Accounting comparability and the value relevance of earnings and book value

اقتصاد پولی مالی

Article 7, Volume 29, Issue 24, September 2022, Pages 187-222   

Document Type: Original Article

DOI: 10.22067/mfe.2023.73414.1125

Authors

mohsen rashidi^{* 1}; zahra mansouri²; saro sabrju³

¹Assistant Professor of Accounting, Lorestan University

²MA. Student in accounting, Lorestan University, khoramAbad, Iran

³MSc. in accounting, Faculty of Management and Economic Vali-e-Asr University of Rafsanjan, Iran

Abstract

Objective: The value relevance of financial statements is of great significance to investors and standard setters. Comparability of accounting is one of the increasing features in the financial reporting system. It generally means that two reporting entities that face the same economic events use the same accounting methods to record underlying transactions. The present research examines whether the accounting comparability among industry peers enhances the value relevance of earnings and book value. This is an important question because both the Financial Accounting Standards Board and the Securities Exchange Commission seek greater comparability in financial reporting.
Research Method: In order to study the subject based on the panel regression model, in the period 2010 to 2020, data of 111 companies listed on the Tehran Stock Exchange were collected and used to test research hypotheses.
Results: The results show that accounting comparability increases the value relevance of earnings, but not book value. Financial statements that are more comparable do better in gaining the trust of users, which increases the value relevance of earnings per share. This means that when companies demonstrate the ability to compare more information than their industry counterparts, investors place a higher value on reported profits. However, the incremental benefits of accounting comparability are attenuated when financial reporting opacity is high or when there exists an internal control material weakness over financial reporting. In contrast, comparability benefits are enhanced when an industry specialist auditor is employed.

Keywords

value relevance; accounting comparability; financial reporting opacity; internal controls; specialist auditors

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