Purpose This study aims to examine the effects of accounting harmonization, through the adoption of IFRS, for the financial reporting quality of small and growing UK companies listed on the Alternative Investment Market of the London Stock Exchange. The authors do not question the quality of the accounting standards themselves but, rather, the consequences of implementation of the standards for small companies. Design/methodology/approach This study takes a cost-benefit approach, considering the principal qualitative characteristics of financial reporting as symbols of quality, and evaluates user perceptions about the costs and benefits of accounting harmonization through the application of a multi-method research approach. The authors also investigate the application of fair value accounting and the true and fair view concept under IFRS and financial reporting quality. The survey instrument focuses on the informed views of senior financial executives of the sample companies. Findings The results of the quantitative analyses did not find any support for a positive relationship between IFRS and financial reporting quality. The findings also fail to find any significant effects on accounting quality from the application of fair value accounting and the true and fair view concept under IFRS. The survey results were supported by the findings of the semi-structured interviews where most of the respondents regard the change to IFRS as a policy matter that has not achieved the IASB’s intended objectives. The findings of this study, therefore, question the mandatory implementation of IFRS and raise the wider policy issue of questioning the benefits of applying complex international accounting standards to small companies. Research limitations/implications A cross-country approach would provide a wider perspective on the implications of IFRS for the market as it would make the sample bigger and would give enduring tests for the hypothesis of this research. Originality/value This study provides key insights on a major change in accounting regulations, which may inform future regulatory changes, including the Promulgation IFRS for private companies or in reporting. It is an attempt to contribute to the ongoing academic discourse on IFRS adoption and financial reporting quality. Unlike much of the prior literature that focuses on measurement differences in reporting, this research examines the adoption of IFRS in terms of compliance costs and improved disclosure practices, particularly for Alternative Investment Market-quoted companies.

This study examines the extent to which the change from UK GAAP to IFRS has affected companies listed on the Alternative Investment Market (AIM) in the UK. The results suggest that, on average, profit reported under IFRS is higher than that reported under UK GAAP; however, the difference is much smaller for AIM listed companies as compared to what existing literature suggests for firms listed on main stock markets. The Gray's partial analysis results indicate that despite the extensive programmes for improving convergence over time there is still a considerable discrepancy between IFRS and UK GAAP. (C) 2015 Elsevier Ltd. All rights reserved.

This paper investigates the implications of the adoption of International Financial Reporting Standards (IFRS) from the perspective of small and growing companies listed on the United Kingdom's (UK) Alternative Investment Market (AIM). We consider the cost–benefit issues of IFRS adoption and investigate its economic consequences. The results reveal that only a small number of comparatively larger AIM companies have voluntarily adopted IFRS for some anticipated economic objectives. The results also suggest that most of the mandatory adopters have done so for regulation compliance purposes and they would not have adopted IFRS if a choice was available to them. As the existing literature mainly covers the impact of IFRS adoption on large listed companies, the findings of this study will give better insights into extending IFRS to private companies. The findings show an association between the early adoption of IFRS and firm size and conclude that size matters in both the adoption and implications of IFRS. This study also contributes to the debate on the implications of the new IFRS‐based UK GAAP for SMEs‐FRS 102, which will replace the majority of existing UK accounting standards for small and medium enterprises (SMEs) with effect from 2015. Our findings have implications for managers, regulators, market participants, practitioners and other stakeholders.

Research Question/Issue This research examines the relationship between board processes and corporate financial risk. Using a unique questionnaire survey about board behavior, several measures related to board processes are developed and used to explain certain aspects of financial risk during the recent crisis. Research Findings/Insights In a sample of 141 companies with complete data collected from company chairs on both board structure and process, board process is found to be an important determinant of financial risk during the crisis of 20082009. In particular, financial risk is lower where non-executive directors have high effort norms and where board decision processes are characterized by a degree of cognitive conflict. The impact of cognitive conflict is, however, found to be less pronounced in boards with high levels of cohesiveness. Theoretical/Academic Implications The study provides theoretical and empirical advancement of the governance literature towards an understanding of group process-oriented views of boards' work and effectiveness. This study identifies the significance of board processes and their impact on financial risk supported by quantitative empirics. Findings of a strong relationship between board process and financial risk augment existing theories to suggest that the effects of boards work through group processes that bring executives and non-executives together in relations laced with control and collaboration. Practitioner/Policy Implications Regulators, acting post the financial crisis have produced governance codes that emphasize risk management as a key responsibility of boards. The link between board process and financial risk established in this paper provides evidence for company chairs and other directors on the possibilities and potential effectiveness of boards in discharging this responsibility.

