nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2007‒04‒09
seven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Diversities Between the Regulations of Turkish Accounting Standard Setters: A Brief History of Turkiye’s Twentieth Century Accounting Standardization Applications By Yayla, Hilmi Erdogan
  2. "The forbidden list" in Accounting Firms: A study into the foundations of CRM success By Amstelveen, Euydice; Dijk, Erik van; Dorsman, André; Kuijl, Hans
  3. Accounting Employees’ Behavioral Variables and Firm Performance: Evidence from Turkish Eastern Blacksea Region Companies By Yayla, Hilmi Erdogan; Kirkbir, Fazil; Cengiz, Ekrem
  4. Integrating credit and interest rate risk: A theoretical framework and an application to banks' balance sheets By Mathias Drehmann; Steffen Sorensen; Marco Stringa
  5. The impact of Basel I capital regulation on bank deposits and loans: Empirical evidence for Europe By Birgit Schmitz
  6. Piecewise Linear Accrual Models: do they really control for the asymmetric recognition of gains and losses? By José A. C. Moreira; Peter F. Pope
  7. Earnings Management to Avoid Losses: a cost of debt explanation By José A. C. Moreira; Peter F. Pope

  1. By: Yayla, Hilmi Erdogan
    Abstract: This study examines the evolution of Turkish accounting standards to ascertain the extent of differences in Turkiye’s accounting practices among the different governmental Standard setter’s regulations during the twentieth century. The research results show that the accounting standards had set by the public corporates own self as parallel to economic policies of Turkish Ministry of Finance and money policies of Central Bank of the Republic of Turkiye before the establishment of Turkish Accounting and Auditing Standards Board in 1994. On the other hand in the last two decades of twentieth century the specific standards had set by the Ministry of Finance for tax reporting companies and Capital Markets Board of Turkiye for financial reporting companies have the significant differences.
    Keywords: Standardization; Accounting in Turkiye.
    JEL: M41
    Date: 2006
  2. By: Amstelveen, Euydice; Dijk, Erik van; Dorsman, André; Kuijl, Hans (Nyenrode Business Universiteit)
    Abstract: Accounting firms have generally used a broad range of measures and internal procedures in an effort to prevent running into potential trouble. The nature of their controlling tasks suggests they might become privy to price sensitive information, which could lead to abuse or suspicion of abuse if the accounting firms (senior) partners are trading at the stock exchange. To avoid these problems accounting firms forbid partners to invest in all stocks. Such a policy has the disadvantage that it limits their partners. Alternative investment possiblities show low returns at this moment. An alternative for this severe policy is that partners are forbidden to invest in stocks of companies that have a relation with the accounting firm. These companies are placed on “a forbidden list”. KPMG, one of the “big four” accounting firms has provided us with their forbidden list. Our research shows that a strategy based on the “forbidden list” is possible, creates value for the partners and does not harm the policy of the accounting firms to prevent running into potential trouble caused by (mis)using price sensitive information.
    Keywords: Customer Relationship Management, Customer Centricity, CRM Components, CRM Success
    Date: 2007
  3. By: Yayla, Hilmi Erdogan; Kirkbir, Fazil; Cengiz, Ekrem
    Abstract: The purpose of this paper is to analyze interpersonal relationships of accounting employees affecting the effectiveness of firms’ performance. For this purpose, a structural equation model was adopted from Kang et al. (2004) and was tested. A questionnary was distributed to 187 companies’ accounting departments from Blacksea region of Turkiye which are choosen with arbitrary sampling method from the lists of related region’s Chambers of Commerce and Industry. We find that, although no significant relation between balanced power and confidence, there are significant relationships between conflict and confidence, shared values and confidence, conflict and collaboration, shared values and collaboration, balanced power and collaboration, communication and collaboration. Overall our findings indicate that confidence and collaboration among the accounting department employees have direct influence on the firm performance.
    Keywords: Accounting departments; departmental behaviors; firm performance.
