Are the separate financial accounts also relevant? Assessing those accounts reported by listed European entities

Figures & data

Figure 1. Entities’ financial statements under IAS. Source: Adapted from Santos et al. (2023, p. 54).

Table 1. Characteristics of the cost method, EM and fair value methods.

Events/matter concerned:	Cost	EM	FVTPL	FVTOCI
Initial measurement:
Initial amount	Fair value plus transaction costs (IFRS 9 §5.1.1)	Cost: in practical terms, it will correspond to the fair share of the subsidiary’s net assets plus transaction costs plus any goodwill (§§3 and 32 of IAS 28; IFRS §5.1.1 9)	Fair value (IFRS 9 §5.1.1)	Fair value plus transaction costs (IFRS 9 §5.1.1)
Subsequent measurement:
Impairment losses	Recognized in P&L	Recognised in P&L (§§40 and 42 of IAS 28)	Not applicable	Not applicable
Impairment reversals	Not applicable
Incorporation of the investor’s P&L		Recognised for their share of P&L (§3 IAS 28)
Changes in the investee’s OCI		Recognised for their share in the OCI (§§3 and 10 of IAS 28)
Changes in the interest fair value		Not applicable	Recognised in P&L (§5.7.1 of IFRS 9)	Recognized in OCI (§B5.7.1 of IFRS 9)
Right to receive dividends	Recognized in P&L (§12 of IAS 27)	Reduces the carrying amount of the interests (§12 IAS 27)	Recognized in P&L (§12 of IAS 27)	Recognized in P&L (§12 of IAS 27)
Amounts accrued in OCI at discontinuation or derecognition:
Reclassification, or not, to the P&L	Not applicable	Treated on the same basis as they would be if the related assets and liabilities were aligned (§§22 and 23 IAS 28)	Not applicable	Maintained in OCI (§B5.7.1 of IFRS 9)
Other adjustments potentially affecting the carrying amount of the financial investment:
Uniformisation of accounting policies, adjustments for transactions between investors and investees and differences in reporting dates between them	Not applicable	Adjustments envisaged for EM (§§28, 34 and 35 of IAS 28)	Not applicable	Not applicable

Source: Adapted from Santos et al. (2023, p.56).

Table 2. Sample description.

Country	Main Index	Observations (SFS presentation as mandatory or optional)
Belgium	BEL 20	Mandatory only for entities in the real estate sector (not allowed for all other sectors)
Bulgaria	BSE SOFIX	Required for all entities
Croatia	CROBEX	Required for all entities
Cyprus	Cyprus Main Market	Required for all entities
Czech Republic	PX	Required for all entities
Denmark	OMXC20	Optional for entities in all sectors other than banks if they also prepare consolidated accounts (SFS as additional accounts) and mandatory in other cases (SFS as the only accounts)
Estonia	OMX Tallinn	Required for all entities
Finland	OMX Helsinki 25	Optional for entities from all sectors other than the insurance sector
Greece	Athens General Composite	Required for all entities
Ireland	ISEQ Overall Index	Optional for all entities
Italy	FTSE MIB	Mandatory for entities in all sectors other than the insurance industry and mandatory for entities in the insurance sector if SFS are the only accounts
Latvia	OMX Riga	Required for all entities
Lithuania	OMX Vilnius	Optional for entities from all sectors other than the financial sector
Luxembourg	LuxX	Optional for all entities
Malta	MSE	Required for all entities
Netherlands	AEX	Optional for all entities
Poland	WIG 20	Optional for all entities
Portugal	PSI	Optional if entities prepare consolidated accounts (SFS as additional accounts) and mandatory in other cases (SFS as the only accounts)
Romania	BET	Required for all entities
Slovakia	SAX	Required for all entities
Slovenia	SBITOP	Optional for all entities

Table 3. Sample selection.

Initial Sample	417
Entities whose SFS were not available or could not be found	−72
Entities that do not mandatorily or optionally adopt IAS in their SFS	−49
Entities whose method of accounting for interests under IAS 27 has not been disclosed	−10
Entities with SFS from periods before 2020	−8
Entities whose SFS were not in a supported format for translation	−6
Entities whose SFS have specific disclosures, where key elements for this analysis are not identified	−3
Entities that have had impacts on the group’s structure	−1
Entities that belong to more than one index	−1
Final Sample	267

Table 4. Final sample research by country.