This study examines how shocks to the supply of credit during the financial crisis of 2007–2009 affect the financing and investment policies of private companies in the United Kingdom. To investigate this issue we adopt a fixed effects model as our research methodology. Our final sample includes a total of 4973 firms. Our results highlight that the recent credit crisis has adversely affected the leverage ratio of private firms. This effect is most significant on short term financing channels such as short term debt and trade credit. As a consequence, private firms hold cash and issued equity for hedging the negative effect of credit contractions. However, no evidence was found on the issue of net debt issue or obtaining longer trade credit as substitutes for preserving their financial slack by the private firms. The results also revealed, that private firms did not scale back shareholder distribution in response to their financial difficulties. The results further highlight that credit contraction has negatively affected the performance and investment of private firms. Moreover, the increase in cash reserve and decrease in investment would suggest that firms may have raised funds through equity for managing their cash balances. Overall, the results highlight that financial and investment policies of private firms are susceptible to variations in the supply of credit and firms which are unable to find alternative sources of finance may bear a much larger cost compared to those who manage their financing more appropriately. Our findings have implications for the ongoing financial crisis as well as future policy designs by monetary and banking authorities.

ACCA's international research programme generates high-profile, high-quality, cutting-edge research. All research reports from this programme are subject to a rigorous peer-review process, and are independently reviewed by two experts of international standing, one academic and one professional in practice. The Council of the Association of Chartered Certified Accountants consider this study to be a worthwhile contribution to discussion but do not necessarily share the views expressed, which are those of the authors alone. No responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted by the authors or publisher.

The study reports some evidence on the group accounting consequences of the implementation of IFRS in the UK. It examines how the adoption of IFRS has affected reported net profit and equity of UK listed companies. The contribution of the paper lays in reporting the evidence of the empirical consequences of the adoption of IFRS by identifying the underlying causes of these differences. These causes are not just identified at the level of individual standards but individual accounting procedures what allows for more thorough analysis. The data is derived from the IFRS 1 reconciliation requirement which provides the unique opportunity to compare the evidence of two different measurement bases for the same set of underlying economic events. The results show that goodwill treatment had the largest effect on reported profit resulting in the largest difference between IFRS and UK GAAP. There are however a variety of other group accounting effects.

Considers the potential implications for banks and financial institutions of EC requirements that all companies with listed debt or equity securities adopt international financial reporting standards (IFRS) from January 1, 2005. Examines the likely effects of modified accounting measurement bases on balance sheet based debt covenants and financial statements, including their treatment of preference shares, dividends, employee remuneration and financial instruments. Presents a two page table detailing: (1) key differences between the UK's Generally Accepted Accounting Principles and the IFRS; and (2) the consequences for covenants.

