Title: Research Note. Compliance with group accounting standards – the vertical adjustment issues: field studies of multi-nationals

Authors: Arne Fagerstrom, Lars G. Hassel, Gary M. Cunningham

Addresses: Abo Akademi University, Department of Business Administration, FIN-20500 Turku, Finland. ' Abo Akademi University, Department of Business Administration, FIN-20500 Turku, Finland; Umea School of Business, Umea University, SE, 901 87 Umea, Sweden. ' Abo Akademi University, Department of Business Administration, FIN-20500 Turku, Finland

Abstract: Compliance with accounting standards is a major issue in Europe and elsewhere. Research on the horizontal dimension shows non-compliance even though financial reports state compliance and auditors concur. The vertical dimension is more relevant to discover the extent and reasons for non-compliance. Previous research shows that financial executives of multi-nationals indicated non-compliance when asked directly, even though financial reports and auditors state compliance. This follow-on study uses field-studies of subsidiaries of multi-nationals in three countries to explore the extent and reasons for non-compliance for vertical adjustments when consolidating. The method of agreement and method of differences were used to analyse data. Results show substantial non-compliance and some reasons for non-compliance, notably income smoothing. The vertical dimension is appropriate for continued research and this study provides a model for similar research.

Keywords: accounting standards compliance; consolidated financial reporting; consolidation process; group accounting; subsidiary reporting; vertical adjustments; multinational subsidiaries; income smoothing.

DOI: 10.1504/IJAAPE.2007.017459

International Journal of Accounting, Auditing and Performance Evaluation, 2007 Vol.4 No.6, pp.650 - 665

Published online: 10 Mar 2008 *

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