A Study of Characteristics of Interim Cash Flow Series and Their Proxies and the Ability to Predict Them
Mohammad Ali
Aghaei
author
Vahid
Ahmadian
author
Firoze
Daviran
author
text
article
2013
per
Journal of Accounting Advances (J.A.A)
Vol. 5, No. 1, 2013, Ser. 64/3
Extended Abstract
A Study of Characteristics of Interim Cash Flow Series and Their Proxies and the Ability to Predict Them
Dr. M. A. Aghaei V. Ahmadian F. Daviran
Tarbiat Modares University
Introduction
The predicting of annual and interim cash flows from operations is one of the most important financial information users, interesting, that is done based on a) reported cash flows from operations or b) the other series as proxies for CFO series. Proxies are usually simplistic algorithms from financial statements’ subcomponents and are used by researchers for the following reasons: 1) these proxies calculate consistently across sample firms (e.g. Bernard & Stober 1989); 2) proxies of algorithms are simple to maintain adequate sample size for empirical testing (e.g. Hopwood & Mckeown 1992; Lorek et al 1993,1996); 3) there are high correlations between reported cash flows from operations and proxies (e.g. Kim & Kross 2005); and 4) unavailability of sufficiently long time-series of reported cash flows from operations (e.g. Dechow et al 1998).
There are numerous financial events (such as acquisition, reclassification, accounting changes, foreign currency translation etc.) that are not included in proxies’ relatively simplistic algorithms. The financial complexities and nuances of such items may cause the time-series properties and predictive ability of reported cash flows from operations to differ from the proxies (Drtina & Largay 1985; Bahnson et al 1996; Heribar & Collins 2002; Mulford & Comiskey 2002; Lorek & Willinger 2008; Luo 2008 and Cheng & Hollie 2008). As a result the external validity of studies using proxies are compromised.
In an effort to mitigate structural change problems, short time-series are used in annual CFO prediction. This action precludes rigorous SAC (sample autocorrelation function (analysis. In fact the purely seasonal characteristics are aggregated and eliminated in annual data masking a potentially important source of autocorrelation. This underscores the need to delineate precisely the time-series properties and predictive ability of reported interim cash flows from operations and proxy series.
Research questions and hypothesis
Questions are:
1) Is there any difference between time-series properties of reported interim cash flows from operations in accordance with Iranian accounting standard no: 2 (after this CFO) and its proxy (after this PCFO)?
2) Is there any significant difference between predictive ability of CFO and PCFO series?
Hypotheses are:
1) There is a difference between time-series properties of CFO and PCFO.
2) The predictive ability of CFO series is significantly higher than PCFO series.
Research method
We have used BOX-Jenkins methodology to considertime-series properties and to assess predictive ability of CFO and PCFO series. At first we computed the firm-specific SAC and SPAC (sample partial autocorrelation function) values of CFO and PCFO data. Then in accordance with the methodology originally popularized by Foster (1977) and also used by Lorek et al (1993, 1996, 2008), firm-specific SAC and SPAC values were summed across sample firms and averaged to obtain values for common structure analysis.
We used three prediction models and mean absolute percentage error (MAPE) metric to assess predictive ability of CFO and PCFO series. These models are:
1) Auto regressive (AR) (110)*(000) - CFOt = CFOt-1 + Ø 1 (CFOt – CFOt-1) + δ + at
2) Random walk (RW), (010)*(000) - CFOt = δ + CFOt-1 + at
and
3) Interim random walk (IRW), (000)*(010)-CFOt = δ + CFOt-2 + at
We obtained data from the interim (middle) financial statements of forty five Tehran stock exchange expected firms from the first half of 1379 until the second half of 1387.
Variables are: a) Reported interim cash flows from operations in accordance with Iranian accounting standard no: 2 (CFO) and b) proxy for CFO series derived with below algorithm:
PCFO=operating income before depreciation-the increase in total current assets minus the increase in cash + increase in total current liabilities (used by Hoopwood & Mckeown, 1992).
Results
1) Although there are differences among SAC and SPAC values (common structure) of CFO and PCFO series, appropriate models to explain SAC and SPAC behavior of both series are the same. This finding shows that there is no difference between time-series properties of CFO and PCFO series
2) There is no significant difference between predictive ability of CFO and PCFO series.
