Costel Istrate

There are two broad approaches in the literature on related party transactions (RPT). On the one hand, they are considered to represent a risk of misappropriation of funds to the detriment of shareholders, especially minority shareholders, due to the fact that these transactions are not carried out on market terms. On the other hand, such transactions are considered to simplify and streamline the work of some entities. Either way, accounting standard setters, as well as regional or global organizations, set special reporting obligations for firms involved in related party transactions. In Romania, in the national accounting rules, these reporting obligations are taken as such from the European Directive 34/2013 and are inspired, at the same time, from the international standard IAS 24. We can classify the reporting obligations in the case of related parties into two broad categories. First, there are obligations to disclose the transactions in the notes for all types of transactions, regardless of the nature of the related parties. Secondly, for the components of a group, there are obligations to prepare consolidated financial statements by following specific procedures; the latter obligations are, however, limited by the fulfillment of certain size requirements by the groups concerned.

The permanent evolution of accounting and financial reporting standards, in particular for listed companies, is justified by the need to adapt these standards to economic, societal, financial, institutional and technological developments. The main objective of the standard setters is that the financial statements reflect as closely as possible the reality of the entities they describe. The Romanian financial market (Bucharest Stock Exchange—BSE) has two segments: the regulated market, where, since 2012, IFRS are mandatory for the individual financial statements, and the alternative market AeRo, where the Romanian standards (RAS) are applied. This structure allows us to compare a financial reporting quality (FRQ) score, first, longitudinally (IFRS period 2012–2023 vs. non-IFRS period 2000–2011, for companies listed on the regulated market) and, second, IFRS observations (regulated market) vs. RAS observations (alternative market), for the same period (2012–2023). Following and partially replicating a methodology found in the literature, this study found that FRQ scores over the analyzed periods show us an increase in FRQ in the case of IFRS application, but also a favorable evolution of FRQ score for RAS observation. The evolution of accounting rules (including the transition from RAS to IFRS) is important, but the enforcement of the application of the reporting standards and other factors could have a significant impact on the quality of financial reporting.

Accounting and taxation are based on general and particular rules, more or less strictly enforced. Sometimes, in applying these rules, professional judgement is required in situations where the issues to be resolved are not always very clear. The substance over form rule obliges us to consider the economic substance of the transaction rather than its legal form when dealing with specific cases. The accounting rules provide us with some examples of such situations (leasing contracts, the spreading over time of certain income/expenditure, etc.). In turn, the tax rules can be interpreted as meaning that substance prevails over form in situations such as: transactions involving inactive taxpayers, transactions with affiliated persons or the separation between dependent and independent activities. In the latter case, the justification for the substance over form tax rule is the temptation for some firms to benefit from the services of individuals without having an employment contract with them (i.e. without classifying them as dependent activities) by using the services of authorised individuals. The interest of the tax authorities in treating some of these transactions as dependent activities is clearly demonstrated by a simulation proposed in this article, from which it is very clear that the tax burden on an authorised individual person is significantly lower than in the case of an employment contract.

We have estimated the impact of some characteristics of the auditors and of the audited companies on audit quality for the Romanian listed firms (943 observations for the 2007–2019 period), using as a proxy for the audit quality the level of discretionary accruals, measured following the Jones (1991) model, and the accruals quality, estimated through the Dechow and Dichey (2002) model. These dependent variables have been related to variables that reflect both the characteristics of the audit firm (for example, Big 4 membership) and the characteristics of the audited firms (dimension, financial leverage, accounting standards applied, growth and profitability). Our results show that the auditor’s Big 4 membership contributes to an increase in discretionary accruals, decreasing the quality of the audit. The transition to IFRS did not have a significant influence on the quality of the audit. The audit opinion may have an effect on the discretionary accruals and the accruals quality in the sense that a modified opinion leads to an increase in the quality of the audit in the following financial year(s).

In the decision-making process investors need quality financial information based on reported accounting numbers. Such numbers are present in financial statements and must meet a series of fundamental characteristics, such as relevance and faithful representation. The present paper aims to analyse and assess the value relevance of financial information on the financial market in India under the influence of the main country risk components (i.e. economic risk and freedom to set up businesses, corruption control, financial, fiscal, monetary and investment freedom). The research was carried out on a sample of companies listed on the regulated market in India between 2006 and 2014. The results of applying general linear models have shown that, over time, the country risk can have a significant influence on the value relevance of the financial statements reported at the financial market level.

Energy poverty, or the inability of households to afford adequate access to energy services, is an issue that can have a significant effect on the quality of life and even the state of health of individuals and even the overall development of a nation. Since it was first brought into focus more than two decades ago in the UK, this topic has gradually gained the attention of academics and policy makers all across the EU and beyond. The current paper addresses the topic by providing not only a renewed discussion, but also an improved energy poverty indicator (with clear and relevant results at the EU level): the Compound Energy Poverty Indicator (CEPI). Moreover, knowing that the risk of poverty and social exclusion, efficiency of heating systems, total consumption of energy per household and rising energy prices tend to increase the severity of this problem in some countries, CEPI is then included into an econometric model so as to determine some possible factors that tend to put pressure on an already existing issue of energy poverty. The results of this research are expected to be relevant not only for academics (as it offers insights into the structure and severity of this topic within the European Union), but also for national and EU policymakers who are confronted in the field with the problem of sustainable development.

The transition to IFRS of the Romanian listed companies enables us to provide a comparison of some accounting data reported in the same period and that have been obtained according to different accounting regulations: RAS vs. IFRS. The aim of our paper is to establish if the listed companies in financial distress report a trend of changes due to the transition to IFRS that is different to the one established for the performant companies. Based on the data corresponding to the 2011 financial year (with available RAS and IFRS information), we have calculated Gray’s comparability index (for a series of financial indicators) in the case of the two groups of companies (one in financial distress and a performant one) and we have statistically tested the existence of significant differences between the values of the index for the two company categories. We have found out that some indicators evolve in the same manner (especially the balance sheet structure indexes), others maintain the same trend, but the significance of the variances are different (ROS, ROA, ROE and OI), and, finally, for another series of indicators, the trend of the change caused by the IFRS transition is different for the two groups of companies (leverage and equity).

The Gray index of conservatism (also called index of comparability) is a good instrument to assess differences between two or more sets of accounting standards. We use this index to measure the impact of the compulsory application of IFRS in Europe, in 2005. The sample contains data from almost 600 companies listed on Euronext markets in 2005 (Amsterdam, Brussels, Lisbon, and Paris). The paper analyzes some accounting figures such as equity, net income, leverage, return on equity and return on assets. The results confirm that former Belgian, French, and Portugal GAAP were more conservative than IFRS. In some cases, for all the countries the IFRS numbers seem to be much less conservative.