Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
Diversity in IFRS Reporting between Japanese
Subsidiaries and their Peer Companies in Australia
Sachiko Sugiyama1 and Jesmin Islam2
This study investigates whether adoption of International Financial
Reporting Standards (IFRS) in Australia was effective in reducing
financial reporting diversity for the code-law based Japanese
subsidiaries operating businesses in Australia. International accounting
literature documents the differences of accounting practices between
common-law and code-law countries and how the underlying
institutional settings influence on the quality of financial reporting. In fact,
the Committee of European Securities Regulator (CESR) reported in
2005 that the Japanese generally accepted accounting principles
(GAAP) were significantly different from IFRS. To examine the impact
of the country of origin, we compared the financial reporting diversity,
as proxied by the coefficient of variation (CV), between the firms with
the Japanese code-law legal traditions and the firms with the Australian
common-law legal traditions. We expected that the standard deviation
and CV measures would decrease under the IFRS harmonisation
approach. However, the results show that the CV measure for the
Japanese-owned subsidiaries and their matched Australian peer
companies did not decrease, rather increased in the post-adoption
period. While the other code-law and common-law legal origin groups
(excluding Japanese and Australian legal origins, respectively) present
a greater reduction in their financial reporting diversity. From these
results, we conclude that variability in financial reporting does not
always diminish by a mandatory enforcement of the internationally
acceptable accounting standards. IFRS adoption may have had an
adverse effect on standardisation in the Australian business
environment which has heterogeneous traditions, even under a
common-law based institutional setting. Furthermore, the financial
reporting practices among privately-owned and foreign-owned
subsidiaries are less likely to follow the characteristics of their commonlaw and code-law legal traditions, as described in prior literature.
Fields of Research: 150101, 150103 and 150104
1.
Introduction
In international accounting literature, institutional settings and financial reporting
quality are often distinguished between common-law countries originating from the law
of England and code-law countries which originated from Roman law (see, for
example, Ball et al., 2000; Leuz et al., 2003; Ding et al., 2007). Based on Legal Origin
Theory, Australia is categorised as one of common-law legal origin countries, which
generally have strong protection schemes for investors and private contracts (La Porta
et al., 2008). On 1 January 2005, Australia became one of the first countries to adopt
International Financial Reporting Standards (IFRS), along with the European Union
(EU) member countries. Unlike the majority in the EU countries where IFRS apply only
to public companies, reporting entities in Australia are required to use Australian
equivalents to IFRS (hereafter, called A-IFRS) under the Corporations Act 2001. As of
1
Sachiko Sugiyama, Faculty of Business, Government and Law, University of Canberra, ACT, Australia,
2601, Sachi.Sugiyama@canberra.edu.au, Tel (02) 6201 5439, Fax (02) 6201 5238; this paper belongs
to the accounting track.
2 Jesmin Islam, Faculty of Business, Government and Law, University of Canberra, ACT, Australia,
2601, Jesmin.Islam@canberra.edu.au, Tel (02) 6201 5439, Fax (02) 6201 5238; this paper belongs to
the accounting track.
Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
30 April 2015, the 116 countries have committed for all or most domestic listed
companies and financial institutions to apply IFRS in their capital markets (IFRS
Foundation, 20153). Despite the global trend towards harmonisation on IFRS, the U.S.
and Japan are yet to implement mandatory adoption of IFRS.
Japan is classified as one of code-law countries, which are regarded to have a strong
political influence on accounting regulations and practices. Although legal origins and
accounting environment between the common-law group (Australia) and code-law
group (Japan) are different, Japanese-related entities were expanding their
businesses in Australia throughout the long-term economic relationship since 1976
(Dee, 2006). According to the annual periodical of Toyo Keizai Data Bank Series
(2007), 403 Japanese-related entities operated businesses in a variety of industries in
Australia. We expect that not only Japanese subsidiaries but also foreign-owned
subsidiaries from diversified legal origin countries follow business traditions and
corporate philosophy of their ultimate parent entities to some extent. According to the
Australian Securities and Investment Commissions (ASIC), 1,873 small proprietary
companies that were controlled by foreign companies lodged their financial reports
with the ASIC for the 12 months to 30 June 2007 (ASIC 2008). Thus, financial reporting
is heterogeneous in the Australian business environment.
The purpose of this study is to examine whether the adoption of the British-origin of
IFRS was effective to minimise the financial reporting diversity between firms with
Japan or code-law origin traditions and firms with Australian and/or common-law legal
traditions. Jones and Finley (2011) argue that if the variability in financial reporting in
accordance with IFRS would decrease from that which follow the local generally
accepted accounting principles (GAAP), IFRS harmonisation can be regarded as
effective in standardising the reporting practices in the country. Based on Jones and
Finley’s (2011) approach, we measured the coefficient of variation (CV) in financial
reporting, as proxied by the variability of fifteen financial ratios. If the external
accounting regulations and institutional requirements are the same, then it is possible
to more accurately measure the internal factors, which include management incentives
associated with their legal traditions.
The results of this method reveal that financial reporting diversity for the Japanese
subsidiary companies in Australia and their Australian peer companies did not
decrease, rather increased. Nevertheless, other common-law and code-law sample
firms effectively reduced the variability in financial reporting after the adoption of AIFRS. Therefore, IFRS adoption is not always effective to standardise reporting
practices in the Australian heterogeneous business environment. Furthermore,
Japanese subsidiary companies showed a greater number of reductions in standard
deviations and CV measures than the firms with the Australian common-law legal
origin, and their results were unlikely to be similar to the characteristics of commonlaw and code-law legal origins.
The rest of the paper is presented as follows. Section 2 discusses Japan's accounting
environment, IFRS harmonisation and financial reporting diversity. Section 3 provides
the research methods, including sample selection and research design and is followed
by Section 4 presenting the findings and discussions of the CV analyses. Finally this
study concludes by stating the summary of findings and contributions of this research
in Section 5.
3
The IFRS Foundation supplies the detailed information in terms of the profile for the IFRS jurisdictions
at <http://www.ifrs.org/Use-around-the-world/Pages/Analysis-of-the-IFRS-jurisdictional-profiles.aspx>
Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
2.
Literature Review
2.1.