Discussion and conclusion
There are some limitations to predict cash flows from operations, such as unavailability of a sufficiently long time-series of reported CFO. A solution is using proxies for CFO series. Proxies usually are relatively simplistic algorithms from financial statements’ subcomponents and may have different time-series properties and predictive ability, because some complex financial events are eliminated in these algorithms. On the other hand, proxies are usually used in studies, because there is a high correlation between CFO and PCFO data. In this study analysis of SAC and SPAC values (common structure) of CFO and PCFO series show that there are no significant differences between time-series properties and predictive ability of CFO and PCFO series. These findings are consistent with the findings of Dechow et al (1998), Hong Xie (2001) and Kim & Cross (2005) that the proxies could be as reported CFO series.
Our findings contribute to the growing literature on interim cash flow from operations prediction and suggest that while the CFO series are unavailable, the proxy considered in this study could be used.
Keywords: Prediction, Interim Operating Cash flows, Time-series, BOX-Jenkins methodology, Operating Cash flows and Proxies for Cash flows from Operation.
Journal of Accounting Advances
2008-9988
5
v.
1
no.
2013
1
26
https://jaa.shirazu.ac.ir/article_1651_138cf12e8b127e3ae6b6f899af5a93d7.pdf
dx.doi.org/10.22099/jaa.2013.1651
A Study of the Relationship between Financial Leverage and Real Earning Management of Listed Companies in Tehran Stock
Nasser
Izadinia
author
Hamed
Rabiee
author
Nargess
Hamidian
author
text
article
2013
per
Journal of Accounting Advances (J.A.A)
Vol. 5, No. 1, 2013, Ser. 64/3
Extended Abstract
A Study of the Relationship between Financial Leverage and Real Earning Management of Listed Companies in Tehran Stock Exchange
Dr. N. Izadinia H. Rabiee N. Hamidian
University of Isfahan University of Arak Sheikhbahaei’s
University, Isfahan
Introduction
In the accounting literature, numerous studies have been conducted on earnings management and financial leverage. Also, studies show if there is financial leverage, companies tend to manipulate earnings using the real earning management.
Research Questions
The purpose of this research is to investigate the relationship between financial leverage and real earnings management of listed companies in Tehran Stock Exchange.
Methods
In this research, 118 companies were surveyed during 1379-1389. To follow Zarvyn & Cohen's (2010) research, the criteria of real earning management included abnormal operating cash flows, abnormal cost of production and abnormal discretionary expenditures. Real earning management is considered as dependence variable and financial leverage is considered as independence variable. In this research multivariate regression models have been used and the data was combined in order to review relationship between financial leverage and criteria of real earning management.
Results
The results showed that there is a negative and significant relationship between financial leverage and criteria of real earning management including abnormal operating cash flows, abnormal cost of production and abnormal discretionary expenditures.
Keywords: Financial leverage, Real earnings management, Abnormal cash flows from operations, Abnormal discretionary expenditures, Abnormal cost of production.
Journal of Accounting Advances
2008-9988
5
v.
1
no.
2013
33
54
https://jaa.shirazu.ac.ir/article_1652_eeb1f55d365154b0f6736d9abf323aa0.pdf
dx.doi.org/10.22099/jaa.2013.1652
The Impact of Real Earnings Management on Investment Behavior of Companies Listed on Tehran Stock Exchange
Omid
Pourheidari
author
Ali
Rahmani
author
Reza
Gholami
author
text
article
2013
per
Journal of Accounting Advances (J.A.A)
Vol. 5, No. 1, 2013, Ser. 64/3
Extended Abstract
The Impact of Real Earnings Management on Investment Behavior of Companies Listed on Tehran Stock Exchange
Dr. O. Pourheidari Dr. A. Rahmani R. Gholami
Shahid Bahonar University Alzahra University Shiraz University
Introduction
This paper examines how real earnings management activities affect firms’ investment activities. Although there is a large literature on earnings management, there is a dearth of evidence on how it affects firms’ real activities. Healy and Wahlen (1999) point out that earnings management studies have paid only minimal attention to its real economic consequences. Research on the consequences of earnings management has concentrated largely on the external, financial impacts. In contrast, the present study investigates the impact of real earnings management on internal, real decisions firms undertake.
