In this 50th anniversary year for Accounting and Business Research, I am pleased to introduce the 15th issue of the International Accounting Policy Forum (IAPF) – the annual special issue of ABR. The first four academic papers in this issue are based on presentations from the 2019 ICAEW Information for Better Markets conference. The fifth and final paper formed the basis of the 2019 P.D. Leake Lecture.
‘The real effects of financial reporting’ was the overriding theme for the Information for Better Markets conference. Recognising that existing financial reporting research focuses predominantly on the impact of financial reporting on share prices, the presenters and conference delegates were challenged to explore the theme from a different perspective and consider the ways in which financial reporting drives behaviour and influences the decisions taken by management and users. In doing so, the broader effects that these behaviours and decisions have on the economy and society were also explored.
Acknowledging that innovation is essential to retaining long-term competitive advantage and that financial reporting encourages investment that facilitates this innovation, the first of the four academic papers considers the real effects of financial reporting on innovation. Finding limited research in this area, Ana Simpson and Ane Tamayo offer a new framework for thinking about issues related to innovation and associated disclosures.
In the second paper, ‘Reporting matters: the real effects of financial reporting on financing and investment decisions’, Catherine Shakespeare finds that financial reporting affects behaviour, for example, management using accounting rules to structure transactions to achieve certain financial statement outcomes. The paper also offers interesting insights from a relatively new stream of research which explores the relationship between accounting and macroeconomic outputs.
John Core’s paper on ‘The real effects of financial reporting on pay and incentives’ explores the relationship between earnings and incentives and finds that when complexity is introduced into calculations used to value certain pay components, such as options and post-employment benefits, it can lead to mis-measurement. Using the example of pay components being under-expensed, the author suggests that managers might adopt these types of components in order to inflate earnings, concluding that if pay is mis-measured, it can also be mis-used.
The final paper from the conference, co-authored by Christopher Napier and Christian Stadler, examines what is known, to date, about the real effects of the new accounting standard IFRS 15 Revenue from contracts with customers. Based on a review of annual reports, comment letters and interviews on the effects of IFRS 15, the authors draw a sobering conclusion. Despite the significant time and resources invested to develop this major new standard, with the exception of a few industries, it has had relatively little impact on the recognition and measurement of revenue. The paper also offers a general framework to analyse the various effects of new and amended accounting standards.
The fifth paper in this issue looks at case studies of homelessness and asks why this should matter to accountants. ‘Acting in the public interest: accounting for the vulnerable’, is based on the 2019 P.D. Leake lecture and is co-written by John Burns and Stephen Jollands. In view of the public interest obligations in ICAEW’s royal charter, the authors challenge the profession to think differently and look at what matters in society. The paper highlights the importance of accounting in understanding the world of the vulnerable and the potential for the profession to contribute to society and better serve its public interest role.
As always, we are grateful to Mark Clatworthy, Juan Manuel Garcia Lara and Edward Lee for their support as Editors of Accounting and Business Research, to the academic authors featured in this issue and to the practitioners who commented on their papers and whose remarks are reproduced here. Bringing together practitioners and academics continues to be an important function of the Forum and of the events on which its papers are based.
Finally, thanks are also due to ICAEW’s charitable trusts, which provided funding to support the 2019 Information for Better Markets Conference and P.D. Leake Lecture and the preparation of the academic papers that appear in this issue.
Disclosure statement
No potential conflict of interest was reported by the author.