Korean Accounting Review (KAR) is the official journal of the Korean Accounting Association. The Korean Accounting Association (KAA) is the largest and oldest academic organization of accounting scholars and practitioners in Korea. It aims to create a fertile environment for innovation and collaborative research, to foster and improve research for the development and the promotion of accounting, and to develop a powerful network among scholars, practitioners, and authorities concerned with political decision making in this field.
The Impact of Mandatory IFRS Adoption on Income Smoothing IFRS 의무채택이 이익유연화에 미치는 효과
김경순 Kyung Soon Kim , 이경진 Kyung Jin Lee
DOI: KAR Vol.45(No.5) 1-38, 2020
This study examines the effects of the adoption of IFRS on managerial discretion by comparing the previous K-GAAP period in Korea. In particular, we compare the magnitude of income smoothing between the IFRS and K-GAAP period. Theoretically, the principle-based accounting standards reduce managerial discretion, so income smoothing behavior can be reduced. In practice, however, income smoothing behavior may increase because principal-based accounting standards may further increase managerial discretion due to deficient implementation guidance and ambiguity of principle. For this reason, this study empirically investigates the effect of IFRS adoption on the discretion of managers using income smoothing. As a result, we find that the magnitude of earnings smoothing during the IFRS adoption period is higher than that of the previous K-GAAP period. Our results show robustness in alternative analyzes using various comparison periods and financial statement types. Overall, the results of this study suggest that management's discretion during the IFRS adoption period has increased more than the past K-GAAP period. These results indicate that some companies tend to exploit for opportunistic purposes using the ambiguity of the practical application of IFRS without applying accounting methods consistent with economic realities in accordance with principle-based accounting standards.
IFRS 의무채택, 원칙기반 회계기준, 경영자 재량권, 이익유연화, 시계열 차이 비교, mandatory IFRS adoption, principles-based accounting standards, managerial discretion, income smoothing, time series difference comparison
The Effect of New Financial Conditions for Auditor Designation on Firms’ Earnings and Operating Cash Flow Management 신설된 재무기준 감사인 지정 사유가 기업의 이익과 영업현금흐름의 조정에 미치는 영향
황지회 Jihoe Hwang , 최선화 Sunhwa Choi
DOI: KAR Vol.45(No.5) 39-77, 2020
The revision of the “Act on External Audit of Stock Companies” in 2018 expanded the scope of auditor designation by introducing new conditions based on firms’ financial performance. Specifically, a firm is subject to auditor designation if the firm meets one of the following conditions for the three consecutive years: (i) negative operating income, (ii) negative operating cash flows, and (iii) interest coverage ratio less than one. We examine whether the introduction of these conditions for auditor designation affects firms’ earnings and operating cash flow management. Using the sample of firms that met at least one of the conditions in 2016 and 2017, we examine the differences in earnings management and operating cash flow management between firms that do not meet the conditions in 2018 (and thus avoid being subject to auditor designation) and those that still meet the conditions in 2018 (and thus are subject to auditor designation). We find that firms that avoid auditor designation are more likely to inflate operating income in 2018 by reporting more income-increasing discretionary accruals than firms that are subject to auditor designation. In addition, firms that avoid auditor designation tend to classify core expenses as non-core expenses within the income statement (classification shifting) to inflate operating income in 2018, and they also report higher unexpected operating cash flows in 2018. Overall, these results suggest that some firms manage to avoid being subject to auditor designation by managing earnings or operating cash flows. Our study has important policy implications for regulators.
