Intangible Values in Financial Accounting and Reporting: An Analysis from the Perspective of Financial Analysts

554 Pages·2015·7.11 MB·English

by  Stephan Grüber (auth.)

Intangible Values in Financial
Accounting and Reporting
Stephan Grüber
Intangible Values
in Financial Accounting
and Reporting
An Analysis from the Perspective
of Financial Analysts
With a Foreword by Prof. Dr. Peter Leibfried
Stephan Grüber
St. Gallen, Switzerland
Dissertation, University of St. Gallen, Switzerland
ISBN 978-3-658-06549-2 ISBN 978-3-658-06550-8 (eBook)
DOI 10.1007/978-3-658-06550-8
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Foreword V

FOREWORD

Even though intangible values have continuously become significant value drivers of
companies in today’s economy, financial accounting and reporting still lacks to
properly incorporate and to report such values. Despite the ongoing debate throughout
the past decades, a universal solution inside or outside of the traditional information
means has not yet been developed. As a consequence, financial accounting and
reporting still provides an incomplete picture of an entity’s true resources and claims.
While it is necessary to acknowledge that financial accounting and reporting has
inherent limitations and is not supposed to present absolute data, further analysis is
required to better understand and to potentially close the information gap. In this
thesis, Stephan Grüber focuses on the information use of financial analysts, one of the
primary users of IFRSs. He investigates how financial analysts utilize and incorporate
information on intangible values in their decision-making processes and whether such
information influences decisions. In addition, the study examines the preferences of
financial analysts in regard to accounting for and reporting intangibles in the future.
Upon outlining the fundamentals of financial accounting and reporting, Stephan
examines the foundations and challenges of intangible values and provides an
overview of concepts introduced to improve the accounting and reporting of
intangibles. As a next step, he distinguishes various groups of financial analysts and
their decision-making objectives, such as buy- and sell-side analysts and equity and
fixed income analysts. Chapter 5 represents the main body of this thesis, presenting
and discussing two empirical studies. The first part describes the results of a content
analysis of sell-side research reports, offering insights into the information use of sell-
side analysts. The second part analyzes the results of a web-based experimental survey
with over 1,100 financial analysts, focusing on the importance of information of
intangibles for their decision-making.
The present analysis offers detailed and comprehensive evidence on the actual
information use and preferences of financial analysts, contributing to an improved
understanding of the user perspective in financial accounting and reporting, i.e. what
users effectively require with respect to information on intangible values. Hence, this
thesis may not only be valuable to individuals in academia, but is also useful for
VI Foreword

practitioners and executives focusing on corporate communication. In addition, the
results may further provide financial analysts with stimulating self-insight regarding
their decision-making. I therefore wish this thesis to be widely read and accepted by a
broad audience.

St. Gallen, June 2014
Prof. Dr. Peter Leibfried, CPA, MBA
Managing Director of the Institute of Accounting, Control and Auditing (ACA-HSG)
at the University of St.Gallen and doctoral advisor of Stephan Grüber
Acknowledgements VII

ACKNOWLEDGEMENTS

The present thesis is the result of my Ph.D. studies at the University of St. Gallen
(HSG) in Switzerland. It was submitted and approved to obtain the title Doctor of
Philosophy in Management.
Throughout the course of my studies, there has been much support from many
different people and I would like to take this opportunity to thank all of them. First and
foremost, I am particularly indebted to my doctoral advisor, Prof. Dr. Peter Leibfried,
who made this research possible, continuously providing me with guidance and
encouragement over many years. His insights and advice significantly helped me to
complete this work. I would further like to express my sincere gratitude to Prof. Dr.
Dirk Schäfer, who served as co-advisor and supported this project with valuable
thoughts and ideas.
I have written this thesis while being a full-time employee at KPMG LLP in New
York. In order to participate in the Ph.D. program in St. Gallen and to draft my thesis I
was granted several study leaves. I would therefore like to express my genuine thanks
to Dr. Norbert Fischer and Jan Storbeck for their trust and flexibility. Moreover, I also
thank Ingo Zielhoff, who supported me during the final phase of this project.
I would also like to specifically thank Dr. Torsten Jaskolski for discussing and
exchanging our ideas throughout the years. Special thanks go to Nicholas Jungovic for
supporting me and reading the draft of this thesis. In addition, I further extend my
thanks to my family and friends, who have always been there for me despite my
limited time.
My deepest gratitude goes to my love Sophie for her unbounded patience,
understanding and sacrifices along the way, as well as for her motivating and
encouraging words during difficult times. Last but not least, I would also like to extend
my appreciation and thanks to my parents for their love and unconditional support.
This thesis is dedicated to them – it would not have been possible without them.