Japan's accounting environment
Some studies have used the term ‘unique’ to describe the Japanese business
environment (Cooke, 1993; Geringer et al., 2000; Rahman et al., 2010) caused by its
complicated business traditions and structures. The institutional settings in Japan are
historically influenced by the German code-law legal systems. In such code-law legal
societies, the main users of financial reporting are tax authorities, banks and creditors,
rather than external investors who are the dominant users in the Western countries
(Ball et al., 2000; Ball et al., 2003; Ding et al., 2007; La Porta et al., 2008). As such,
the motivations to disclose accounting information available to the public are unlikely
to be the same as those of companies in the English common-law legal systems.
Particularly, Mizuno (2004) stated that the Japanese accounting model deviated from
the internationally accepted accounting standards of IFRS and the U.S. GAAP.
According to the draft of the technical advice reported by the Committee of European
Securities Regulator4 (CESR) in 2005, Japanese GAAP were significantly different
from IFRS in relation to 26 issues5 (Financial Services Agency, 2005; CESR, 2005).
However, the harmonisation of IFRS in Japan has progressed. After the fiscal yearending as at 31 March 2010, the voluntary IFRS implementation was approved in
Japan. Although Japanese version of IFRS (called as "J-IFRS") for the consolidated
financial statements will be accepted from the March-ending in 2016, the timing of the
mandatory implementation of IFRS for publicly traded companies is still obscure.
2.2.
Australian IFRS adoption
In Policy Statement 4 International Convergence and Harmonisation Policy 6 , the
Australian government recognised a considerable divergence between national
standards and international standards in the world. According to this statement,
Australian term of 'international harmonisation' refers to "a process which leads to
these standards being made compatible with the standards of international standardsetting bodies to the extent that this would result in high quality standards"
(Background 2, Policy Statement 4, 2002, p. 6). Australian involvement on the
accounting standards harmonisation program was started from 1995 (Deegan, 2014).
Therefore, IFRS adoption was a long-awaited enforcement by the Australian
government which expect to lead a high quality financial reporting standard in Australia
and enhance standardisation of IFRS in the whole world.
The benefits which result from adopting apply a common set of accounting standards
are documented in the IFRS literature, such as an enhancement in international
comparability of financial statements and a reduction in accounting standards diversity
4
The CESR was formed under the European Commission on 6 June, 2001 and replaced by the
European Securities and Markets Authority (ESMA) on 1 January, 2011.
5 The areas that the CESR addressed as significantly different from IFRS were stock options (IFRS 2),
business combinations other than pooling of interest method (IFRS 3), catastrophic reserves of
insurance contracts (IFRS 4), construction contracts (IAS 11), disclosure of deferred tax assets (IAS
12), costs for assets retirement obligation (IAS 16), employee benefits (IAS 19), effects of changes in
foreign exchange rates (IAS 21), impairment of assets (IAS 36), and agriculture (IAS 41) (Financial
Services Agency, 2005).
6 This policy was based on the Exposure Draft ED 102 International Convergence and Harmonisation
policy issued in July 2001, which was merged Policy Statement 4 Australia - New Zealand
Harmonisation Policy in July 1994 and Policy Statement 6 International Harmonisation Policy issued in
April 1996 by the AASB and the Public Sector Accounting Standards Board. More information is
available at <http://www.aasb.gov.au/admin/file/content102/c3/ACCPS4_4-02.pdf>
Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
(e.g., Daske et al., 2008). These favourable outcomes are likely to be reported by the
data using publicly listed companies. Nevertheless, Australia has mandated for all
reporting entities to apply A-IFRS. In order to mitigate the unfairness of the size
problems for small- and medium-sized entities (SMEs), the International Accounting
Standards Board (IASB, the provider of IFRS) issued the IFRS for SMEs standards.
Nevertheless, Australia does not take the standards, but develops its own system of
the Reduced Disclosure Regime (RDR), which is applicable for fiscal year beginning
on or after 1 July 2009. Regardless of the economic benefits disseminated by IFRS
promoters, the studies that examined the outcomes such as benefits and effectiveness
of IFRS implementation for unlisted entities and SMEs are still limited.
2.3.
Financial reporting diversity
One of the studies on IFRS, Jones and Finley (2011) report the outcomes of IFRS
adoption by examining the change in variability in financial information from the preto post-adoption of IFRS. The authors described financial reporting diversity as "the
differences in corporate reporting practices which can arise between a country’s own
local GAAP and those reporting practices and requirements based on IFRS" (p. 27).
They state that a reduction in financial reporting diversity was a key driver for the
Australian regulators to introduce the common global accounting language of IFRS
into the Australian diversified business environment (p. 23). Jones and Finley (2011)
considered that if the variability in IFRS financial reporting would decrease from that
in accordance with the local GAAP, IFRS harmonisation program can be regarded as
effective to standardise the reporting practices in the country. They measured the
coefficient of variation (CV), as proxied by the variability in twenty-one financial ratios
using the accounting figures reported in the balance sheet, income statement and
cash flow statement. The authors compared the CV measures between the pre-IFRS
period (1994-2004) and post-IFRS period (2006) among 81,560 firm-year
observations in the EU countries and Australia. They found mixed results; however,
the overall results indicate that the mandatory introduction of IFRS had effectively
reduced variability in financial reporting at the intra-country or intra-industry level and
under different firm sizes. Their results was supportive of the IFRS standardisation
strategy in the world.
In relation to the financial reporting practices among Australian private and foreignowned companies with diversified origins of countries, this study examined an
effectiveness of the IFRS adoption in Australia by comparing the CV measures for the
financial ratios between the pre- and post-adoption periods.
3.
Methodology
In this section, the sampling method and research design to estimate the variability in
financial reporting are addressed.
3.1
Sample selection
The data for the Japanese subsidiary companies which operated businesses in
Australia (hereafter, called JSCs) were firstly drawn from Toyo Keizai Data Bank
Series (2007 year version). This annual periodical supplies the latest information about
Japanese subsidiaries which have been incorporated overseas. From this periodical,
Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
the number of Australian local subsidiaries7 was 403 entities. Next, these subsidiaries
were searched in the MintGlobal database. Among the 98 companies which were
listed on MintGlobal as having 'Japan' as the ‘Global Ultimate Ownership Country’ 8
between the years 2000 and 2010, 75 firms had relevant corporate and financial
information for conducting statistical tests. These 75 entities were selected as JSCs
which were considered to possess the Japanese legal origin traditions.