One might suppose that if management chooses to paint a rosier view for investors in the numbers they report externally, then they would not allow this to influence internal investment decisions. However, it is possible that investment decision makers within the firm believe the misreported growth trend—because they are either over-optimistic or unaware of the misstatement—and invest accordingly. Alternatively, investment decision makers might understand the true state of the firm but choose to overinvest in a high-risk approach to turn around firm’s performance (McNichols and Stubben, 2008). Kedia and Philippon (2006) suggest that firms engaged with earnings management, manipulate the investment decisions to pool with better performing firms, in order to avoid detection.
Regardless of the reason for the overinvestment, truthful reporting might have prevented it. Several parties are typically involved in investment decisions. If financial results are reported truthfully, then other parties could enter in order to control the investment. As a result, firms invest more than they otherwise would have; thus attempts to meet capital market expectations or meet bonus targets, for example, could affect investors, employees, customers, and a broad set of related parties.
Research Questions or Hypotheses
This study investigates whether and how a firm’s investment behavior is influenced by real earnings management activities. On the other hand, we try to find out how managers’ reaction to real earnings management activities in the context of their investment decisions. Simply, we attempt to answer the following question:
Is there any significant relationship between real earnings management proxies (abnormal operating cash flows, abnormal production costs and abnormal discretionary expenses) and firms’ excess investment?
Given sales levels, firms that manage earnings upwards are likely to have one or all of these: unusually low cash flow from operations, and/or unusually low discretionary expenses, and/or unusually high production costs (Cohen and Zarowin, 2008). So, we can develop our research hypotheses as follows:
H1: There is a significant negative relationship between abnormal operating cash flows and excess investment.
H2: There is a significant positive relationship between abnormal production costs and excess investment.
H3: There is a significant negative relationship between abnormal discretionary expenses and excess investment.
Methods
We have used data for 63 listed companies on Tehran Stock Exchange for the period of 1378-1388 (1999-2009) to test the above hypotheses. We first generated the normal levels of CFO, discretionary expenses and production costs using the model developed by Dechow, Kothari and Watts (1998) as implemented in Roychowdhury (2006). To answer the research questions, this paper analyzes the relationship between proxies of real earnings management and firm’s excess investment by multiple linear regressions.
Results
The results indicate significant relationships between abnormal operating cash flows, abnormal discretionary expenses (as independent variables) and excess investment, suggesting that firm’s investment behavior is influenced by real earnings management. Our results also indicate a significant relationship between abnormal discretionary expenses and firm’s excess investment in the period afterwards.
Discussion and Conclusion
Managers do not have a direct preference for investing, but the requirements of signaling compel them to act in a consistent manner. The essential point that emerges is a general one: in any signaling equilibrium investment must be consistent with reported profits. In alternative interpretations, such as managerial optimism or empire building, managers might have a primary desire for investment, but it is the same requirement of consistency that lead them to manipulate earnings. In both cases, earnings manipulation is a necessary condition for overinvestment.
Keywords: Real Earnings Management, Excess Investment, Overinvestment, Underinvestment.
Journal of Accounting Advances
2008-9988
5
v.
1
no.
2013
55
85
https://jaa.shirazu.ac.ir/article_1653_ac8f5acbd21bdeb879bc33c43d781546.pdf
dx.doi.org/10.22099/jaa.2013.1653
The Impact of Adopting IASs on Iran Environment from Economic Perspective
Rezvan
Hejazi
author
Gholamreza
Soleimany
author
Maryam
Omidi Nobijar
author
text
article
2013
per
Journal of Accounting Advances (J.A.A)
Vol. 5, No. 1, 2013, Ser. 64/3
Extended Abstract
The Impact of Adopting IASs on Iran Environment from Economic Perspective
Dr. R. Hejazi Dr. G. R. Soleimany M. Omidi Nobijar
Alzahra University
Introduction
The international standardized process has started to function since 1970. Due to the business units choosing accounting policies compatible with international standards, comparability of reporting with other companies that use international standards is increasing. There are important questions about the role and effects of international accounting standards at the time of their application in communities which need to be responded to.
