Extended XBRL Tags and Financial Analysts' Forecast Error and Dispersion

ABSTRACT This paper investigates whether the use of extended tags in eXtensible Business Reporting Language (XBRL) filings is associated with financial analysts' forecast error and dispersion. The SEC allows firms to create customize tags in their XBRL filings to reflect firm-specific disclosures. However, customized tags may inhibit information search and reduce the usefulness of XBRL data. Since the use of extended tags is driven by the firm's reporting environment, an instrumental variables technique is employed to control for endogeneity. The results show that more extensions are related to smaller analysts' forecast error and dispersion after controlling for endogeneity. In additional analysis, extensions in footnote disclosures are found to drive this negative relationship, and extensions in the financial statements are marginally positively associated with forecast error and dispersion. This study is relevant to regulators creating policies about XBRL extensions.

Is the balance sheet method of deferred tax informative?

Purpose This study aims to compare the value relevance of the recognised deferred tax elements under International Accounting Standard 12 (IAS 12): Income Taxes (balance sheet method) relative to the taxes payable (flow through) method. It also investigates the value relevance of the IAS 12 deferred tax disclosures. Design/methodology/approach This study used standard valuation models to examine the association between share price and the recognised amounts and footnote disclosures of IAS 12. The Vuong (1989) test is then used to assess which information set is more value relevant. The sample includes 440 firm years over the period 2008-2012. Findings The results show that deferred tax amounts recognised under the balance sheet method provide no more information to investors than the taxes payable method (TPM). Deferred tax footnote disclosures, however, are more relevant than the amounts recognised under the balance sheet method. This study investigates potential reasons for the relevance of footnote disclosures. Research limitations/implications This study has not addressed whether the deferral method of deferred tax is relevant. In addition, while footnote disclosures look promising, further research is necessary. Practical implications The results suggest, given the complexity and cost of compliance with IAS 12, that the International Accounting Standards Board (IASB) should undertake a comprehensive re-think on the relevance of the balance sheet method in IAS 12 and revert to the TPM. Originality/value The IASB and the European Financial Reporting Advisory Group have expressed concerns over the balance sheet method under IAS 12. The IASB and the Financial Accounting Standards Board also have concerns over the cost and complexity of the deferred tax disclosures. The study’s results offer a perspective by examining whether the balance sheet method is value relevant. Prior research has addressed this issue using local data (i.e. pre-International Financial Reporting Standards). This study also provides suggestions for future research into deferred tax footnote disclosures.

Financial Analysis of Krispy Kreme’s Earnings Forecasts, Joint Venture Investments, and Franchise Repurchases

ABSTRACT: Like many restaurant chains, Krispy Kreme Doughnuts earns revenues from both company-owned stores and from franchisee-owned stores. Following its April 2000 IPO, Krispy Kreme Doughnuts entered into several joint ventures with franchisees to develop new stores. In some situations, the Company also re-acquired franchise rights from its franchisees. This case provides you with the opportunity to assess analyst forecasts of Krispy Kreme’s earnings following the release of its February 3, 2002 financial statements. Through analysis of footnote disclosures on the Company’s joint ventures and repurchased franchises, you will identify potential problems with Krispy Kreme’s business outlook that were not discussed in the analyst reports.

Decomposing Changes in Deferred Tax Assets and Liabilities to Isolate Earnings Management Activities

This paper provides evidence on the types of accounts that reveal earnings management activities. We build on Burgstahler and Dichev's (1997) evidence of earnings management to avoid an earnings decline and Phillips et al.'s (2003) findings that deferred tax expense (DTE) can be used to detect such earnings management. In particular, we investigate the relation between changes in annual earnings and changes in deferred tax asset and liability components using data hand-collected from firms' income tax footnote disclosures. Our evidence indicates that changes in the net deferred tax liability (DTL) component related to revenue and expense accruals and reserves can be used to detect earnings management to avoid an earnings decline. In addition, we build on Joos et al.'s (2003) results and partition our sample into firm-years with positive and negative changes in net DTLs and repeat our analyses. In contrast to the Joos et al. (2003) finding that DTE can be used to detect earnings management only for firm-years in which DTE is negative, we find that both subsamples reflect earnings management of revenue and expense accruals and reserves to report earnings increases.

The Impact and Valuation of Off-Balance-Sheet Activities Concealed by Equity Method Accounting

This paper reports the results of a study of the financial reporting effects of off-balance-sheet activities concealed by the equity method of accounting. The study examines footnote disclosures relating to equity method investees, offers suggestions for improving the usefulness of those disclosures, and estimates the valuation effects of information in the disclosures. An important empirical finding is that the market places significant negative values on investor-guaranteed off-balance-sheet obligations.