Based on these 75 firms, we secondly sought a matched Australian peer companies 9
(which will be referred to by the acronym ‘APCs’). Using the concepts of Legal Origin
Theory (La Porta et al., 2008), APCs were chosen either (1) their ultimate parent
entities which were specified incorporated in Australia in the 'Controlling Shareholders'
section on MintGlobal, or (2) Australian independent entities without any dominant
controlling shareholders. As a result, 58 matched sample APCs satisfied these
conditions, but the other 17 entities to match with the 75 JSCs could not be found. The
primary comparison of the reporting practices in this paper is the firms with Japanese
legal traditions and the Australian peer firms with the Australian common-law legal
traditions. To distinguish quality and effectiveness between the dichotomous
classifications of common-law and code-law countries on financial reporting, we also
collected data of the other groups called 'COMMON' and 'CODE' in this study, using
similar sample selection criteria as above. In relation to classifying an entity's legal
origin (La Porta et al., 1999; 2006; 2008), the foreign-owned peer subsidiaries whose
parent entities were headquartered in one of the common-law countries, excluding
Australia, were chosen as the common-law peer companies (COMMON), while the
foreign-owned peer subsidiaries whose parent entities were registered in one of the
code-law countries, excluding Japan, were classified as the code-law peer companies
(CODE).
Ideally the number of the matched sample companies should be collected as the same
75 firms as their relative JSCs. However, a limitation of this study is that the sample
companies are unlisted entities which do not trade their ordinary shares in public and
are not accountable to disclose their information. Corporate and financial information
for private companies are restricted in the major database. To overcome the problem
of data accessibility and data limitation and to generalise the results, this study
collected the samples of 75 companies for JSCs, 58 companies for APCs, 68
companies for COMMON and 64 companies for CODE, and these were 265 private
and/or foreign-owned subsidiaries in total. Using the datasets for these sample firms,
we examined whether such legal origins of ultimate parent companies influenced on
and transmitted to financial reporting practices in their Australian subsidiaries.
7
Toyo Keizai Data Bank Series defined a locally-incorporated subsidiary as one in which Japanese
enterprises directly or indirectly invested more than ten per cent of the portion of the entity's ownership.
8 In this study, a parent company or controlling shareholder is defined as an individual or entity with a
shareholding of at least 50.01% for the sample entities. This information was mainly retrieved from the
'Controlling Shareholders' section in MintGlobal or annual reports which generally specified the name
of their own immediate/ultimate entity. The ultimate parent entity includes both cases of an immediate
(direct) parent company and an ultimately controlling (grandparent) company. This study assumes that
the ultimate parent company’s philosophy, culture and traditions under the given legal origin have the
most influence on the business practices in the group as a whole.
9 The term 'peer' is used for a firm which had not listed their ordinary shares in the stock market, had
operated in a similar industry (based on one of the industry codes of US SIC, NAICS 2007 and ANZ
SIC) and was close in size to its relative JSC measured as the natural logarithm of the total assets at
around the IFRS transitional period.
Proceedings of 13th Asian Business Research Conference
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3.2
Research design
An analysis involving investigation of coefficient of variation (CV) was followed which
is a similar approach presented by Jones and Finley (2011). These researchers state
that this CV measure is appropriate to capture the variability in financial reporting and
widely used in various fields in the social science literature to calculate the variability
in the dataset. This method is particularly suitable for the studies that the population
is divergent because of "a simple scale neutral measure" (p. 27). The formula of the
coefficient of variation is as follows (Norušis, 2008, p. 91);
Coefficient of Variation =
𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 (𝜎)
|𝑚𝑒𝑎𝑛 (𝜇)|
x 100 ………………...…… (1)
Drawing on Jones and Finley's (2011) proposition, this study hypothesises if the
Australian IFRS regime was effective in harmonising financial reporting practices
among the Australian private and/or foreign-owned entities, the variability in the
financial ratios after the IFRS adoption would reduce under the same intra-country
institutional settings. Thus, the first hypothesis is as follows:
H1: An adoption of IFRS is associated with a decrease in financial reporting
diversity, compared to the pre-adoption period.
Another issue is related to the impacts arising from the country of legal origin on
reporting practices; managers in code-law countries are less likely to have the same
incentives for information disclosure in public as those in common-law countries.
Herrmann et al. (2003) argue that Japanese managers prefer to report earnings
figures which are close to the amounts of the management forecast and may
manipulate earnings figures in order to reduce management forecast errors. From
these arguments, this study predicts if Japanese companies tend to report stable or
predictable earnings figures every year, financial information are less likely to change;
financial reporting diversity for the Japanese subsidiary companies were unlikely to
decrease. If this prediction is true, then the patterns of the changes in their reporting
practices were dissimilar to their peer firms with the common-law legal origin traditions.
Thus, the second hypothesis is as follows;
H2: The changes in financial reporting diversity for Japanese subsidiary
group were less likely to reduce, compared to the firms with the commonlaw legal origins.
The definitions and formulae of financial ratios employed in this method are described
in Table 1.
Table 1. Definition or formulae of financial ratios used in this study
Financial Ratio
Definition/Formula
Panel A: Profitability Ratios
Return on Assets (ROA) Net income after tax divided by total assets
Return on Equity (ROE) Net income after tax divided by total equity
Net Assets Turnover
Operating revenue divided by non-current liabilities and
total equity
EBITTA
Earnings before interest and taxation divided by total
assets
EBITDA
Earnings before interest, taxation, depreciation and
amortisation divided by total assets
Profit Margin
Net income before tax divided by operating revenue
Proceedings of 13th Asian Business Research Conference
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Asset Turnover
Sales divided by total assets
Growth
Annual percentage change in sales revenue
Panel B: Liquidity Ratios
Current Ratio
Current assets divided by current liabilities
Interest Cover
Net income after tax divided by interest paid
Panel C: Capital Structure Ratios
SIZE
Natural logarithm of book value of total assets
Debt to Equity (DE ratio) Total liabilities divided by total equity
Debt to Asset (DA ratio) Total liabilities divided by total assets
Equity to Asset (EA ratio) Total equity divided by total assets
Shareholder Liquidity
Total equity divided by non-current liabilities
Sources: Jones and Finley (2011); MintGlobal; Birt et al. (2012)
4.
