Accounting Quality in Private Firms during the Transition towards International Standards
41 Pages Posted: 31 Aug 2017
Date Written: August 10, 2017
We study the historical development of Slovenian Accounting Standards (SAS) and their association with accounting quality (AQ). We focus on private firms where the financial reporting process is characterised by low demand for high-quality reporting. We investigate three distinct editions of SAS since 1994 and test how is their development towards international standards related accounting quality. Aggregate earnings management measures indicate that the use of accounting discretion decreases with less earnings smoothing over time. The main features of AQ have been consistent throughout the historical development. Asymmetric timeliness of earnings, the ability of earnings to predict future cash flows, and the ability of accruals to mitigate mismatching are all present throughout. We also document typical departures from properties of high AQ. For example, accruals do not (always) facilitate timely recognition of losses. However, these can be attributed to the overwhelming influence of reporting incentives (e.g. taxation, debt, size) rather than to the (lower) quality of accounting standards.
Keywords: Private Firms, Accounting Quality, Development of Accounting Standards, IFRS-Like Standards
JEL Classification: M41, C23, L21, P20
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