“Accounting quality” Mid Term review February 2009, Valencia

1. “Accounting quality”Mid Term reviewFebruary 2009, Valencia Zoltan Novotny-Farkas (ESR, Frankfurt) Beatriz García Osma (ER, Lancaster) Joao Toniato (ESR, Ljubljana) Yachang Zeng (ESR, Tilburg)

2. Accounting quality Accounting quality is a widely used term for certain accounting metrics that are assumed to capture dimensions of accounting quality Typically, these include earnings management, timeliness, (asymmetric) conservatism, value relevance, predictability Is there a difference in accounting quality before and after IFRS adoption? Are changes in accounting quality related to country-level or sector-level legal/institutional/governance factors?

3. Background Zoltan Novotny-Farkas Since 05/2007 INTACCT ESR, Goethe University Frankfurt Since 5/2007 PhD Studies, Goethe University Frankfurt 01/2006 Diploma in International Business Administration, University of Vienna PhD supervisor: Günther Gebhardt (Goethe University Frankfurt) INTACCT supervisors: Günther Gebhardt, Holger Daske (University of Mannheim/Frankfurt)

4. Experiences Frankfurt Excellent research environment Probably most beautiful campus in Europe INTACCT Great training workshops Transfer of knowledge Networking opportunities Research and social community

5. Current research Main Research Topic: The Effects of IFRS adoption on the loan loss provisioning of banks Motivation: Banks play a key role in economy, but due to the peculiarities of the industry banks are most often left out in empirical accounting research Focus on loan loss provisioning, as it determines significantly the quality of financial statements and the way banks are communicating credit risk IFRS adoption changes bank accounting significantly – for better or worse? Method: Assemble a proprietary database on European banks Analyze the transitional effects on key bank accounting variables Earnings management pre- versus post IFRS using bankspecific accrual models

6. Preliminary results/Future work Preliminary results: IFRS adoption effects vary across European countries Diversity in the effects are due to different pre-IFRS loan loss provisioning behaviour and differences in bank portfolio characteristics Existing bank regulatory regimes have an IFRS “overriding” effect IFRS loan loss provisioning is less conservative and less forward-looking Future work: How do financial statement users perceive the above mentioned changes? Collaborative projects with ESRs

7. Background Beatriz García Osma 2000 BA (Lda) Business Administration, U Autonoma de Madrid 2002 MPhil (DEA) Financial Economics and Accounting, UAM. 2006 PhD Accounting and Finance, Lancaster University Current position: Lecturer in Accounting and Financial Economics, UAM. INTACCT visits: October-December 2007 (3 months) October-December 2008 (3 months) INTACCT Supervisors: Peter F. Pope & Steve Young

8. Experiences INTACCT ER Lancaster: INTACCT workshops in Tilburg and Valencia. Weekly research seminars and PhD seminar. Courses on staff development whilst at Lancaster. Access to best available databases, opportunity to discuss research with INTACCT researchers and faculty. Weekly meetings and discussions. Excellent research climate: Lancaster (UK) > 3200mm of rain each year (230 ‘wet’ days/year).

9. Current Research Main research topic: “Earnings quality effects of mandatory IFRS adoption” (coordinator: P.F. Pope, Lancaster). Motivation: IFRS increase transparency and comparability (Reg. EC 2002/1606) Earnings are a key variable for investors and managers (Biddle et al. 1995, Barth et al. 2002, Graham et al. 2005). Legal, institutional, cultural and political forces have remained local: Can accounting practice be harmonized? (Ball 2006). Method: Study changes in world-wide accounting quality as measured by earnings management (Leuz et al. 2003, Burghstahler et al. 2006).

10. Results and Future Research Main results: IFRS adoption represents significant changes to NI, TA and SE. Overall, ROE (ROA) is 12% (14%) greater under IFRS. However, countries with the largest regulatory distance to IFRS (e.g., Spain, Greece) show the least significant adjustments. IFRS transition predicts changes to overall quality post-IFRS. Evidence suggest uneven implementation and enforcement and heterogenous earnings quality effects. Future research: “A practical guide to using financial statement data from commercial databases” (with P. Alves, W. Beekes & S. Young). “First-time adoption policy for plant, property and equipment” (with S. Young).

11. Background João Toniato Since 10/2008 INTACCT ESR, University of Ljubljana – Slovenia Since 10/2006 PhD Studies, University of Lancaster – UK 07/2006 BA (Honours) Accounting and Finance, Manchester Business School – UK 12/2001 BSc Computer Science, Federal University of Espirito Santo – Brazil PhD Thesis: “Predictability and Pricing of Accounting Information under IFRS” PhD supervisors: Ken Peasnell and Young-Soo Choi (Lancaster University) INTACCT supervisor: Aljoša Valentinčič (University of Ljubljana)

12. Experiences Lancaster: PhD and Research Seminars Great research environment INTACCT: Workshops / Colloquia Focused supervision International cooperation with Frankfurt University Challenging environment Contact with distinguished academics

13. Output Research: “Predictability and Pricing of Accounting Information under IFRS” (with Ken Peasnell and Young-Soo Choi) “Can Analyst Forecast Error Help Explain the Mispricing of Dividends?” (with Aljoša Valentinčič) Other Activities: Coordination of reporting activities Conference and seminar attendance ESR/ER group projects

14. Future Plans Research: Finish current projects Initiate new projects in collaboration with Frankfurt University researchers Project on write-offs and IFRS After INTACCT (10/2010)  job market

15. Background Yachang Zeng Since Oct 2008 ESR with INTACCT, Tilburg University Since Oct 2005 PhD in Accounting & Finance, Lancaster University 2004 - 2005 MSc in Accounting & Finance, Lancaster University 2001 - 2004 Senior Accountant (CPA), China. 1997 - 2001 Bachelor in Auditing, Sun Yat-Sen University (China) PhD Thesis: “Analysts’ ability to detect and disclose low accounting quality” PhD Supervisor: Steve Young and Daphne Lui (Lancaster University) INTACCT Supervisor: Willem Buijink and Philips Joos (Tilburg University)

16. Experiences Practical Matters in Settling Down Training Expectation Expectation

17. Experiences Research Environment Expectation

18. Experiences Networking Opportunities Expectation

19. Experiences Interaction in the Host Institution Responsibilities in the Network Expectation Expectation

20. Output Current Project Impact of IFRS on the feasibility of using global firms as comparable firms Working paper Analysts’ ability to detect and disclose low accounting quality Factors explaining analysts’ disclosure of low accounting quality

21. Future Plans Future Studies Content analysis about the valuation models that analysts used and the source of comparable firms chosen by analysts after the adoption of IFRS After INTACCT Academic job market