Findings and Discussions
This method compares the coefficient of variation for the fifteen financial ratios
between the pre-adoption period (2001-2005) and post-adoption period (2006-2010)
among the four legal origin groups. Firstly the observations of these four groups were
separately combined in the pre-adoption period and in the post-adoption period, and
then the descriptive statistics and the changes in the CV measures from the pre-IFRS
and post-IFRS periods are discussed. These results provide the first insight whether
the variability in the financial reporting under the previous Australian GAAP decreased
under Australian IFRS. Next, the results of the individual legal origin groups are
reviewed. In the analyses, we assessed the Leven's test for the equality of variances
and the mean differences between the two different periods, using the independent
samples t-test and the Mann Whitney U test. The reason is that the CV measure is
sensitive for the change in the mean value, the denominator of the CV formula. If the
mean value increases and other things being equal, the CV measure would decrease.
Thus, we take into account which factor either the change in standard deviation or that
in mean value is more likely to impact on a decline in the CV measure10. This analysis
helps to understand the financial reporting behaviours and book-values reported under
the two separate periods in each group.
4.1.
The results for the pooling observations
To observe the IFRS impacts on the Australian private companies, Table 2 presents
the comparative figures of the standard deviation, mean, coefficient of variation (CV),
the percentage change in the CV measures, the significance of the mean changes for
the aggregated datasets of the four groups between the pre- and post-adoption
periods. Overall, the standard deviation and mean values tended to decrease from the
pre-IFRS to post-IFRS periods. As can be seen in the column of the percentage
change in CV measure, the number of financial ratios decreasing the CV measures in
the post-IFRS (8 ratios) slightly exceeds that of an increase in the CV measures
(7ratios). A reduction in the CV measure is regarded as a decrease in variability in
financial statements, indicating that IFRS adoption may be effective to harmonise
financial reporting in Australia.
Profitability ratios in Panel A shows that half of the CV measures decreased; a
reduction in standard deviation for 5 out of 8 ratios are a good sign for the
harmonisation approach, but a decline in mean values in 5 profitability ratios might not
10
All tables include the results for the mean differences by the Mann Whitney U test (non-parametric
test).
Proceedings of 13th Asian Business Research Conference
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be a favourable outcome for business operations. The rate of EBITDA to total assets
shows a substantial CV increase by 52%, since its mean value significantly increased
(p = 0.03) and its standard deviation also jumped by 65%. However, due to a lack of
information of depreciation expense, the number of observation in the post-IFRS
period of 279 is greatly smaller than that in the pre-IFRS period of 774; thus, this result
should be interpreted cautiously. The growth ratio expresses as the change in the
sales revenues between the two consecutive financial years, and the result shows a
substantial decrease in its standard deviation (from 0.28 to 0.19) and mean (from
0.086 to 0.054) to the post-IFRS period. The rates of return on equity, net assets
turnover, EBITA to asset, asset turnover and growth ratio reduced their mean values.
These results of a reduction in the average profitability ratios may indicate a decline in
the revenue from ordinary business activities and the accounting income for these
companies. In relation to the liquidity ratios in Panel B, the CV measures for the current
ratio increased by 13%, because of an increase in the standard deviation and mean
value. In contrast, the interest coverage ratio changed in the opposite direction to the
current ratio, resulting in a decline in the CV measure by 11%.
Table 2. The changes in the coefficient of variability for the pooled observations from
the pre-IFRS to the post-IFRS period
Pooled
MNU
Chang
Key Financial
No.
St. Dev. Mean
CV
e CV
z
p
Ratios
(%)
Panel A: Profitability Ratios
149.7
Pre
930
0.081 0.054
-6.88 -0.78
Return on
2
asset
Pos
139.4
980
0.077 0.055
t
2
250.0
Pre
929
0.424 0.169
-8.30 -0.89
Return on
7
equity
Pos
229.3
979
0.357 0.156
t
2
155.4
Pre
913
11.962 7.697
-9.68 -2.50 **
Net assets
3
turnover
Pos
140.3
951
9.201 6.555
t
8
116.1
Pre
889
0.097 0.083
3.97 -0.01
6
EBITTA
Pos
120.7
937
0.099 0.082
t
7
159.6
Pre
774
0.239 0.150
51.98 -2.10 **
0
EBITDA
Pos
242.5
279
0.395 0.163
t
6
168.2
Pre
932
0.081 0.048
-7.49 -1.78 *
1
Profit margin
Pos
155.6
963
0.087 0.056
t
1
Pre
927
1.415 2.181 64.87
2.96 -2.87 ***
Asset turnover Pos
987
1.371 2.053 66.79
t
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Pre
681
0.086
0.193
0.054
0.998
1.619
61.64
1.167
1.674
69.73
Growth
Pos
1002
t
Panel B: Liquidity Ratios
Pre
918
Current ratio
Pos
950
t
Pre
872
489.039 96.779
Interest cover
Pos
877
388.246 86.594
t
Panel C: Capital Structure Ratios
Pre
932
1.176 11.784
SIZE
Pos
987
1.239 12.107
t
Pre
Debt to equity
Debt to asset
Equity to asset
Shareholder
liquidity
Pos
t
Pre
Pos
t
Pre
Pos
t
321.7
4
358.5
9
0.277
505.3
1
448.3
5
9.98
5.845
2.681
986
4.057
2.511
931
0.238
0.652
217.9
6
161.5
6
36.49
983
0.225
0.613
36.71
929
0.236
0.347
68.08
984
0.223
0.384
58.10
902
93.587 38.617
Pos
t
942
132.781 56.728
-1.94 *
13.13
-0.56
-11.27
-9.04
2.51
-5.92 ***
10.23
931
Pre
11.45
242.3
5
234.0
7
-25.87
-1.59
0.60
-3.29 ***
-14.66
-3.11 ***
-3.42
-4.06 ***
Sources: Jones and Finley (2011); MintGlobal; Birt et al. (2012); compiled from data gathered in the
research.
Note: '*', '**', and '***' denotes the significance levels at 10%, 5% and 1% significance levels,
respectively. 'No.' denotes the number of observations. 'CV' denotes the coefficient of variation of the
ratio. 'St. Dev.' denotes the standard deviation. 'Change CV (%)' denotes the percentage change in the
CV measure from the pre- to post-IFRS periods. 'MWU' denotes the Mann Whitney U test. 'z' denotes
the z-value of the result of Mann Whitney U test. 'EBITTA' is the rate for earnings before interest and
taxation to total assets. 'EBITDA' is the rate for earnings before interest and taxation to total assets.
'SIZE' is calculated by natural logarithm of book value of total assets.
