrapolation, and risk",
Journal of Finance, 1994, 1541-1578.
Behavioural explanations for under and overreaction
based on:
· Barberis, Shleifer
and Vishny, “A model of investor sentiment”, Journal
of Financial Economics, 1998, 307-343, and
· Daniel, Hirshleifer
& Subrahmanyam, "Investor psychology and security market
under-and overreactions, Journal of Finance, December, 1998, 1839-1885
Informational cascades in financial markets
based on
· Bikhchandani,
Hirshleifer & Welch, “A theory of fads, fashion custom
and cultural change as informational cascades”, Journal of
Political Economy, 1992, 992-1026.
Analysts’ prediction of CAPM residuals
based on:
· Dimson and Marsh,
“An analysis of brokers’ and analysts’ unpublished
forecasts of UK stock returns”, Journal of Finance December
1984.
Are analysts responsible for post earnings announcement
drift and other anomalies that suggest that the market generally
adjusts inadequately to new information?
based on:
· Abarbanell &
Bernard, “Tests of analysts’ overreaction/underreaction
to earnings information as an explanation of anomalous stock price
behaviour”, Journal of Finance, July 1992.
Do analysts overreact to information?
based on:
· DeBondt &
Thaler, “Do security analysts overreact?”, American
Economic Review, 1990.