Zurich, June 2014 Stephan Grüber
Brief Contents IX

BRIEF CONTENTS
1. INTRODUCTION .....................................................................................................1
1.1. Relevance and Motivation of this Study ..........................................................1
1.2. Purpose and Methodology of this Study ..........................................................3
2. THE FUNDAMENTALS OF FINANCIAL ACCOUNTING AND REPORTING .................7
2.1. Introduction to the Chapter .............................................................................7
2.2. Justification for the Existence of Financial Accounting and Reporting............7
2.3. Principles of Capital Markets-Oriented Financial Accounting and
Reporting ..................................................................................................... 24
2.4. Preliminary Summary ................................................................................... 33
3. FOUNDATION AND CHALLENGES OF INTANGIBLE VALUES IN FINANCIAL
ACCOUNTING AND REPORTING .......................................................................... 35
3.1. Introduction to the Chapter ........................................................................... 35
3.2. Characteristics and Attributes of Intangibles ................................................. 35
3.3. Intangibles and International Financial Reporting Standards ......................... 52
3.4. Concepts to Improve Financial Accounting and Reporting of Intangible
Values .......................................................................................................... 82
3.5. Consequences for the Further Analysis ....................................................... 108
4. FINANCIAL ANALYSTS AS USERS OF FINANCIAL ACCOUNTING AND
REPORTING INFORMATION............................................................................... 110
4.1. Introduction to the Chapter ......................................................................... 110
4.2. Fundamentals of Financial Analysts ........................................................... 111
4.3. The Elements of Financial Analysts’ Decision-Making .............................. 131
4.4. Financial Analysts and Information on Intangible Values ........................... 145
4.5. Summary and Implications for this Study ................................................... 163
5. EMPIRICAL ANALYSES OF THE PERSPECTIVE OF FINANCIAL ANALYSTS ON
INFORMATION ABOUT INTANGIBLES ................................................................ 166
5.1. Introduction to the Chapter ......................................................................... 166
5.2. Content-Analysis of Sell-Side Research Reports ......................................... 169
5.3. Experimental Survey .................................................................................. 274
5.4. Limitations of the Selected Methodologies ................................................. 399
X Brief Contents

6. SUMMARY AND CONSEQUENCES FOR REPORTING INTANGIBLE VALUES ........ 401
6.1. Introduction to the Chapter ......................................................................... 401
6.2. Summary and Implications of the Findings ................................................. 401
6.3. Recommendations for Accounting and Reporting Intangible Values........... 408
6.4. Future Prospects ......................................................................................... 411
Table of Contents XI

TABLE OF CONTENTS
FOREWORD ................................................................................................................. V
ACKNOWLEDGEMENTS ............................................................................................ VII
BRIEF CONTENTS ...................................................................................................... IX
TABLE OF CONTENTS ................................................................................................ XI
ABSTRACT ............................................................................................................. XVII
LIST OF ABBREVIATIONS ....................................................................................... XIX
LIST OF FIGURES ................................................................................................... XXV
LIST OF TABLES ................................................................................................... XXIX
1. INTRODUCTION .....................................................................................................1
1.1. Relevance and Motivation of this Study ......................................................1
1.2. Purpose and Methodology of this Study ......................................................3
2. THE FUNDAMENTALS OF FINANCIAL ACCOUNTING AND REPORTING .................7
2.1. Introduction to the Chapter .........................................................................7
2.2. Justification for the Existence of Financial Accounting and Reporting .....7
2.2.1. Neoclassical Economic and Finance Theory ...............................................8
2.2.1.1. The Efficient-Market Hypothesis and Empirical Evidence................9
2.2.1.2. Implications of the Efficient-Market Hypothesis ............................ 11
2.2.2. New Institutional Economics and Principal Agent Theory ........................ 14
2.2.2.1. Information Asymmetries and Agency Costs .................................. 16
2.2.2.2. Financial Information as a Solution to the Agency Problem............ 18
2.2.3. Summary and Consequences for the Design of Financial Accounting
and Reporting ........................................................................................... 21
2.3. Principles of Capital Markets-Oriented Financial Accounting and
Reporting .................................................................................................... 24
2.3.1. Primary User Group and Objectives of International Financial
Reporting Standards .................................................................................. 24
2.3.2. Definition and Criteria of Decision-Useful Information ............................ 28
2.4. Preliminary Summary ................................................................................ 33