The results for the capital structure ratios are displayed in Panel C. Both the t-test and
Mann-Whitney U test reveal that except for the rate of debt to equity, the mean values
for these capital structure ratios were significantly different between the AGAAP and
A-IFRS regimes at the 1% significance levels. SIZE, which is computed by natural
logarithm of total assets, shows that the average total assets for the Australian private
companies significantly increased in the post-IFRS period. The increase in the mean
asset value is associated with a development in its standard deviation. As a result, the
variability in SIZE slightly increased by 2.5%. Two CV measures for the equity-related
ratios decreased, even though the standard deviation for the shareholder liquidity ratio
substantially increased from 93.6 to 132.8. The mean values for the equity-related
ratios in Panel C significantly increased, while those for the debt-related ratios
decreased. These statistical results indicate that relative to the total asset amount, the
ratio of debt decreased but that of equity increased after the adoption of A-IFRS. A
significant enlargement of the average values in assets and equity was associated
Proceedings of 13th Asian Business Research Conference
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with a reduction in the average level of book debts. This may imply that these sampled
firms increased their sources of finance from shareholders, rather than creditors.
Overall, the results of the pooling observations show that a decline in the majority of
the CV measures was caused by a decrease in the majority of the standard deviations
and mean values. Moreover, the Australian private firms were likely to strengthen the
values for their corporate asset and shareholders' fund but lessen their levels of
profitability and corporate debts during the post-IFRS period. In the next section, the
changes in the financial ratios for the individual groups are discussed.
4.2.
Individual group results
Table 3, 4 and 5 present the results of the change in the CV measures of 15 financial
ratios for JSCs, APCs and COMMON and CODE. According to these tables, the group
showing the greatest number of reductions in the CV measure is the code-law group
(13 financial ratios), followed by the common-law group (10ratios) and JSCs (8 ratios).
In contrast, the majority of the CV measures for APCs (10 ratios) further increased the
variability within the group in the post-adoption period. A decline in the majority of the
CV measures for the code-law and common-law groups suggests that the financial
reporting diversity effectively diminished and their reporting practices in accordance
with A-IFRS moved toward homogeneity. JSCs, COMMON and CODE groups
reduced their standard deviations of 7, 9 and 13 ratios reduced, respectively. On the
other hand, a growth in 10 standard deviations for the APC group was associated with
an increase in the CV measures. This result can be interpreted that the introduction of
the international standards in Australia had an adverse effect on APCs to standardise
their reporting practices under A-IFRS.
As shown in Panel A in Table 3 to 5, the profitability ratios exhibit a substantial
reduction in variability for the common-law and code-law groups and an increase in
variability for JSC and APC groups. If the mean value, the denominator of the CV
formula, increases and other things being equal, the CV measure is likely to decrease.
The most of the profitability ratios for JSCs reduced the average values, resulting in
an increase in the CV measures for five ratios. The majority of the mean values
increased for APC and COMMON, but the mean increase for APCs did not
Table 3. The CV measures for the Japanese subsidiary group
JSCs
MNU
Key Financial
Change
No. St. Dev. Mean
CV
z
p
Ratios
CV (%)
Panel A: Profitability Ratios
Pre
249
0.070
0.061
115.27
32.23
-0.23
Return on asset
Post
306
0.084
0.055
152.42
Pre
249
0.276
0.155
177.30
458.76
-1.70
Return on equity
Post
306
0.504
0.051
990.70
Pre
247
6.032
6.482
93.06
-2.38
-2.19 **
Net assets turnover
Post
297
4.818
5.303
90.84
Pre
241
0.096
0.089
107.86
35.88
-1.97 **
EBITTA
Post
296
0.104
0.071
146.56
Pre
225
0.094
0.117
80.90
51.42
-3.35 ***
EBITDA
Post
101
0.094
0.076
122.50
Pre
249
0.091
0.061
149.49
8.62
-0.71
Profit margin
Post
301
0.100
0.062
162.37
Proceedings of 13th Asian Business Research Conference
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Pre
250
1.236
2.178
Post
307
1.102
1.979
Pre
175
0.194
0.030
Growth
Post
300
0.189
0.051
Panel B: Liquidity Ratios
Pre
247
1.452
1.870
Current ratio
Post
298
1.393
1.943
Pre
228 968.223 211.008
Interest cover
Post
271 655.626 156.536
Panel C: Capital Structure Ratios
Pre
250
1.089 11.791
SIZE
Post 307
1.149 12.165
Pre
250
2.967
2.355
Debt to equity
Post 306
3.382
2.019
Pre
250
0.228
0.588
Debt to asset
Post 306
0.229
0.547
Pre
250
0.229
0.410
Equity to asset
Post 306
0.227
0.451
Pre
243 224.364 98.734
Shareholder
liquidity
Post 293 244.609 119.346
Asset turnover
56.74
55.70
652.02
373.97
-1.83
-2.27 **
-42.64
-0.42
77.61
71.72
458.86
418.83
-7.59
-0.71
-8.72
-0.40
9.23
9.44
125.97
167.49
38.74
41.88
55.90
50.46
227.24
204.96
2.28
-4.10 ***
32.96
-2.06 **
8.11
-2.09 **
-9.73
-2.11 **
-9.81
-1.92 *
Sources: Jones and Finley (2011); MintGlobal; Birt et al. (2012); compiled from data gathered in the
research.
Note: '*', '**', and '***' denotes the significance levels at 10%, 5% and 1% significance levels,
respectively. 'No.' denotes the number of observations. 'CV' denotes the coefficient of variation of the
ratio. 'St. Dev.' denotes the standard deviation. 'Change CV (%)' denotes the percentage change in the
CV measure from the pre- to post-IFRS periods. 'MWU' denotes the Mann Whitney U test. 'z' denotes
the z-value of the result of Mann Whitney U test. 'EBITTA' is the rate for earnings before interest and
taxation to total assets. 'EBITDA' is the rate for earnings before interest and taxation to total assets.
'SIZE' is calculated by natural logarithm of book value of total assets.