Research Questions or hypotheses
The main objective of this study is to investigate the economic impact of adopting the IASs on the Iranian environment from the perspective of accountants, auditors and academicians. Two hypotheses were designed to measure this question. Assumption 1: on the basis of comments of academics, auditors and accountants, acceptance of international accounting standards has a significant economic effect on environment of Iran. Assumption 2: there is a significant difference between comments of academics, auditors and accountants regarding the effects of economic acceptance of international accounting standards on the environment of Iran.
Methods
In order to achieve the objectives of the study, a research design was developed owing to the fact. The relationships among variables under study are expressed in Figure (1) which is presented below:
INTERNATIONAL
ACCOUNTING
STANDARDS
IRAN ENVIRONMENT
Econoic Impact
Figure 1: The model of the study
To reach this goal for data collection, Delphi method and for estimating sample size Cochran formula have been used. Considering that this research is of survey kind, the questionnaire was set with regard to the five choice Likert scale and in order to evaluate the reliability Cronbach's alpha coefficient and in order to measure validity, three content, structural and concurrency validities have been used. Data was analyzed and to statistical test assumptions in the study in the 0.05 significance level, analytical variance test (analysis) was used to approve or not approve the hypothesis 1 and Tukey test was used to confirm or not confirm hypothesis 2.
Results
The results of the questionnaire are summarized and displayed in Table (1). In addition, all the study groups have responded consistently to the economic dimension.
Table 1: Mean& Standard Deviation& Coefficient of Variation of Economic Impact
Group
Mean
Standard Deviation
Coefficient of Variation
Ra .M
Ra .CV
Academicians
3.47
0.93
0.27
2
2
Auditors
3.39
0.93
0.27
3
3
Accountants
3.66
0.73
0.20
1
1
Sum
3.50
0.88
0.25
After hypotheses testing and data analysis, assumption 1 of this study was approved (Table 2).
Table 2: Confirm Hypothesis Economic Impact
Hypothesis
Test
Sig.< 0.05
√
×
H1
ANOVA
0.011
√
H2
Academicians & Accountants
TUKEY
0.677
×
Academicians & Auditors
0.158
×
Auditors & Accountants
0.009
√
However, assumption 2 was not approved which means that there is no significant difference between commenting. This is due to the variation in the magnitude of the perspectives regarding the economic impact between the accountant group and the auditor group.
Discussion and Conclusion
This study was conducted in order to examine the impact of adopting the International Accounting Standards on the Iran environment, from economy perspective based on the views of accountants, auditors and academicians. It is hypothesized that such impacts do exist while IASs adoption takes place in Iran.
Finally considering the results of the research it has been suggested that accepting international accounting standards has effects on various aspects of each community.
Journal of Accounting Advances
2008-9988
5
v.
1
no.
2013
87
111
https://jaa.shirazu.ac.ir/article_1654_d112775d5adbd0826a1be578df196d4f.pdf
dx.doi.org/10.22099/jaa.2013.1654
Monitoring Role of Auditing and Corporate Dividend Payout Policies
Vally
Khodadadi
author
Saied
Hajizadeh
author
Ramin
Ghorbani
author
text
article
2013
per
Journal of Accounting Advances (J.A.A)
Vol. 5, No. 1, 2013, Ser. 64/3
Extended Abstract
Monitoring Role of Auditing and Corporate Dividend Payout Policies
Dr. V. Khodadadi S. Hajizadeh R. Ghorbani
Shahid Chamran University of Ahvaz
Introduction
The aim of this paper is to investigate the relation between monitoring role of independent auditing and corporate dividend payout policies.
Research Questions or hypotheses
Research Questions are described below:
Is audit firm size associated with the amount of cash dividends?
Is audit fee associated with the amount of cash dividends?
Is the amount of free cash flow associated with the amount of cash dividends?
Is growth opportunities ratio associated with the amount of cash dividends?
Is the amount of free cash flow has a significant effect on the relation between audit firm size and the amount of cash dividends?
