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Revenue-expense versus asset-liability model: The impact on the earnings attributes of non-financial private firms

Authors :
Moscariello, Nicola
La Rosa, Fabio
Bernini, Francesca
Fera, Pietro
Source :
Meditari Accountancy Research; October 2019, Vol. 28 Issue: 2 p277-310, 34p
Publication Year :
2019

Abstract

Purpose: The purpose of this study is to analyse the impact of two different financial reporting models (revenue-expense vs asset-liability) on several earnings attributes. Design/methodology/approach: The analysis compares the earnings attributes of non-financial private firms using the Italian generally accepted accounting principles (Italian GAAP, based on a revenue-expense model) with those of the Italian non-financial private firms voluntarily adopting the international financial reporting standards (IFRS, based on the asset-liability model). To address major methodological concerns, the research design is based on a single-country analysis and on three different samples as follows: firms voluntarily adopting IFRS; a matched sample of Italian GAAP firms; Italian GAAP firms belonging to the Elite programme, and therefore, comparable to the IFRS adopters in terms of incentives towards financial reporting transparency. Findings: The results show that firms reporting under a revenue-expense model are characterized by a stronger revenue-expense matching degree, along with higher earnings’ persistence, earnings’ predictability and conditional conservatism than firms adopting an asset-liability model. In addition, contrary to the expectations, Italian GAAP firms do not present smoother earnings and do not report greater abnormal accruals than IFRS adopters do. Overall, the findings suggest that the switch from a revenue-expense model to an asset-liability model negatively affects several earnings attributes of non-financial private companies, shedding new light on the drawbacks associated with the adoption of the IFRS accounting model. Originality/value: This study addresses a theme characterized by sparse research efforts, adding new insights to the debate on the decline in the quality of earnings and on the drawbacks associated with the adoption of the IFRS accounting model.

Details

Language :
English
ISSN :
2049372x
Volume :
28
Issue :
2
Database :
Supplemental Index
Journal :
Meditari Accountancy Research
Publication Type :
Periodical
Accession number :
ejs54134780
Full Text :
https://doi.org/10.1108/MEDAR-04-2019-0465