    JEL: J20 M12 M41
    Date: 2007
  4. By: Mathias Drehmann (Systemic Risk Assessment Division, Bank of England); Steffen Sorensen (Systemic Risk Assessment Division, Bank of England); Marco Stringa (Systemic Risk Assessment Division, Bank of England)
    Abstract: Credit and interest rate risk in the banking book are the two most important risks faced by commercial banks. In this paper we derive a consistent and general framework to measure the riskiness of a bank which is subject to correlated interest rate and credit risk. The framework accounts for all sources of credit risk, interest rate risk and their combined impact As we model the whole balance sheet of a bank the framework not only enables us to assess the impact of credit and interest rate risk on the bank's economic value but also on its future earnings and capital adequacy. We apply our framework to a hypothetical bank in normal and stressed conditions. The simulation highlights that it is fundamental to measure the impact of correlated interest rate and credit risk jointly on the whole portfolio of banks, including assets, liabilities and off-balance sheet items
    Keywords: Integration of credit risk & interest rate risk, asset & liability management of banks, economic value, stress testing
    JEL: G21 E47 C13
    Date: 2007–02–02
  5. By: Birgit Schmitz (IIW Institute for International Economics University of Bonn)
    Abstract: The Basel Committee on Banking and Supervision established minimum capital requirements for banks in their 1988 Capital Accord. This capital regulation was adopted for European Union banks at the beginning of 1993. After the implementation, a widespread concern emerged about the possible negative impact that higher capital requirements could exert on the level of economic activity, especially on bank lending. This paper investigates the impact of the Basel Accord on bank deposits and loans for eight European countries. We follow the approach taken by Peek and Rosengren (1995a) and test for the regulatory effect in a panel structure with about 2500 individual bank balance sheets for the years 1993-1995. We find that changes in deposits are positively correlated with changes in capital. Lower-capitalized banks show a stronger response to a change in capital than their higher-capitalized competitors. This evidence is consistent with the hypothesis that the implementation of minimum capital requirements had a negative effect on the supply of bank loans
    Keywords: Bank capital regulation, Basel Accord of 1988, EU Banking
    JEL: G21 G28
    Date: 2007–02–02
  6. By: José A. C. Moreira (CETE, Faculdade de Economia, Universidade do Porto); Peter F. Pope (ICRA, Management School, Lancaster University)
    Abstract: The asymmetric recognition of gains and losses underlying conservative accounting is not taken into account by Jones (1991)-type accrual models. Recently, Moreira (2002) and Ball and Shivakumar (2005a) have proposed piecewise linear accrual models designed to control for this asymmetric impact. Our paper first discusses the sign of the expected measurement error in discretionary accruals (DAC) estimates when models do not control for the asymmetry underlying conservatism. We find that DAC in firms with bad news (BN) are expected to be understated, while those in good news (GN) firms will be overstated. Based on this original result we empirically test, using graphical and statistical tools, whether piecewise linear accrual models correct such a measurement error. The empirical evidence shows mixed results. For GN firms the estimates are corrected downwards, as expected; for BN firms, unexpectedly, part of the estimates is also corrected downwards. The reason for this unexpected result seems to lie in a non-linear relationship between accruals and the proxy for BN that the models are unable to control for. Thus, DAC estimates under piecewise linear models are not deemed to be of better quality than those of traditional accrual models.
    Keywords: accrual models; piecewise linear accrual models; conservatism; earnings management
    JEL: M41 C2
    Date: 2007–03
  7. By: José A. C. Moreira (CETE, Faculdade de Economia, Universidade do Porto); Peter F. Pope (ICRA, Management School, Lancaster University)
    Abstract: In this paper we analyze firms’ earnings management behavior to avoid losses conditional on the (asymmetric) incentive underlying market (positive/negative) returns. Our intuition is that firms with negative returns in the period (bad news, BN) face a higher incentive to undertake earnings management, and that their ultimate intention is to hide from credit markets a signal (loss) that could be translated into a negative impact on their cost of debt. The empirical evidence supports this intuition. BN firms show higher earnings management pervasiveness than their counterparts with good news (GN), and the set with simultaneous BN and prior period positive earnings undertake more pervasive earnings manipulation than BN firms in general. Within this restricted set of firms, and consistent with a cost of debt explanation, we find that firms with larger needs of debt show a higher incidence of earnings management to avoid losses. The overall empirical evidence challenges the implicit assumption in Burgstahler and Dichev (1997) that the incentive to manage earnings is homogeneous to all firms, and suggests that the discontinuities around zero in the earnings distributions are driven, at least partly, by firms’ earnings management behavior.
    Keywords: earnings management, earnings thresholds, earnings discontinuities, cost of debt
    JEL: M41 C21 L29
    Date: 2007–04

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