The Impact of the Current Adjustments for Prior-period Income Taxes on the Usefulness of Earnings Information 과거기간 법인세의 당기조정처리가 이익정보 유용성에 미치는 영향
박성환 Sung Whan Park , 김유찬 Yoo Chan Kim
DOI: KAR Vol.45(No.5) 79-113, 2020
The purpose of this paper is (1) to perform the descriptive analysis for the disclosure on ‘any adjustments recognized in the period for current tax of prior periods’ and (2) to empirically examine the impact of tax adjustment on the usefulness of earnings information using the association study framework. Because the existing literature in the research field of income tax has primarily focused on deferred tax-related issues, much attention has not been paid to the current adjustment for prior period income tax, relatively. The current adjustment for prior-period income tax is one of major components involved with the determination of tax expense. Thus, it would be helpful to discuss the disclosure practice and accounting issues of the tax adjustment in extending our understanding of tax accounting. The results of this paper are as follows. First, the amounts of tax adjustment are widely distributed and fairly high. The tax adjustment is prevalent in practice and is disclosed in less clear fashion. Second, the current adjustment for prior period income tax significantly negatively affects the association between abnormal returns and abnormal earnings (i.e., the earnings response coefficient). In addition, it is found that both the possible involvement in corporate fraud and the disclosure clarity are the factors that significantly affect the relation between the earnings response coefficient and the current adjustment for prior period income tax. The additional analysis based on disclosure frequency shows that the disclosure frequency measured by firm significantly negatively affects the earnings response coefficient.
What Determines the Voluntary Disclosure of CEO Succession Planning?
Min Kwan Ahn , Jeong Hwan Joo
DOI: KAR Vol.45(No.5) 115-159, 2020
An established succession planning program for the identification and grooming of its next leader helps maintain the continuity of firm strategy and leadership style, which influences long-term firm performance and viability. Disclosure of succession planning information may alleviate investors’ doubts about whether the firm has a succession planning plan, while it may increase competition for CEO candidates, leading to increases in the cost of securing qualified candidates. This study explores what determines firms’ decisions to provide this disclosure using firms that initiate CEO succession planning disclosure in a given year and their control firms. We find that firms are more likely to initiate the disclosure of CEO succession planning when 1) segment concentration (negatively related to organizational complexity) becomes lower, 2) the board of directors becomes more independent, 3) the CEO has reached the retirement age of 64, 4) the CEO becomes more important relative to other executive officers in the industry labor market, 5) the number of analysts following (reflecting external monitoring) increases, and 6) CEO tenure (reflecting CEO entrenchment) declines. Overall, our findings suggest that the disclosure of CEO succession planning is motivated by investor demand for a smooth transition among top management and enhanced transparency in CEO succession planning.
CEO turnover, Corporate governance, CEO succession planning, CEO succession planning disclosure
Use of Derivatives as Hedging Instruments and Market Pricing of Earnings 위험회피목적 파생상품 사용과 자본시장반응
박현영 Hyun-young Park , 이호영 Ho-young Lee
DOI: KAR Vol.45(No.5) 161-201, 2020
This study examines the market pricing of the association between the use of hedging derivatives and income persistence. This study also investigates whether the market pricing before and after the adoption of International Financial Reporting Standards (IFRS) is different. Examining 1,229 firm-year data hedging with derivatives for the period from 2004 to 2014, we find that market participants misprice the effect of the use of hedging derivatives on accrual persistence. The results are consistent with the concern that economic and financial reporting complexities of derivatives and insufficient disclosures on hedging activities harm understandability of financial information, although the use of hedging derivatives increases income persistence. However, the Korean adoption of IFRS made the accrual anomaly stemmed from the use of hedging derivatives dissipate. The results are attributed to more extensive and transparent disclosure rules of IFRS on derivatives and risk management. This study contributes to the studies on the relationship between accounting and disclosure quality and accrual anomaly. While the functional fixation hypothesis ascribes the mispricing of accruals to the limited attention and judgement error of information users, our results suggest that the supply side of information plays a significant role.
위험회피목적 파생상품, 자본시장반응, 발생액 이상현상, 국제회계기준, derivatives as hedging instrument, market pricing of earnings, accrual anomaly, International Financial Reporting Standards, IFRS
Do Revenue Structure and Governance Affect the Financial Position of Korean Non-Profit Organization? 공익법인의 수익구조와 지배구조가 재정 건전성에 미치는 영향
김지혜 Jihye Kim , 김정교 Jeong-kyo Kim
DOI: KAR Vol.45(No.5) 203-248, 2020
This study examines whether revenue structure and governance affect the financial position of nonprofit organizations (hereinafter NPO). After analyzing all types of NPO whose total assets are over 10 billion won and audited from 2015 to 2017, we find the more revenue is concentrated, the lower the financial vulnerability is. Revenue concentration, not revenue diversification leads to financial stability. The statistically insignificant results by each type of NPO, however, raise the possibility that the effect of revenue structure differs depending on the specificity of the programs and the circumstance. Since financial health is influenced by resource providers, we include the types of providers as governance. When founders serve as chairperson, NPO is affiliated with a corporation, or related parties act as board members, governance structure positively affects the financial position of NPO. The positive effect on revenue concentration also increases as the influence of resource providers increases. The results show that NPO secure financial resources by increasing dependency on essential resource providers rather than diversifying risks to reduce volatility and uncertainty. Increasing dependency on resource providers, however, affects the decision-making process on NPO. The findings of this study provide practical and effective implications for policymakers to improve the NPO system by presenting evidence that governance and revenue concentration, which is caused by governance, positively affect the financial position of NPO, which paves the way that governance can influence decision-making as collateral for financial stability.