Is the amount of free cash flow has a significant effect on the relation between audit fee and the amount of cash dividends?
Is growth opportunities ratio has a significant effect on the relation between audit firm size and the amount of cash dividends?
Is growth opportunities ratio has a significant effect on the relation between audit fee and the amount of cash dividends?
Methods
This study employs financial data of companies listed on Tehran Stock Exchange during 2006-2009 periods, and the pooled regression model was used to test hypotheses.
Results
Statistical analysis of data shows that audit firm size is positively associated with cash dividends, but audit fee has no significant relationship with them. The results also showed that free cash flow is positively and growth opportunities ratio is negatively associated with cash dividends. Moreover, the result showed that growth opportunities ratio has a positive and significant effect on the relation between Audit firm size and the amount of cash dividends.
Discussion and Conclusion
According to the results, if auditor independence and audit quality are to be enhanced, agency costs resulting from dividends are reduced. Also, the evidence provided by this paper adds to the literature and this is important because auditing is a socially constructed phenomenon.
Keywords: Auditor Monitoring, Audit Quality, Audit Fee, Cash Dividends, Free Cash Flow, Growth Opportunities.
Journal of Accounting Advances
2008-9988
5
v.
1
no.
2013
113
140
https://jaa.shirazu.ac.ir/article_1655_97d8852138591ca975440c59da0f2e56.pdf
dx.doi.org/10.22099/jaa.2013.1655
An Analysis of the Effects of Growth Opportunities on Financial Leverage of Companies Listed on Tehran Stock Exchange
saeed
Samadi
author
Sirus
Soheili
author
Vahid
Kabiripour
author
text
article
2013
per
Journal of Accounting Advances (J.A.A)
Vol. 5, No. 1, 2013, Ser. 64/3
Extended Abstract
An Analysis of the Effects of Growth Opportunities on Financial Leverage of Companies Listed on Tehran Stock Exchange
Dr. S. Samadi S. Soheili V. Kabiripour
Isfahan University
Introduction
The ability of companies in identifying the potential financial sources to provide funds for investments and prepare appropriate financial plans can be considered as a main factor in development and progress. In order to determine the appropriate financial sources, managers should determine the cost of various financing sources and their effects on firm value to maximize the shareholder wealth. In this regard, many factors such as firm size, growth opportunities, management status, exclusive products, production and sales level, resources of raw materials, access to financial markets and the economic and political environment affect decision making. However achieving it, has some costs which can adjust their leverage to optimal leverage. Due to conflicts among interests of different groups of stakeholders (agency theory), these costs may be very expensive and prevent company to achieve this goal. Therefore companies do the partial adjustment to reduce the gap between actual and optimal leverages and these adjustments will be done until the benefits may outweigh the costs.
Research Questions or hypotheses
According to various theories of capital structure and the different results obtained by different studies, this paper intends to investigate this question whether there is any non-linear relationship between growth opportunities and financial leverages of listed companies in Tehran stock exchange. It also measures the optimal leverage based on partial adjustment model and the gap between real and optimal leverages. Moreover, it determines firm adjustments toward target leverage and examines the relation between growth opportunities and financial leverage.
Methods
The analysis of this paper is carried out common stocks listed on the Tehran Stock Exchange by using the panel data with fix effects at annual level from 2000 to 2011. In this study, for the choice of the method between panel data and pooled data, the F statistic is used. Houseman test statistic was used to detect whether differences between sectional units are fixed or random. The most commonly used tests for the diagnosis of Autocorrelation-Which Durbin-Watson test is the simplest one—to calculate the relationship between an error and its prior.
Results
The results of regression analysis of the first hypothesis indicate a non-linearity relationship between growth opportunities and leverage at 99% confidence level. There is a significant negative relationship between the low levels of growth opportunities and financial leverage calculated by market value. This means that with one unit increase in growth opportunities, other factors being constant, the average 31% reduction in leverage occurs and vice versa.