Table 4. The changes in the CV for the Australian peer company group
APCs
MNU
Change
Key Financial Ratios
N St. Dev. Mean
CV
z
p
CV (%)
Panel A: Profitability Ratios
Pre 196
0.068
0.044 155.48
-6.15
-0.88
Return on asset
Post 205
0.068
0.047 145.92
Pre 195
0.305
0.117 259.60
-7.81
-2.01 **
Return on equity
Post 204
0.581
0.243 239.33
Pre 189 18.388 14.109 130.32
0.12
-0.57
Net assets turnover
Post 196 17.597 13.487 130.48
Pre 175
0.095
0.079 120.87
2.36
-0.90
EBITTA
Post 182
0.106
0.085 123.72
Pre 166
0.107
0.110
97.81
39.75
-0.60
EBITDA
Post
55
0.145
0.106 136.69
Pre 195
0.062
0.029 209.85
47.96
-0.78
Profit margin
Post 195
0.101
0.033 310.50
Pre 196
2.376
3.361
70.68
12.12
-1.02
Asset turnover
Post 210
2.637
3.327
79.25
Growth
Pre 144
0.623
0.121 516.31
-10.84
-0.96
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Post 233
Panel B: Liquidity Ratios
Pre 195
Current ratio
Post 195
Pre 189
Interest cover
Post 186
Panel C: Capital Structure Ratios
Pre 196
SIZE
Post 210
Pre 195
Debt to equity
Post 209
Pre 196
Debt to asset
Post 209
Pre 195
Equity to asset
Post 209
Pre 191
Shareholder liquidity
Post 196
0.196
0.043
460.32
2.376
10.050
9.873
17.136
3.361
2.655
4.430
5.537
70.68
378.54
222.88
309.50
435.55
-0.60
38.87
-0.23
0.902
0.954
6.651
7.929
0.201
0.205
0.201
0.197
22.704
21.810
10.964
11.187
4.372
4.391
0.689
0.677
0.312
0.314
10.286
10.951
8.23
8.53
152.12
180.57
29.17
30.30
64.34
62.55
220.72
199.16
3.64
-2.57 ***
18.71
-0.30
3.87
-0.49
-2.78
-0.16
-9.77
-1.34
Sources: Jones and Finley (2011); MintGlobal; Birt et al. (2012); compiled from data gathered in the
research.
Note: '*', '**', and '***' denotes the significance levels at 10%, 5% and 1% significance levels,
respectively. 'No.' denotes the number of observations. 'CV' denotes the coefficient of variation of the
ratio. 'St. Dev.' denotes the standard deviation. 'Change CV (%)' denotes the percentage change in the
CV measure from the pre- to post-IFRS periods. 'MWU' denotes the Mann Whitney U test. 'z' denotes
the z-value of the result of Mann Whitney U test. 'EBITTA' is the rate for earnings before interest and
taxation to total assets. 'EBITDA' is the rate for earnings before interest and taxation to total assets.
'SIZE' is calculated by natural logarithm of book value of total assets.
Table 5. The changes in the CV for the common-law and the code-law groups
COMMON
CODE
Key Financial
Change
Change
N
CV
p
N
CV
p
Ratios
CV (%)
CV (%)
Panel A: Profitability Ratios
Pre
253
177.89 -16.37
234
163.64
-24.97
Return on asset
Post 239
148.78
232
122.78
Pre
253
465.38 -28.45
234
262.28
-52.09
Return on equity
Post 238
332.96
233
125.65
Pre
251
460.50 -59.30
229
169.97
-35.00
Net assets
turnover
Post 233
187.42
225
110.48
Pre
246
137.86
-5.37
231
113.59
-16.73
EBITTA
Post 231
130.45
230
94.59
Pre
183
213.09
6.19
202
90.44
-5.99
EBITDA
Post
55
226.28
67
85.02
Pre
252
140.31
3.47
234
177.00
-32.34 **
Profit margin
Post 237
145.18
232
119.75
Pre
249
53.22 -11.62
234
54.00
0.65
Asset turnover
Post 239
47.04
233
54.36
Pre
189
302.72
11.13
176
293.84
13.77 *
Growth
Post 238
336.40
235
334.30
Panel B: Liquidity Ratios
Current ratio
Pre
251
60.61 -20.18
229
47.77
-2.35
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Post 233
48.38
Pre
234
371.30
Interest cover
Post 203
382.38
Panel C: Capital Structure Ratios
Pre
253
10.04
SIZE
Post 239
10.39
Pre
254
625.58
Debt to equity
Post 238
270.09
Pre
253
49.88
Debt to asset
Post 237
38.97
Pre
253
102.68
Equity to asset
Post 238
63.60
Pre
249
155.01
Shareholder
liquidity
Post 234
166.34
2.98
3.47 ***
-56.83
-21.87
-38.05
7.31 **
224
223
219
46.64
530.08
323.64
235
233
234
234
234
233
234
233
223
219
9.59
9.35
499.93
119.12
36.40
38.34
79.32
67.96
237.04
230.41
-38.95
-2.47 ***
-76.17
5.33 **
-14.31 *
-2.79 **
Sources: Jones and Finley (2011); MintGlobal; Birt et al. (2012); compiled from data gathered in the
research.
Note: '*', '**', and '***' denotes the significance levels at 10%, 5% and 1% significance levels,
respectively. 'No.' denotes the number of observations. 'CV' denotes the coefficient of variation of the
ratio. 'St. Dev.' denotes the standard deviation. 'Change CV (%)' denotes the percentage change in the
CV measure from the pre- to post-IFRS periods. 'MWU' denotes the Mann Whitney U test. 'z' denotes
the z-value of the result of Mann Whitney U test. 'EBITTA' is the rate for earnings before interest and
taxation to total assets. 'EBITDA' is the rate for earnings before interest and taxation to total assets.
'SIZE' is calculated by natural logarithm of book value of total assets.
assist to offset the impact of an increase in their standard deviation, resulting in an
increase in 5 out of 8 CV measures. The mean values for CODE did not always
increase (for example, the mean of the return on equity decreased from 0.25 to 0.16),
but a greater decrease in their scores of standard deviation (from 0.67 to 0.21 for the
return on equity) led the CV measures to substantially reduce (by 52.1% for the return
on equity). As discussed in the previous section, the declines in the levels of
profitability ratios were likely to be caused by a decline in the sales revenue. Except
for JSCs, the other three groups substantially reduced the level of the average sales
revenue. Even though the standard deviation in the sales growth ratio decreased for
all groups, the CV measures for COMMON and CODE groups increased, since
significant reductions in the average revenue amounts (p < 0.05 measured by t-test)
were greater than the decline in the standard deviation.
Furthermore, the mean of the return on equity ratio for JSCs significantly reduced its
value from 0.16 to 0.05 and its standard deviation grew from 0.28 to 0.50, resulting in
a substantial increase in the CV measure by 458.76%. An outstanding increase in this
CV measure for the return on equity was linked with the capital structure for JSCs. The
formula of return on equity ratio is net income divided by total equity. The CV of the
return on asset ratio (the numerator is the same of the net income for the year as the
return on equity) for JSCs increased by 32%, about one-tenth of an increase in the
percentage change in the CV measure for the return on equity. Therefore, it is
assumed that this drastic escalation in the variability in the return on equity for JSCs
was caused by a significant increase in the standard deviation and/or a decrease in
the mean value within the 'equity' component.
