Asian Review of Accounting

Warne, Rick C.

2021 Asian Review of Accounting

doi: 10.1108/ara-02-2019-0057

This paper examines the impact that fair-value recognition of non-financial assets has on the judgments of commercial lenders.Design/methodology/approachCommercial lenders, who were attending a national banking conference, participated in a controlled experiment.FindingsThe experimental results show that commercial lenders incorporate fair values into their judgments but only when this information is recognized (vs disclosed) on the financial statements. Additionally, lenders assigned the highest loan interest rates when recognized fair values increased net income, and they assign the lowest loan amounts when recognized fair values decreased net income.Research limitations/implicationsTypical limitations regarding behavioral experiments are acknowledged in the paper. For example, the commercial lenders in this study could not request additional information. In addition, because of the difficulty in obtaining these participants, the sample size is relatively small.Practical implicationsUS Generally Accepted Accounting Principles (GAAP) does not allow the fair-market valuation for most non-current assets while International Financial Reporting Standards (IFRS) require such valuations. The article adds to our understanding about how a significant user group of financial statements, commercial lenders, view GAAP and IFRS accounting.Social implicationsThis article provides insights regarding how commercial lenders' decisions may change based on accounting principles related to asset valuation. Obtaining credit through loans has significant implications for society.Originality/valueThis article is unique because it examines commercial lenders' judgments using different asset valuations on the financial statements.

Kim, Sang Il; Kim, Kyung Tae

2021 Asian Review of Accounting

doi: 10.1108/ara-05-2020-0067

Corporate social responsibility (CSR) index represents attributes of firms that are differentiated. The purpose of this paper is to investigate the impacts of differentiated CSR, CSRS (strategic CSR activities) and CSRD (defensive CSR activities) on R&D expenditure and its effectiveness on firm values.Design/methodology/approachThe sample includes 1,388 firm-year observations for 2004–2015 of listed firms on the Korean Stock Exchange (KSE) whose CSR measures, KEJI (Korea Economic Justice Institute) index are available from the Citizens' Coalition for Economic Justice (2016).FindingsThe results show that while CSRS is positively associated with R&D expenditure, CSRD is not. Further, development costs and its interaction term with CSRS positively affect firm values.Originality/valueThis study provides an important reason to separate the attributes of the CSR in future empirical studies. The results imply that the study of effects of CSR on sustainable growth or firm values should focus on CSRS rather than CSR activities in general in future research.

Golmohammadi Shuraki, Mojtaba; Pourheidari, Omid; Azizkhani, Masoud

2021 Asian Review of Accounting

doi: 10.1108/ara-06-2020-0087

Type of audit opinion is important for all stakeholders. Firm-specific characteristics have a direct impact on the type of audit opinion. The purpose of this study is to examine the association between accounting comparability (as a micro level characteristic), financial reporting quality (as a macro level characteristic) and audit opinions.Design/methodology/approachThis study uses a multivariate regression analysis to tests it hypotheses to a sample of firms listed in Tehran Stock Exchange during 2015–2019. To measure accounting comparability, the authors use De Franco et al. (2011) model, and Hutton et al. (2009) model to measure financial reporting quality. The authors use type of audit opinion, and auditor's remarks (explanatory notes) as the measure for audit opinions.FindingsThe authors find a negative association between accounting comparability, and the proxies for audit opinion. The authors also find that a negative association between financial reporting quality and audit opinions. These results suggest that higher accounting comparability, and higher financial reporting quality (proxied by earnings quality) increases auditor tendency to issue unmodified audit opinion.Originality/valueTo the authors' best knowledge, this is the first study that empirically examines the association between accounting comparability, financial reporting quality and audit opinion. This study provides empirical support for the theoretical views on the association between financial reporting quality and audit opinion. The results could be of interest of both auditors and managers, especially in emerging capital markets, who seek to improve financial reporting quality.

Routledge, James

2021 Asian Review of Accounting

doi: 10.1108/ara-05-2020-0082

This study uses content analysis of disclosures under the Japanese Stewardship Code to examine how investee company audit fees are influenced by institutional investor governance.Design/methodology/approachScores are developed based on objective and verifiable Code disclosures made by the top-five institutional investors of Nikkei 225 index companies. The scores are related to management of conflicts of interest, monitoring actions and resource availability connected with stewardship.FindingsThe results show that higher scores on monitoring and resource availability are associated with lower audit fees. The extent of resources that institutional investors allocate to playing an effective stewardship role is found to be the primary determinant of their influence on audit fees. Overall, the findings are consistent with governance by institutional investors reducing audit risk and audit effort, which leads to lower audit fees.Originality/valueThe study offers new insights because there is no apparent prior research that uses Code disclosure content to measure institutional investor governance. This provides new information on the open question of the relation between audit fees and institutional investor governance.

Lau, Chee Kwong

2021 Asian Review of Accounting

doi: 10.1108/ara-07-2020-0109

This study examines (1) the extent of key audit matters (KAMs) reported by auditors is related to accounting estimates, (2) whether measurement uncertainty and management bias affect auditors to do so and (3) whether the use of accounting estimates, given the measurement uncertainty and management bias reported in KAMs adversely affects the decision usefulness of accounting information.Design/methodology/approachData on key audit matters, accounting estimates, measurement uncertainty, management bias, etc. were collected from the auditor's reports of 351 sample Chinese listed firms. It employs regression analyses to assess the hypotheses on issues affecting the report of these key audit matters and the impacts on the decision usefulness of accounting information.FindingsFair value and impairment loss estimations make up of 2.6 and 44.1% of the 606 KAMs identified, respectively. Measurement uncertainty is positively, while management bias is negatively, affecting auditors report KAMs related to accounting estimates. The use of accounting estimates in firms where their auditors reported the KAMs related to accounting estimates does not enhance the value and predictive relevance of reported earnings. The assurance works on, and reporting of, KAMs served as a “red flag” about the accounting estimates.Practical implicationsThe use of accounting estimates does not always lead to enhanced decision-useful accounting information. Auditors, in their stewardship role, shall ensure that the measurement uncertainty issue is appropriately identified, addressed and verified. In addition, they shall provide an effective check-and-balance to the accounting discretion managers have in providing decision-useful information from opportunistic reporting.Originality/valueThis study examines the proposition that while the use of estimates can enhance the decision usefulness of accounting information, it can also induce measurement uncertainty and management bias into financial reporting.