The shareholders and stakeholders in any organization are interested in the fair and true worth of the company both in terms of its performance and financial health. A major concern for shareholders in any organization is the earnings management. The paper, “Shareholder Concentration and Discretionary Accruals: Evidence from an Emerging Market”, deals with one of the aspects of corporate governance, i. e., shareholder concentration and its ability to constrain earnings management behavior. Using a sample of 99 firm-years, the study empirically tests the relationship between shareholder concentration and absolute value of discretionary accruals and its impact on earnings management. The study reveals that highly concentrated shareholders lead to high levels of earnings management. Earnings management may not be bad for companies. On the other hand, it can be advantageous to shareholders. Since shareholders benefit from earnings management, they encourage and support the managers’ choice of accounting methods.

The reporting practices and the accounting applications in the valuation of intangible assets differ from organization to organization. This leads to information asymmetry in the capital markets. To bridge this gap, the need for reporting on intangibles, by means of intellectual capital reports has become a must. Increased transparency, through intellectual capital reporting, is desired by capital market participants, which include stakeholders and the society.

The paper, “MERITUM and Danish Guidelines for Reporting on Intangibles: A Comparative Study”, presents and compares the two renowned guidelines—MERITUM and Danish—for reporting on intangibles, which have been developed in Europe in recent years. The study identifies the differences between these two guidelines in their methodology, scope, the terminology they use, and the way they classify actions and indicators. The study, based on personal interviews of the authors of the guidelines, has important policy implications and recommendations for practitioners.

The paper, “Accounting Issues on the Measurement and Bookkeeping of Research and Development Expenditures within the European Research Area”, suggests that valuation of intangible assets, management and reporting related services are expected to play a significant role in the proper functioning of the European Research Area (ERA) as well as the operation of the single market and the sustainability of all aspects of the economy in Europe. Without readily available administrative, legislative, financial or other public services, economic actors—both at the corporate and state level—cannot fully utilize the opportunities available in the information society. The study evaluates the reporting methods and performance measurements for the accounting of the intangibles, like R&D costs, and analyzes the strengths and weaknesses of each of these parameters and establishes a framework for their application.

During the periods of inflation, the value of assets (both tangible and intangible) and liabilities dwindles and the figures reported would not reflect the real value, leading to difficulties of comparison with other firms. Inflation accounting provides an improved picture for inter-period comparison of the performance of organizations, by incorporating the effect of inflation and overcoming the limitations of using historical costs as the basis of financial statement and reporting. The paper, “Effects of Inflation Accounting on Financial Ratios: An Empirical Analysis of Non-Financial Firms Listed on Istanbul Stock Exchange”, surveys the situation in Turkey in the aftermath of the recent adoption of inflation accounting practice in that country. The study reveals that when the prices of raw materials rise sharply, the developed and developing countries face the challenge of increases in inflation. The study finds that the inflation-adjusted accounting does not make a considerable difference to liquidity ratios, the total assets turnover and the debt ratio except in the non-metallic mineral products industry. Lessons may be drawn by those firms conducting business internationally, particularly in an hyperinflationary environment.

-- Vunyale Narender
Consulting Editor