Mixed results can been seen in Panel B for the liquidity ratios. The standard deviations
and the CV measures for JSCs and the code-law group became smaller, while those
for APCs showed the opposite behaviour of an increase in these figures. In the capital
structure ratios in Panel C, the rate of equity to asset is the only one ratio in which all
Proceedings of 13th Asian Business Research Conference
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groups decreased their CV measures. This is due to an increase in the mean values
and a reduction in the standard deviations for all groups and indicates a possibility of
an improvement in size for their 'equity' components, relative to the asset and liability
components.
On average, the results of the SIZE variable show that the book value of total assets
significantly increased in the post-IFRS period at the 1% significance level, along with
a rise in the standard deviations except for the code-law group showing a reduction in
its standard deviation. Total corporate assets for all groups became greater in the postIFRS period. According to the capital structure ratios in Panel C, the average equity
values relative to assets increased, but the average corporate debts relative to assets
decreased for all groups, specifically for JSC and CODE groups which show significant
mean reductions at the 5% significance levels. The debt to equity ratio decreased its
average value for the code-law groups (JSCs and CODE) but increased for the
common-law groups (APCs and COMMON). COMMON and CODE, however, reduced
its standard deviation, resulting in substantial CV decreased by 57% and 76%,
respectively. From these movements, the code-law groups indicate that an expansion
of their corporate assets was derived from an active equity issuance. While the level
of their debt issuance diminished in the post-IFRS period. Some inconsistencies
appeared in the results for the common-law groups, but these groups were assumed
to rely more on equity issuance to reinforce their internal resources (fixed assets) in
post-IFRS.
Taking into account, the results using the data for the full study period suggest that
only JSCs displayed a strong sales growth, but the other groups’ growth ratios of sales
revenue decreased after the adoption of A-IFRS. Furthermore, the results may imply
that the ultimate parent companies actively invested more funds in the fixed assets or
projects for their subsidiaries, because of the findings of an increase in assets and
equity. If this inference is true, the influence of all groups’ shareholders on the
Australian subsidiaries might became stronger in post-IFRS period.
4.3.
Additional analysis
This section presents the results of the data excluding the 2005 financial statements,
for an improvement of the findings in the above analyses. This approach is based on
Jones and Finley's (2011) study which removed the 2005 financial year-ending data
from their analyses in order to avoid a risk of the noise effect. The adoption date of
IFRS for Australia and the EU major countries was as at the beginning in 2005, and
their sample companies had diversified balance sheet dates. The fiscal year-ending in
Australia is generally applied at the end of June, but the EU is the December-ending
and Japan is the March-ending. Therefore, the data in the financial year-ending 2005
might be produced under the mixed accounting standards with A-IFRS and AGAAP.
As Jones and Finley stated, excluding the 2005 data is a huge loss of data, but the
noise effect may distort the distribution of the financial ratios and the results. For this
reason, this study conducted the additional test and compared the results between
using the original data and the excluding 2005 data. Only the results for the pooled
observations were tabulated in Table 6.
The results of the data without financial year 2005 generally show a development in
standard deviation, because of the loss of observations. The mean values changed in
various ways, but the overall results were an enlargement in the percentage changes
in the CV measures. For example, the CV measure of the rate of return on equity was
originally recorded as -6.88%, while the result without data in financial year-ending
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2005 exhibits as -18.66%, because of an increase in the standard deviation and mean
value. These changes may signify that the data in financial year 2005 had a strong
factor to make the data stable and boost the values positively or negatively, so the
2005 year information might impact on the original datasets.
With respect to the individual group results, the average sales growth for JSCs (0.03)
and CODE (0.13) under the original data (which includes the year 2005’s accounting
figures) substantially decreased to 0.01 for JSCs and 0.12 for CODE using the new
data (which excludes figures for the year 2005). For APC and COMMON groups, the
average growth rates of sales revenue increased in the new data. Thus, we infer that
the code-law groups might have faced an escalation in sales revenue in 2005.
Moreover, only JSCs increased the mean sales growth from the pre-IFRS to postIFRS periods, but the other three groups decreased the growth after the A-IFRS
adoption (using both original and excluding 2005 year-ending data). One possible
scenario can be inferred that JSCs' accounting policy of 'revenue recognition' might
have changed. For example, through the preparation of the A-IFRS implementation,
Table 6. The pooled observations using the data excluding financial year 2005
Pooled
MNU
Key Financial
Change
N
St. Dev.
Mean
CV
z
p
Ratios
CV (%)
Panel A: Profitability Ratios
Pre
674
0.081
0.051 157.76
-11.63 -1.24
Return on asset
Post 980
0.077
0.055 139.42
674
0.515
0.183 281.94
-18.66 -0.44
Return
on Pre
equity
Post 979
0.357
0.156 229.32
662
12.359
7.600 162.63
-13.68 -2.49 **
Net
assets Pre
turnover
Post 951
9.201
6.555 140.38
Pre
646
0.096
0.081 118.75
1.70 -0.34
EBITTA
Post 937
0.099
0.082 120.77
Pre
614
0.240
0.149 160.69
50.95 -1.94 *
EBITDA
Post 279
0.395
0.163 242.56
Pre
674
0.077
0.048 161.33
-3.54 -2.04 **
Profit margin
Post 963
0.087
0.056 155.61
Pre
673
1.430
2.206
64.81
3.06 -3.04 ***
Asset turnover
Post 987
1.371
2.053
66.79
Pre
423
0.344
0.093 370.58
3.43 -1.48
Growth
Post 752
0.201
0.052 383.27
Panel B: Liquidity Ratios
Pre
666
0.959
1.613
59.43
17.34 -0.57
Current ratio
Post 950
1.167
1.674
69.73
Pre
633
358.089 72.084 496.77
-9.75 -1.32
Interest cover
Post 877
388.246 86.594 448.35
Panel C: Capital Structure Ratios
Pre
678
1.183 11.750
10.07
1.47 -5.63 ***
SIZE
Post 986
1.237 12.109
10.22
Pre
678
6.801
2.553 266.40
-40.16 -6.65 ***
Debt to equity
Post 985
4.028
2.527 159.40
Proceedings of 13th Asian Business Research Conference
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Debt to asset
Equity to asset
Shareholder
liquidity
Pre
Post
Pre
Post
Pre
Post
676
983
677
984
655
942
0.245
0.657
37.33
0.225
0.613
36.71
0.245
0.342
71.53
0.223
0.384
58.10
96.501 39.364 245.15
132.781 56.728 234.07
-1.65
-3.39 ***
-18.77
-3.14 ***
-4.52
-3.88 ***
Sources: Jones and Finley (2011); MintGlobal; Birt et al. (2012); compiled from data gathered in the
research. Note: '*', '**', and '***' denotes the significance levels at 10%, 5% and 1% significance levels,
respectively. 'No.' denotes the number of observations. 'CV' denotes the coefficient of variation of the
ratio. 'St. Dev.' denotes the standard deviation. 'Change CV (%)' denotes the percentage change in the
CV measure from the pre- to post-IFRS periods. 'MWU' denotes the Mann Whitney U test. 'z' denotes
the z-value of the result of Mann Whitney U test. 'EBITTA' is the rate for earnings before interest and
taxation to total assets. 'EBITDA' is the rate for earnings before interest and taxation to total assets.
