The Effects of Globalization on the Accounting Academic

1. The Effects of Globalization on the Accounting Academic MARLENE PLUMLEE UNIVERSITY OF UTAH Western AAA – April 2012

2. Using a Global perspective to enhance • TEACHING • RESEARCH • Disclaimer! These are my perspectives, a function of my experiences and preferences. Proceed with caution!

3. Teaching – use IFRS to your advantage. • Consider IFRS a tool to teach financial reporting and other things =>> Within your classroom. • Concrete examples of the uncertainty and ambiguity inherent in financial reporting. • Helps tie financial reporting to the underlying economics and the conceptual framework.

4. My class. • Focus on commonalities in the accounting differences to highlight both the similarities and differences in the recording and reporting. • Categorize differences across the standards into SUBSTANTIVE (REAL) and COSMETIC (visual) differences. • Within SUBSTANTIVE differences, consider three PROCESSING differences.

5. Processing differences. Classification – Location within a given statement. • Discuss ratios and the importance of subtotals. • Emphasize substance versus form. • Highlight the association between classification and how it affects related transactions. • Easy example: Deferred taxes. • More complicated: Debt/equity.

6. Processing differences. Recognition threshold – location across statements. • Review asset, liability, other definitions. • Emphasize judgment involved. • Easy example: Provisions. • More complicated: Development costs; Impairments.

7. Processing differences. Measurement – which attribute is employed. • Review various ways to measure value. • Emphasize when issues arise. • Discuss relevance and reliability. • Cover Level 1, 2, and 3 fair values. • Easy example: Provisions • More complicated: Inventory

8. Teaching – use IFRS to your advantage. • Consider IFRS a tool to reach students =>>across your department and school. • Teach across (all) levels. • Opportunity to ‘refresh’ more advanced students’ understandingand focus on usefulness of information to all students. • Highlight use of ratios and other tools and the role that classification, measurement, and recognition threshold play.

9. My class. • Discussion of measurement highlights the “Mixed attribute model” within all reporting systems. • Use paired sets of financials (US GAAP and IFRS filers) to highlight how different firms can “look”. • In class exercise #1. • Importance of understanding how information is prepared. GIGO.

10. Teaching – use IFRS to your advantage. Consider IFRS a tool to broaden how we define accounting education=>>across the (academic) profession. • Focus on understanding the association between financial reports and economics. • Nice place to consider ‘other issues’ that might be overlooked. • the role of regulators/standard setters/auditors in financial reporting. • Understanding the process of standard setting and inherent political issues.

11. My class • Practical approach to roles ‘players’ have. • Highlight the roles the SEC, monitoring board, European Commission, FSA. • And define them! • Consider the political and practical issues of operating in a global world. • Discuss accounting issues related to the 2008 financial crisis.

12. – but don’t over-invest! • Focus on the concepts. • Remember/recognize what you know already. • Details are changing, so take this into account when you are learning and incorporating content in your class. • Still lack good resources!!

13. Research – broaden your horizons! • IFRS-related research has increased. • More data (in general). • More ‘common’ data. • More interest.

14. Some practicalities • Interesting and sometimes new questions/places to ask old questions. • Many more studies being published in top tier journals. • Good news – more interested, engaged reviewers. • Bad news – more competition!

15. “New” questions…. • Somewhat specific to the setting =>>Costs and benefits of IFRS. • Basic &broad question with lots of places to look for/at this! • Equity markets. • Debt markets. • Regulatory process. • Role of institutions.

16. “New” questions…. The Effect of IFRS Adoption on Cross-Border Investment in Equity and Debt Markets; Beneish, Miller, and Yohn (2011) • Examine changes in foreign investment flows surrounding the adoption of IFRS to assess whether adopting countries attract greater foreign investment. • Answer a question directly related to the impact of IFRS.

17. “Old” questions. • Same old interesting issues. • Voluntary/mandatory disclosure; earnings management; contracting; governance; compensation; and on…. • Global markets/data provide a setting where… • Increased cross-sectional variation in “things” we are interested in. • Different Incentives; greater variation in regulation; different institutional settings. • Adoption of IFRS reduces variance in reporting (!).

18. Old question – new setting. • International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter? Hail and Leuz; JAR 2006 • Examine cross-country differences in COEC => explained by variation in disclosure, regulation, and enforcement. • More variation in legal institutions and regulation than found within the US. • Adoption of IFRS allows for the estimation of cost of capital across countries, which was more difficult when firms used different standards.

19. However, beware the “in bed” approach. • Consider how, why, where we would expect the findings to be different. • Framing the question • Does cost of capital vary by country? • Analysis of the effectiveness of legal institutions and securities regulation.

20. ANY QUESTIONS?