공익법인, 수익구조 집중, 지배구조, 재정 건전성, nonprofit organizations, revenue concentration, governance, financial position
The Effect of CEO Turnover on Audit Fees and Audit Hours 최고 경영자 교체가 감사보수 및 감사시간에 미치는 영향
최종원 Jong Won Choi , 박주형 Ju Hyoung Park
DOI: KAR Vol.45(No.5) 249-283, 2020
This study investigates whether CEO turnover affects audit fees and audit times. Previous research suggests that CEO turnover has effects on important corporate policy, operating and investment activities, earnings management around the time of their replacement, and uncertainty of future corporate performance. After all, CEO turnover can be inferred as the events affecting the risk of financial reporting. Therefore, this study verifies whether CEO turnover increases financial reporting risk through audit fees and audit times. Our sample includes listed firms in KOSPI between 2008 and 2019. Our results are as follows: First, we find that a positive association between CEO turnover and audit fees(audit times). It can be inferred that the CEO change causes auditors to incur additional resources and audit time due to the increased audit risk. Second, we find that the audit fees and audit times increase as the case that incoming(successor) CEO is invited from outside the company, replaced by professional manager, or when departing(predecessor) CEO is forcibly replaced. These results imply that there is a difference in the increase in both audit fees and audit times depending on the type of CEO turnover. Our study makes several contributions as follows: First, we suggest that external users, such as investor, creditors, etc., should pay more attention to the use of financial statement of firm that have replaced CEO. Second, our results suggest that the replacement of stable and planned CEO turnover may lower the risk of financial reporting.
최고 경영자 교체, 감사보수, 감사시간, 재무보고위험, CEO turnover, audit fees, audit times, financial reporting risk
The Effects of Equity, Policy Consensus and Sanction on Tax Compliance 조세 공평성, 정책 수립 과정의 소통 및 합의 그리고 제재가 조세순응에 미치는 영향
배수진 Su Jin Pae , 심태섭 Tae Sup Shim
DOI: KAR Vol.45(No.5) 285-321, 2020
In South Korea, policies to increase tax equity, such as increasing the highest income tax rate and reducing tax-exempt status, have been discussed, and a subset of related laws have recently been revised. This study analyzed the effects of vertical and horizontal equity on tax compliance and of policy consensus and sanctions on tax compliance under an equity policy. In an experiment, a hypothetical tax reporting situation was presented to business administration college students engaged in economic activities. The results suggested that strengthening vertical equity by raising the highest income tax rate can increase tax compliance. By contrast, reinforcing horizontal equity by reducing tax exemptions did not significantly affect tax compliance. This difference in outcomes implies that people perceive the concept of equity as vertical equity, that is, redistribution of wealth through taxation of high-income brackets. By contrast, tax exemption is viewed as benefiting low-income brackets. However, reducing tax exemptions may be perceived negatively as an overall tax increase. In addition, increasing policy consensus increased tax compliance. This suggests the need for policy consensus procedures, such as expanding public hearings on the tax legislative process. Lastly, strengthening sanctions did not significantly affect tax compliance. However, the importance of policy consensus prior to sanction was suggested, as the effect of strengthening sanctions on tax compliance or tax evasion depended on the level of policy consensus.
수직적 공평성, 수평적 공평성, 정책 수립 과정의 소통 및 합의, 제재, 조세순응 vertical equity, horizontal equity, policy consensus, sanction, tax compliance
Korean Accounting Review
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