'SIZE' is calculated by natural logarithm of book value of total assets.
JSCs recognised more accounting items as revenue and disclosed more information
to comply with A-IFRS.
5.
Summary and Conclusions
Admittedly, IFRS adoption leads to an improvement of accounting quality, international
comparability and transparency (IASB 2008, p. 3). The IASB’s harmonisation program
was aimed to promote harmonisation of originally diversified national accounting
regimes with a single set of global accounting standards across countries. The
Australian Accounting Standards Board (AASB) has been closely working with the
other standard-setting bodies of Canada, France, Germany, Japan, New Zealand,
United Kingdom and United States for promoting global use of IFRS (AASB, 2002).
Under the Australian institutional setting, this study examined the effectiveness of the
IFRS adoption in Australia and compared the change in financial reporting diversity
among the Australia-origin private companies and the foreign-owned subsidiary
groups of (1) Japanese subsidiaries, (2) the firms owned by the parent companies
headquartered in the common-law countries, and (3) the firms held by the parent
companies incorporated in the code-law countries. This study aimed to investigate
whether the variability in financial ratios under the domestic accounting standards
reduced by the adoption of IFRS. The variability in financial reporting is measured by
the coefficient of variation (CV) for the financial ratios, and we compared the CV
measure between the pre-IFRS (2001-2005) and post-IFRS (2006-2010) periods.
Fifteen financial ratios which were derived from the income statement and balance
sheet were used in the analyses. Despite the proactive convergence approach of IFRS
conducted by the Australian statutory bodies (such as the Financial Reporting Council
which has responsibility over the AASB), the results in this paper cannot find evidence
that the financial reporting of the Japanese subsidiary companies and their peer
companies in Australia were harmonised after the A-IFRS implementation. Results
show the empirical changes in the accounting figures at around the transitional periods
to A-IFRS and provide an overview of the financial reporting behaviour of the sample
companies.
Overall, the A-IFRS adoption impacted differently on the CV measures and changes
in standard deviation and mean values. The group which exhibits the largest number
of reductions in the CV measures was the code-law group, followed by the commonlaw group. Thus, the code-law group might be regarded as the most successful group
to achieve the IASB/AASB's objective of standardisation in their financial reporting.
Variability in the financial ratios for JSCs and APCs rarely declined, rather increased
from the period of the AASB regime. An increase in the financial reporting diversity
within a group is in contradiction with the first hypothesis that the variability in the
Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
financial reporting decreased after the A-IFRS implementation. Furthermore, the
change in the financial reporting behaviour for JSCs was not similar to the code-law
group, as well as the APC and the common-law groups. Likewise, the results of the
APC group were unlikely to find the commonalities to the common-law group, since
the group which presents the least number of a decline in the CV measure was the
APC group. Accordingly, the second hypothesis that the financial reporting diversity
for JSCs was less likely to decrease, compared to the common-law groups (APCs and
COMMON) was partially accepted but partially rejected.
The results for the code-law group and common-law group present some evidence
that the Australian IFRS adoption is effective in promoting the harmonisation of the
financial reporting practices, due to a minimisation of the coefficient of variation and
the financial reporting diversity within the company groups after the A-IFRS
implementation. In contrast, the changes in accounting values in post-IFRS for JSCs
and APCs were not similar to the results of their countries of legal origin of the codelaw and common-law groups, respectively. Additionally, each legal origin group in this
study did not follow the typical characteristics described in prior literature. For example,
firms in the code-law countries were described as conservative and were less timely
in providing financial information because of the close relationship with strong
stakeholders (Ball et al., 2000), but the results from the current study show that the
code-law groups’ reporting behaviour immediately and substantially changed by the
new regulatory enforcement. This fact might indicate that the dichotomous
classification between common-law and code-law countries is less likely to exist in
private and/or foreign-owned companies under the common-law institutional settings.
This argument is consistent with the Jones and Finley's (2011, p. 33) statement that
compared to larger firms with a greater accessibility of resources and more
commitment on IFRS implementation, the financial information for smaller firms are
more likely to be diversified.
The strict IFRS regulations might have had a negative impact on the accounting values
for JSCs and APCs (for example, the accounting policy changes that IFRS require a
wide range of recognition such as financial instruments and intangible assets). Another
reason could be caused by just the fluctuations in operating activities in the business
cycle or the subprime shocks during 2008-2009. However, the results indicate that
each group has its own unique features in business practices. It might be related to
opportunistic management behaviour. This issue is outside the scope of this study, but
this theme would be helpful to understand the reality of the financial reporting practices
for these groups.
This study contributes to current research on IFRS by bringing to light the financial
reporting practices of private firms and foreign-owned subsidiaries held by
multinational corporations. The relationships between foreign-owned entities and the
local government, institutions and professions are critically important, as a significant
number of international transactions are carried out on a daily basis through
international businesses and foreign-direct investments. Even though the number of
the sample companies in this study is smaller than the major financial accounting
studies, the literature to study these sample firms is still lacking, so the findings in this
study would be beneficial for harmonisation policies of the IFRS financial reporting
practices. Last, but not least, Japan-related IFRS findings could become valuable data
for regulators, listed companies and academics in Japan and also in other countries
for better preparation of the mandatory implementation of IFRS sometimes in the
future.
Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
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