Country	Entities observed
	Number	Percentage
Bulgaria	9	3.37%
Croatia	12	4.49%
Cyprus	4	1.50%
Czech Republic	9	3.37%
Denmark	8	3.00%
Estonia	14	5.24%
Greece	37	13.86%
Ireland	28	10.49%
Italy	27	10.11%
Latvia	6	2.25%
Lithuania	16	5.99%
Luxembourg	3	1.12%
Malta	24	8.99%
Netherlands	22	8.24%
Poland	11	4.12%
Portugal	12	4.49%
Romania	15	5.62%
Slovakia	2	0.75%
Slovenia	8	3.00%
Total	267	100.00%

Table 5. Independent and control variables and their proxies.

Independent or control variable	Proxies	Benchmark studies
Book value per share	Total equity/number of shares (BVPS)	(Alnodel, 2018; Badu & Appiah, 2018; Busari & Bagudo, 2021; Goncharov et al., 2009; Isaboke & Chen, 2019; Javed, Akhtar et al., 2023; Kargin, 2013; Lee & Lee, 2013; Lo, 2012; Lopes & Camões, 2021; Müller, 2014, 2011; Sotti, 2018)
Book value less the value of the interests provided for in IAS 27, per share	BVPS – IPS (BVPS’)	(Gomes, 2009; Gonçalves et al., 2017; Oliveira et al., 2010; Sabino, 2010)
Net income (earnings) per share	Net income (earnings)/number of shares (EPS)	(Alnodel, 2018; Badu & Appiah, 2018; Busari & Bagudo, 2021; Goncharov et al., 2009; Isaboke & Chen, 2019; Javed et al., 2023; Kargin, 2013; Lee & Lee, 2013; Lo, 2012; Lopes & Camões, 2021; Müller, 2014, 2011; Sotti, 2018)
Interests provided for in IAS 27 per share	Interests in subsidiaries, associates, and joint ventures/number of shares (IPS)	Not applicable
Sector	Main sector of economic activity (SECTOR)	(Badu & Appiah, 2018; Ernest & Oscar, 2014; Robu et al., 2016; Umoren & Enang, 2015)
Indebtedness	Total liabilities/Total assets (IND)	(Goncharov et al., 2009; Lopes & Camões, 2021)
Size of the audit entity	Big Four versus non-big Four (AUDIT)	(Ibanichuka & Briggs, 2018; Javed et al., 2023; Lee & Lee, 2013; Lopes & Camões, 2021)
Method of accounting for financial interests provided for in IAS 27	Cost method or other methods (MET)	Not applicable
KAM related to interests provided for in IAS 27	Whether interests in subsidiaries, associates and joint ventures are identified as KAM (KAM_IAS27)	Not applicable
Type of IAS adoption for preparing the SFS	Mandatory or Optional use of IAS 27 for preparing SFS (TYPE)	Not applicable

Table 6. Final sample research by main economic activity sectors.

Economic activity sector	Code	Number of entities observed	% of entities observed
Industry	Sector 1	65	24.34
Consumer goods	Sector 2	59	22.10
Distribution of power, gas, and water	Sector 3	28	10.49
Financial and insurance	Sector 4	68	25.47
Telecommunications & technology	Sector 5	38	14.23
Health	Sector 6	9	3.37
Total		267	100%

Table 7. Descriptive statistics.

Variable	Average	Median	Standard deviation
SP	127.489	6.220	1,304.756
BVPS	97.741	3.219	1,322.030
BVPS’	82.304	0.596	1,264.742
EPS	10.863	0.241	147.552
IPS	15.627	1.503	82.820
IND	0.471	0.439	0.404
AUDIT	0.712*	NA	NA
MET	0.801*	NA	NA
KAM_IAS27	0.296*	NA	NA
TYPE	0.607*	NA	NA

Legend: *frequency analysis whenever variable = 1; BVPS: total equity/number of shares; BVPS’: BVPS-IPS; EPS: net income/number of shares; IPS: interests in subsidiaries. associates and joint ventures/number of shares; IND: total liabilities/total assets; AUDIT: big four versus non-big four; MET: cost method versus other methods; KAM_IAS27: whether matters relating to subsidiaries. associates and joint ventures are identified as KAM or not; TYPE: mandatory versus optional presentation of IAS 27; NA: Not applicable.

Table 8. Correlation between the variables of the regression models.

