Figure - uploaded by Francesco Sotti
Content may be subject to copyright.
Source publication
Based on a sample of European listed companies, the present study has investigated value relevance of consolidated financial statements prepared according to IASs/IFRSs and whether presence or absence of non-controlling interests is relevant to capital markets investors. Several previous studies deal with value relevance of consolidated annual repo...
Citations
... The major previous studies supported the view that consolidation improves the value relevance of financial information. Among the first studies was carried out by Niskanen et al. (1998), which found that the consolidation of financial statements of Finnish-listed companies The conclusions state that consolidated financial statements align with the economic entity concept (Hsu et al., 2012) and are comprehensive financial reports, where the assets and liabilities of subsidiaries are presented in a single financial position (Sotti, 2017). Additionally, consolidated financial statements more accurately and reliably reflect the performance of the entire economic entity and have a better ability to assist investors in predicting future performance (Niskanen et al., 1998). ...
... Contrarily, separate financial statements contain only the assets and liabilities of the parent company since investments in subsidiaries are reported as financial instruments (Sotti, 2017). ...
... enhanced the informational content of earnings.Hsu et al. (2012) documented a better reflection of market value by the control-based approach of consolidation than the ownership-based approach in Taiwan.Sotti (2017) discovered that consolidated accounts of European listed companies are value-relevant. In the same context,Sotti (2018) documented the superiority of consolidated financial statements over the separate in Italy regarding value relevance. Similarly, Busari and Bagudo (2021) revealed that the financial statements of Nigerian companies wer ...
Research background
Accounting conservatism has been a significant area of research in the last few decades due to its effects on financial reporting quality. Nevertheless, it has been influenced by many factors that lead companies to be more or less conservative.
Purpose
This paper aims to contribute to this research stream by exploring the impact of state ownership and consolidation on accounting conservatism. The literature has not given much attention to state ownership and has never explored consolidation.
Research methodology
The study employed the data of 90 Algerian companies from 2016 to 2021 and employed Basu’s (1997) model to measure conservatism. The relationships between variables were estimated using linear regression.
Results
The results indicate that Algerian companies’ financial statements are generally conservative. However, accounting conservatism is more prevalent in state companies and separate financial statements.
Novelty
The study is the first in Algeria and is among the few studies that are interested in accounting consolidation as a determinant of conservatism.
... The key challenges of consolidated financial reporting since the beginning of the 21st century are largely a consequence of changes in accounting standards. More recently, research has been predominantly focused on the new concept of control and its implications on consolidated financial statements (Hsu, Duh & Cheng, 2012;Ben-Shahar, Sulganik & Tsang, 2016;Beck et al., 2017;Bedford, Bugeja & Ma, 2022), goodwill accounting (André, Filip & Paugam, 2016;Li & Sloan, 2017;Amel-Zadeh, Glaum & Sellhorn, 2023;Just, Honold & Meckl, 2023), including other intangible assets acquired in a business combination (Skinner, 2008;Su & Wells, 2018;Tunyi et al., 2020;Barker et al., 2022), accounting treatment of non-controlling interests (Lopes, Lourenço & Soliman, 2013;Welc, 2017;Sotti, 2017;Lopes et al., 2021) and other specific reporting areas in accordance with the acquisition method. ...
... Although the first approach is less complex, the second approach would still have an impact on the analytical value of the consolidated financial statements, not only from the perspective of minority shareholders but also with regard to the information needs of financial analysts. In other words, the existence of NCIs and their adequate accounting treatment is an important determinant of the value relevance of consolidated financial statements (Sotti, 2017). ...
Procedures for eliminating internal results in practice may vary due to the different nature of the relationship between related parties, but also due to the vagueness of the accounting regulation, which opens up space for alternative procedures in practice. The ways of eliminating internal profits and losses differ primarily depending on whether full consolidation of financial statements or one-line consolidation, followed by the application of the equity method, is performed. At the same time, with both mentioned consolidation procedures, questions are raised regarding whether downstream and upstream transactions should have the same treatment, that is, whether the total internal result should be eliminated or only its part that is proportional to the ownership share. The aim of this paper consists in analyzing specific issues of eliminating internal results, while considering the current state and the possibility of improving accounting regulations in that field.
Value relevance (VR) of earnings and book value of equity is studied in a setting where the International Financial Reporting Standards (IFRS) have been adopted through a convergence and customization route. Quantile regression methodology is applied to level and return models. We find no significant increase in VR of earnings or book equity. Smaller firms show some sensitivity to the change in the regime as compared to the largest set of firms, though accounting metrics overall, help explain the value of larger firms better. We conclude that the convergence route leads to continuous, incremental benefits over the pre-adoption period which pre-empts any significant increase in VR upon IFRS adoption. Gradual convergence with IFRS supported by positive, investor-friendly changes (Roca, 2021) to existing institutional and regulatory frameworks over time, results in better adoption and early, continuous capture of value, though the process itself is long drawn out. More research is needed to test the relevance of alternate metrics in the current technology and intangibles-driven economies (Barth, Li, & McClure, 2021). India’s unique approach to IFRS adoption may hold lessons for all IFRS adopters across the world while responding to new/revised standards in the future. This is the first comprehensive study on the value relevance and information content of the Indian Accounting Standards (Ind AS)