Also there is a significant positive relationship between moderate levels of growth opportunities and financial leverage calculated by market values, This means that with a one unit increase in growth opportunities, other factors being constant, the average 5.6% increase in leverage occurs and vice versa. For high levels of growth opportunities and financial leverage calculated by market value, there is a significant negative relationship. This means if there is a unit increase in the growth opportunities there, with other factors being constant, an average 0.3% reduction in leverage is expected. Meaningfulness of first, second and third power for the growth opportunities with leverage is a cubic relationship; shifts in the curve was calculated by the software MTLAB using differential. In the low level of growth opportunity, it has a negative slope. Positive slope in the average level of growth opportunities in high-growth opportunities slope is negative again.
Discussion and Conclusion
Findings show this relationship is negative for low and high levels of growth opportunities and positive for moderate levels. The optimal leverage based on trade-off theory is estimated by partial adjustment model using variables such as growth opportunities, size, fixed assets, depreciation, research and development costs and profitability. Based on the model outputs, speed of adjustment toward the optimal leverage is 52.7% which indicates a 47.3% gap between the actual and optimal leverages. Accordingly, the second hypothesis regarding to existing a gap between the actual and optimal leverages is confirmed. From an accounting point of view, due to the trade-off theory, growing companies lose more value than normal situation or lack of growth opportunities during the bankruptcy. Also from this perspective, firms with growth opportunities at lower levels due to the lack of appearances in these opportunities (not to be used as collateral) have less leverage. Fama and French (1992) stated that the shares of companies that have high leverage may be discounted by investors with high rates. This implies a negative relationship between growth opportunities and leverage in the low growth opportunities. Long et al (1996) indicate that leverage lowers incentives for investment in weak projects. Varvj et al (2005) examined the relationship between leverage and investment and concluded a meaningfully stronger negative relationship for firms with low growth opportunities to companies that have high growth opportunities. It can be said that when the companies have low growth opportunities, increasing leverage is to increase the speed of corporate bankruptcy because they cannot enhance corporate value through fit investments, and the company is in a critical threshold of declining values, In this regard, in the low levels of growth opportunities for these companies is expected to reduce leverage. This result is consistent with agency theory and trade-off theory. Based on hierarchy theory, which asserts that in firms with investment opportunities that can increase firm value and the benefits of use of debt is more than the cost of debt, it is expected at moderate levels of growth opportunities that leverage is positively associated with. This positive jump in corporate with the middle levels of growth opportunities in use of debts, is consistent with hierarchy theory. Managers have more information than outside investors on cash flow from investment opportunities and generally future prospects and the true value of corporate. If they are not able to increase level of their debt, they cannot use investment opportunities that increase firm value. In other words, increasing the firm's growth opportunities causes more risk, and more financial distress costs are incurred. Firms with high growth opportunities have more incentives to finance their operations through equity, which are expected to be an inverse relationship between growth opportunities and debt existing (Kurdistani and Civil Najafi, 1387). In high levels of companies' growth opportunities, a negative association can be seen, but this negative correlation is not to the severity level of growth opportunities in lower ones. However, high-growth companies consider reducing leverage. As it can be seen, the first hypothesis that expresses the non-linear relationship between real leverage and growth opportunities is confirmed to be true.
Keywords: Growth Opportunities; Partial Adjustment; Optimal Leverage
Journal of Accounting Advances
2008-9988
5
v.
1
no.
2013
141
168
https://jaa.shirazu.ac.ir/article_1656_36cc7d50d8560fcbf396d734792f311e.pdf
dx.doi.org/10.22099/jaa.2013.1656
Predicting Earnings Management level By Using Artificial Neural Networks
Gholamreza
Kordestani
author
Javad
Masomi
author
Vahid
Baghaee
author
text
article
2013
per
Journal of Accounting Advances (J.A.A)
Vol. 5, No. 1, 2013, Ser. 64/3
Extended Abstract
Predicting Earnings Management level By Using Artificial Neural Networks
Dr. G. Kordestani
Imam Khomeini International University
J. Masomi
Hazratee Masoumeh University (HMU)
V. Baghaee
Introduction
Earning management is one of the most fascinating and controversial issues in accounting and finance that has attracted the attention of many researchers due to the existence of contradictions, deceptions, secrecy and a sense of uncertainty. Interest rates in financial statements have been the subject of interest to investors, creditors, employers, financial analysts, customers and suppliers of materials who make decisions based on such data. Thus presentation of timely and reliable financial information is to the benefit of the users. However, this provides an opportunity for managers to mislead users by manipulating earnings in order to achieve their goals. For example, when managers' bonuses are tied to their financial performance, they have plenty of incentives to manage earnings to meet analysts' expectations financially. Most studies of the earnings management literature have examined the factors that significantly affect the level of earning management, but these variables are not used directly to predict the level of earnings management. There is one only possible correlation between these variables and the earning management. Therefore, a model designed to predict the level of earnings management to reduce risks of financial crisis management and the profits to help investors, creditors and other users of financial information, to avoid suffering major losses in capital market seems to be necessary.