This paper examines the impact on covenants in the debt contracts of companies of the impending change to international accounting standards (IAS). The primary focus of the paper is the UK debt market, but comparisons are drawn with other EU countries that will also be affected by the adoption of IAS. Existing evidence of the nature of debt covenants and the impact of accounting regulation change on such covenants is briefly reviewed. It is argued that the adoption of IAS will have a significant impact both on reported earnings and on balance sheet values. Moreover, it is argued that the adoption of IAS will increase the volatility of earnings. It is further argued that, as a consequence of these effects, there will be a significant impact on debt covenants given the widespread use of rolling GAAP. A number of cases and hypothetical examples are provided to illustrate the impact of the adoption of IAS. Notes 1. Thanks are due to Judy Day for comments on earlier drafts of this paper. 2. Hereafter for ease of exposition ‘IASs’ will be taken to include both International Accounting Standards and International Financial Reporting Standards when general reference is made to both. Otherwise IAS and IFRS will be used as appropriate to the context of the argument. 3. Technical breaches of covenants are distinguished from cash flow breaches. The latter arise if interest or principal payments are not made by borrowers. 4. For Australia see Cotter Citation(1998), for South Africa see Malherbe and Segal Citation(2001), for Malaysia and Singapore see Roubi and Richardson Citation(1998). 5. Covenants restricting dividends are also rare in Germany (see Leuz et al., Citation1998). 6. The possible reactions of borrowers range from ignoring the breach, through issuing an automatic waiver, discussions with the borrower on the violation, changing the status of the loan for monitoring purposes, renegotiating tighter terms for the contract, demanding accelerated repayment, forcing asset sales to raise cash or seizing collateral, requiring refinancing or reorganization, or initiating insolvency proceedings. Where a firm has multiple borrowings cross-default clauses may be activated. 7. As Zeff Citation(1978) argued: ‘The [Financial Accounting Standards] Board is thus faced with a dilemma which requires a delicate balancing of accounting and non-accounting variables. Although its decisions should rest – and be seen to rest – chiefly on accounting considerations, it must also study – and be seen to study – the possible adverse economic and social consequences of its proposed actions’ (italics added). 8. Recent research on small and medium-sized enterprises indicates that covenants involving working capital (expressed as debentures collateralizing overdrafts) are extremely common in the UK (see Day and Taylor, Citation2001). These covenants appear to be such a common feature of UK debt contracts that it is likely that many companies large enough to be subject to IASs will be affected. 9. For example, for an entity switching to IFRSs for the year ending 31 December 2005 the date of transition to IFRSs is 1 January 2004.

The use of credit ratings in financial and other legal documents — both in the USA and Europe —, has led to a situation in which the major rating agencies have become (largely unwilling) participants in the legislative process. This situation has become partly formalized in the US (and is being repeated elsewhere in the European Union, Eastern Europe and Latin America) through the creation of officially 'recognized' agencies whose ratings now carry the imprimatur of the Securities and Exchange Commission. The purpose of this paper is to contribute to the debate on the necessity for formal legal status to be sustained in the market for bond credit ratings. In this context, the criteria for a credible rating agency are examined and evidence is provided on one element of the criteria which is under-researched: namely, the impact of the ratings in the market place. The influence of rating agencies in international capital markets is assessed through an analysis of the impact of ratings on the yields of bonds, represented by a comprehensive sample of actively traded debt. The sample contains analysis of ratings introductions on both new and seasoned debt and also examines the impact of ratings revisions. It is concluded that official recognition has no market-based role and it is argued that ratings are used by regulators because of the success of the major agencies in performing their market function.

This paper proposes a new rationale for understanding managerial contracts which set-out to induce stock price volatility in the form of granting of executive stock options. First, we suggest that previous research focuses too much on short term volatility effects and offering neither a theoretical or empirical perspective on incentives which might influence long-term behaviour. To address this, we offer a theoretical structure of why managerial incentives might be important in determining the evolution of volatility over the life of an option contract and provide empirical support for our views. Second, we examine the impact of option moneyness on managerial behaviour over time and provide an analysis, with supporting empirical work, of the unintended incentives thereby created. Our approach suggests that volatility-inducing contracts do not work in the intended manner and supports a growing body of work which indicates that option-based remuneration does not incentivise managers to enhance corporate performance. Our evidence is within a UK context, based on a near-population sample size.

SUMMARYThe paper offers a reappraisal of the empirical study by Mather and Peasnell (1991) of 13 UK brand‐capitalizing companies. It argues that the findings of this study can be questioned on a variety of grounds including: method appropriateness, indirectness, timing and data issues. Specifically, it is suggested that their use of market reaction testing on this topic fails to capture the wide variety of economic consequences that may flow from brand capitalization.

An established and growing academic literature has developed around the view of a company as a nexus of contracts. The various implications of this literature, however, appear not to have seeped into the financial reporting and corporate accountability policy-making or policy-influencing structure in the UK. This paper addresses this tension between the theory and practice of an important aspect of corporate accountability by: (i) making a case for the explicit recognition of contracting as a legitimate role of external financial reporting; and (ii) arguing that without this there may be significant economic consequences to a variety of stakeholders and a failure to debate in terms of political realities.