Differential market reactions to accounting changes away from versus towards common accounting practices

Article Abstract:

The effect of the direction of voluntary accounting method changes for inventory, depreciation, and investment tax credit (ITC) on stock prices is examined. The direction of accounting changes (AC) for each selected area was determined in relation to the commonly-used accounting practices (CAP) for that area by industry. Abnormal stock returns of firms away from CAP around their AC announcements were positive on the average. Those firms towards CAP were found to be negative. Accounting policy decisions can be evaluated by studying the effect of accounting alternatives on capital market equilibrium.

Accounting, Inventory control, Depreciation, Investment tax credit

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The auditorEs going concern decision and types I and II errors: the Coase theorem, transaction costs, bargaining power and attempts to mislead

Article Abstract:

The effect of transaction costs on auditorEs going concern decision is analyzed in the line of Coase Theorem. It is noted that in the absence of transaction costs, bias arising from Type I and II errors is not expected but on introduction of the transaction costs, bias is expected and the direction of the error depends upon the bargaining powers of the auditor. It is also noted that relative bargaining provides an incentive for the client company to mislead.

United Kingdom, Management dynamics, Auditors, Going concern (Accounting), Going concern

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Insider sales and earnings management

Article Abstract:

ManagersE resort to insider trading and also adjust discretionary accruals to increase the current-period earnings prior to selling the firmsE share. It is found that after the accrual manipulation and the sale of insider stocks, the shares tend to drift lower.

United States, Securities issued, listed, Securities, Insider trading in securities, Insider trading (Securities), Company securities

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