One of the most practical methods in modelling and forecasting is neural networks which have many applications in the field of finance. Given the benefits of the neural network to predict the level of earnings management, capital markets will help users of financial statements. In this study, using a neural network multilayer perception (MLP) model for a level of earnings management is offered in Tehran Stock Exchange.
Design, test and neural network results
Classification of earnings management
In order to predict the level of earnings management by different levels of artificial neural network, first we must define it. Two observations follow from beginning to end to manage the surge in profits and profit sharp reductions in our classified data. The next classification is large increase profits and decrease of high-profit management, and finally the last category, the lowest level of earnings management, is earnings minor management.
The artificial neural network structure
20 networks with different parameters examined in this study are to determine the optimal neural network to predict the level of earnings management. Table 2 shows these 20 networks with the desired parameters.
Table 2: Parameters of neural network
The number of hidden layer neurons
The number of epochs
1000
1500
2000
2500
8
M1
M6
M11
M16
12
M2
M7
M12
M17
16
M3
M8
M13
M18
24
M4
M9
M14
M19
32
M5
M10
M15
M20
Also according to studies carried out in the hidden layer tangent sigmoid transfer function and the output layer of linear transfer function are used. The network training was done using error back propagation algorithm and Markwardt-Levenbery.
Neural network training and test results
M14 network with accuracy of 0.94 percent in the training phase and 0.69 percent in the test phase have the best performance. As a result, the network with 24 neurons in the hidden layer with 2000 epoch of the process is chosen as the best-trained network to predict the level of earnings management in Tehran Stock Exchange.
Conclusion
This paper is a preliminary study to predict the level of earning management that uses neural network models. These predictive models are useful for users of financial statements who make decisions depending on the earnings amounts to avoid suffering a great loss. In addition, predicting level of earnings management in advance is a new application for neural networks. In this research we used three layers perceptron (MLP) with error back propagation algorithm. Network parameters are determined with continued testing. As result, a neural network with accuracy of 0.94 percent in the training phase and 0.69 percent in the test phase has the best performance for predicting of earning management level.
Journal of Accounting Advances
2008-9988
5
v.
1
no.
2013
169
190
https://jaa.shirazu.ac.ir/article_1657_2dd9d51ade6f302e9e1c663caa2b8118.pdf
dx.doi.org/10.22099/jaa.2013.1657
Extended Abstract
Investigating the Necessity and Usefulness of Establishing Conceptual Framework Based on Accounting
Standards for Municipalities
Golamhossein
Mahdavi
author
Mostafa
Kazemnejad
author
text
article
2013
per
Journal of Accounting Advances (J.A.A)
Vol. 5, No. 1, 2013, Ser. 64/3
Extended Abstract
Investigating the Necessity and Usefulness of Establishing Conceptual Framework Based on Accounting
Standards for Municipalities
Dr. G. H. Mahdavi M. Kazemnejad
Shiraz University
Introduction
Accounting standards improve the quality of general purpose financial reporting presented by public sector entities, leading to better informed assessments of the resource allocation decisions made by these entities, thereby increasing transparency, auditing process and accountability.
Regarding the importance of accounting standards (based on conceptual framework) in municipalities, this research investigated the necessity and usefulness of accounting standards in these public sector entities. In this regard, the effects of accounting standards codification on raising the qualitative characteristics of the financial reports, improving process of auditing financial reports, improving the financial management, providing the basis of place an accounting system and financial reporting based upon the discharge of accountability and possibility of performance measurement and discharge of responsible accountability were investigated.