	BVPS	BVPS’	EPS	IPS	SECTOR_1	SECTOR_2	SECTOR_3	SECTOR_4	SECTOR_5	IND	AUDIT	MET	KAM_IAS27	TYPE
SP	.989**	.984**	.986**	.787**	−0.010	−0.034	−0.031	0.088	−0.026	0.067	−0.079	0.010	−0.054	0.018
BVPS	1	.999**	.999**	.738**	−0.030	−0.035	−0.021	0.103	−0.027	0.068	−0.092	0.030	−0.038	0.041
BVPS’		1	.999**	.708**	−0.033	−0.034	−0.021	0.104	−0.025	0.070	−0.096	0.032	−0.039	0.049
EPS			1	.721**	−0.035	−0.031	−0.021	0.104	−0.025	0.067	−0.095	0.026	−0.040	0.042
IPS				1	0.038	−0.042	−0.013	0.055	−0.045	0.023	0.003	−0.010	−0.011	−0.092
SECTOR_1					1	−.302**	−.194**	−.332**	−.231**	−0.032	−0.024	0.107	0.072	0.046
SECTOR_2						1	−.182**	−.311**	−.217**	−0.113	0.060	0.039	−0.108	−.126*
SECTOR_3							1	−.200**	−.139*	0.007	−0.025	0.017	0.046	0.025
SECTOR_4								1	−.238**	.189**	0.031	−0.075	−0.002	0.119
SECTOR_5									1	−0.036	−0.072	−0.093	0.018	−0.001
IND										1	0.030	0.071	−0.115	0.113
AUDIT											1	−0.089	.123*	−.276**
MET												1	0.076	.195**
KAM_IAS27													1	−0.049

Legend: **Correlation is significant at level 0.01; *Correlation is significant at level 0.05; SP: share prices; BVPS: total equity/number of shares; BVPS’: BVPS-IPS; EPS: net income/number of shares; IPS: interests in subsidiaries. associates and joint ventures/number of shares; SECTOR_1: industry; SECTOR_2: consumer goods; SECTOR_3: distribution of energy. gas and water; SECTOR_4: financial and insurance; SECTOR_5: telecommunications and technology; SECTOR_6: health; IND: total liabilities/total assets; AUDIT: big four versus non-big four; MET: cost method versus other methods; KAM_IAS27: whether matters relating to subsidiaries. associates and joint ventures are identified as KAM or not; TYPE: mandatory versus optional presentation of IAS 27.

Table 9. Regression models (M1 and M2).

Independent variables	M1		M2
	B	Significance	B	Significance
BVPS	0.976	<0.001	NA	NA
BVPS’	NA	NA	0.885	<0.001
IPS	NA	NA	2.845	<0.001
SECTOR_1	7.046	0.920	−21.210	0.717
SECTOR_2	−38.305	0.587	−42.065	0.474
SECTOR_3	−76.623	0.312	−89.734	0.155
SECTOR_4	−70.667	0.316	−76.237	0.194
SECTOR_5	−30.997	0.672	−33.879	0.578
IND	8.830	0.773	20.703	0.416
AUDIT	35.094	0.192	8.629	0.701
Constant	40.142	0.564	42.388	0.464
Model Statistics
R2	0.978		0.985
Adjusted R2	0.977		0.984
ANOVA	<0.001		<0.001

Legend: BVPS: equity/number of shares; BVPS’: BVPS-IPS; IPS: interests in subsidiaries. associates and joint ventures/number of shares; SECTOR_1: industry; SECTOR_2: consumer goods; SECTOR_3: distribution of energy. gas and water; SECTOR_4: financial and insurance; SECTOR_5: telecommunications and technology; IND: total liabilities/total assets; AUDIT: big four versus non-big four; NA: Not applicable.

Table 10. Regression model (M3).

Independent variables	B	Significance
BVPS’	0.886	<0.001
IPS	2.817	<0.001
SECTOR_1	−5.212	0.929
SECTOR_2	−37.725	0.517
SECTOR_3	−76.566	0.224
SECTOR_4	−69.076	0.241
SECTOR_5	−28.917	0.634
IND	18.565	0.467
AUDIT	8.957	0.700
MET	−50.283	0.053
KAM_IAS27	−49.316	0.028
TYPE	−9.144	0.682
Constant	95.168	0.119
Model statistics
R2	0.985
Adjusted R2	0.985
ANOVA	<0.001

Legend: BVPS’: BVPS-IPS; IPS: interests in subsidiaries. associates and joint ventures/number of shares; SECTOR_1: industry; SECTOR_2: consumer goods; SECTOR_3: distribution of energy. gas and water; SECTOR_4: financial and insurance; SECTOR_5: telecommunications and technology; IND: total liabilities/TA; AUDIT: big four versus non-big four; MET: cost method versus other methods; KAM_IAS27: whether matters relating to subsidiaries. associates and joint ventures are identified as KAM or not; TYPE: mandatory versus optional presentation of IAS 27.

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Data availability statement

All data for this study were directly collected from the entities’ consolidated non-financial reports included in this research sample, which are publicly available. Notwithstanding, the authors are available to share the data collected for this purpose upon reasonable request, namely for research purposes. If you are interested in this data, please contact the corresponding author.