Decline in Financial Reporting for Joint Ventures? Canadian Evidence on Removal of Financial Reporting Choice
Bibliographic record
Abstract
In 1995, the Canadian Institute of Chartered Accountants (CICA) changed its Generally Accepted Accounting Principles on accounting for joint ventures from permitting a choice between the equity method (EM) and proportionate consolidation (PC) to requiring only PC. More recently, the International Accounting Standards Board (IASB) has decided to issue a new standard that will eliminate choice between the EM and PC and require only EM; but as of October 2010 a new standard was still to be issued. The past Canadian and proposed IASB changes are similar in that choice between the same two reporting methods is removed but differ in the required alternative, PC for Canada and EM for the IASB. In this paper we use a sample of Canadian companies over the period 1985-2003 to study financial reporting for joint ventures. To our knowledge, our Canadian sample is the only one reflecting a reduction of choice in financial reporting methods for joint ventures. Therefore, our results have particular relevance for evaluating the IASB’s proposed change.Specifically, we investigate whether firms that use EM between 1985 and 1994 experience a decline in value relevance of key balance sheet amounts such as total assets and liabilities when forced to use PC from 1995 onwards. Since 1995 firms are also required to provide footnote disclosures on their share of joint venture assets and liabilities in addition to revenues, expenses, and cash flows. Using these disclosures, we investigate whether disaggregated joint venture assets and liabilities are incrementally and overall value relevant. We find that firms that are forced to switch from EM to PC experience a decline in value relevance of reported assets and liabilities. The firms that use PC for the entire sample period experience no such decline. We also find that joint venture assets and liabilities are incrementally and overall value relevant when disclosures are mandatory from 1995 onwards. Our results show that the removal of choice of financial reporting method does have value relevance implications, something that is of importance to users. We also find that the requirement of additional disclosure of joint venture assets and liabilities is value relevant, which may offset to some extent the costs of the reduction in choice. Our inferences may have implications for a number of jurisdictions across Europe and beyond that are affected in similar reduction of accounting choice proposed by the IASB.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.025 | 0.187 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.000 | 0.000 |
| Bibliometrics | 0.001 | 0.001 |
| Science and technology studies | 0.000 | 0.000 |
| Scholarly communication | 0.000 | 0.001 |
| Open science | 0.000 | 0.000 |
| Research integrity | 0.000 | 0.003 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".