Research Hypotheses
According to the theoretical basis and literature, five hypotheses were designed and tested:
Codification of accounting standards for municipalities results in raising the qualitative characteristics of financial reports.
Codification of accounting standards for municipalities improves process of auditing financial reports.
Codification of accounting standards for municipalities leads to improving financial management.
Codification of accounting standards for municipalities provides the basis for an accounting system and financial reporting based upon the discharge of accountability.
Codification of accounting standards for municipalities predisposes the possibility performance measurement and discharge of responsible accountability.
Research Methodology
This research is conducted through survey. In the theoretical phase, the necessary information for the survey was gathered through reference to books, magazines, and internet databases. In the field phases, however, a questionnaire of 5 general and 40 specific questions was used. The specific questions of questionnaire were those of the closed and conditioned and have been adapted in accordance with the Likert Spectrum.
In order to gain logical certainty of the validity of the questionnaire, in addition to comments by specialists of the field, a pretest was used. The questionnaire was distributed among 125 of the statistical population, who had been randomly selected.
In order to evaluate the reliability of the questionnaire, the ά-Cronbach test was used. The calculated ά-Cronbach was over the 0.7 for all of the hypotheses, and therefore none of the questions of the questionnaire was left out.
The statistical population of the study consisted of financial deputies, chief accountants and internal auditors. In 2011, there were 91 municipalities in Fars province. This research did not utilize any sampling and all of Fars province municipalities were investigated. In the investigated population, there were 107 financial deputies and chief accountants and also 18 internal auditors. 125 questionnaires were distributed and notwithstanding the frequent follow up, 18 of internal auditors and 69 of financial deputies and chief accountants responded to the questionnaire completely.
In order to analyze the data obtained by questionnaire, descriptive and inductive statistical methods were used. For the qualitative analysis of general information obtained from the questions of the first part of the questionnaire, classification and organization of the information, relative frequency distribution and absolute frequency distribution were used. For testing the hypotheses of the study, “one-sample t-test” and “median test” were used, and then “Friedman test” was used for rating the effects of accounting standards codification on these factors. Finally for investigating the existence of the significant relationship among general and specific questions, “Kruskal-Wallis”, “analysis of variance”, “independent-sample t-test”and “Mann-Whitney” were used. SPSS was used for data analysis and conducting the above statistical tests.
Results
The results of “one-sample t-test” and “median test” showed that:
Codification of accounting standards for municipalities results in raising the qualitative characteristics of financial reports.
Codification of accounting standards for municipalities improves process of auditing financial reports.
Codification of accounting standards for municipalities leads to improving financial management.
Codification of accounting standards for municipalities provides the basis for an accounting system and financial reporting based upon the discharge of accountability.
Codification of accounting standards for municipalities predisposes the possibility of performance measurement and discharge of responsible accountability.
Also the results of “Friedman test” revealed that codification of accounting standards for municipalities has the most significance on auditing process, facility of performance measurement, improvement in reporting quality, establishment of an accounting system and financial reporting based upon the discharge of the accountability and financial management betterment, respectively. At last, the results of “Kruskal-Wallis”, “analysis of variance”, “independent-sample t-test” and “Mann-Whitney” showed that none of general information has a significant effect on hypotheses, except age which has a significant effect just on the third hypothesis.
Discussion and conclusion
The results of the study indicated that codification of accounting standards for municipalities has positive and significant effects on improvement in reporting quality, auditing process, financial management betterment, establishment of an accounting system and financial reporting based upon the discharge of the accountability and financial management betterment and facility of performance measurement. Therefore, the codification of accounting standards in municipalities should be commenced.
Keywords: Accounting Standards for Municipalities, Improvement in Reporting Quality, Auditing Process, Financial Management Betterment, Performance Measurement
Journal of Accounting Advances
2008-9988
5
v.
1
no.
2013
191
217
https://jaa.shirazu.ac.ir/article_1658_ded79a9bd6e91a6cee0e71aa48f7d0fa.pdf
dx.doi.org/10.22099/jaa.2013.1658