Accounting in Statistics Business Research Method

Introduction:

The more and more Australian companies are including a section of performance highlight in their annual reports. This snaps shot provides a summary of the annual performance of the companies. This is not a statutory requirement so management of the company has full discretion whether to include the performance highlight in the report and the earning figures that are to be shown in the highlight (Business Insider 2016).

The management can choose the GAAP earning measures or the Non GAAP earning measures or combination of both to be shown in the performance highlight section of the report. The GAAP earning are calculated based on accounting standards and the non-GAAP earnings are not based on accounting standards (Curtis et al. 2013). The non-GAAP earning generally excludes certain earnings and transactions that are required to be included in accordance with the International Financial Reporting Standard. It has been found that inclusion of the non-GAAP financial measures helps investors to better analyse the

Literature Review

The organisations performance, financial conditions and cash flow can be better analysed if the non-GAAP earning are disclosed. There are studies conducted that have shown that inclusion of the non proforma earning helps to reduce error in the forecasted value and is also helpful in reducing dispersion in the year (Johnson et al. 2014).

The research also shows that use of non-GAAP earning cautions the investors in the fundamental analysis of the company. The companies are required to declare whether the assumptions are based on historical data or future measures. The companies are also required to declare the assumptions that are not in accordance with the Generally Accepted Accounting Principle (Malone et al. 2016).

Empirical Evidence

The empirical evidence to show the effectiveness of GAAP regulations is mixed. It is found by many that the Non GAAP earnings are significantly higher than the GAAP earning therefore it is believed by many that the investors are misled by those higher figures. There are others who opines that the notion that investors are misled by the Non GAAP disclosure are unjustified and doubtful.

Experimental Approach

The recent behavioural research has shown that the judgement of the non professional investors are influenced by the presence of Non GAAP earnings before GAAP earnings. The study conducted by the Moser in 1989 found that the assessment of whether the earning of a company will increase depends on the order of information provided.

The recent research conducted by the Elliot in 2006 found that non-professional investors are influenced by the emphasis put by management on the Non GAAP earnings. This is mitigated by the presence of a quantitative reconciliation. 

Research Questions and Hypotheses

Research Questions

The problems that are relevant to the recent problems are prepared in the form of questions in this report:

1. What are the issues of financial reporting related to present GAAP standards?
2. What disclosures are essential that are to be made in the non GAAP financial reporting?
3. What are the disclosure requirement in the non GAAP accounting standards that are not included in the GAAP standard?
4. Who are the stakeholders that will benefit from the Non GAAP financial reporting?

Hypotheses

H-1: The existence of the GAAP and the non-GAAP in the financial report helps investors to analyse the financial statements better.

H-0: The existence of the GAAP and Non GAAP disclosure will not benefit the investors in analysing the financial statements.

Operational Definitions and Measurement

The two companies Quanta’s Group and Perficient Inc are chosen from the ASX. The GAAP and Non GAAP earnings that are highlighted in their annual accounts report and are used to measure their performance (Phx.corporate-ir.net 2016).

Research Methodologies: Data Collection and Analysis

Sampling Techniques

The primary method of collecting data is the qualitative analysis of various issues that are discussed in the contemporary accounting. The research are conducted by collecting data from different sources so that various component of the non GAAP financial reporting could be known.

The primary data that are collected is based on the interview conducted of various investors. In order to decide the usefulness of the disclosure of Non GAAP earning various journals, articles, websites and the financial reports of the companies are analysed (Skadden et al. 2012). The journals are reviewed to show the importance of disclosure of Non GAAP earning. The journals of Elizabeth A. Rains bury “The impact of the FMA guidelines of “Non GAAP” earning disclosure” was studied. Further the journal of Bowen, R.M., Davis, A.K. and Matsumoto “Emphasis on pro forma versus GAAP earnings in quarterly press releases: Determinants, SEC intervention, and market reactions” was studied and analysed. The primary sources of collecting the information’s are to extract it from the annual report of the companies (Rainsbury and Hart 2014). 

Method of Analysis

The data analysis techniques used are based on simple and random sampling. The simple random technique is best suited for analysing the financial information’s using GAAP. The sample data’s are collected based on both the positive and negative response relating to the benefits of the non-GAAP disclosures.

In the method of conducting the research, the first step is to identify the several issues that are present in the GAAP standard of reporting the financial information. The importances of the non-GAAP financial declarations are also identified. These analyses are conducted by collecting primary data through questionary method. The importance of the non-GAAP reporting’s are analysed through reviewing journals (Venter et al. 2014).

Research Process

The research processes that are followed to answer the questions raised in the research proposal and to support the hypothesis. The first stage in the research is to determine the GAAP requirement. The second stage is to ascertain the non-GAAP disclosure requirement so that GAAP and Non GAAP information can be compared and evaluated. Then by using sampling techniques two companies are chosen from the Australian Stock Exchange to conduct the research. The listed companies are required to follow the GAAP method of reporting so the companies that provided proforma income along with GAAP income should be selected from the stock exchange for research. The companies that are selected are then analysed based on the data obtained from the interview of non-professional investors. The reported income under the GAAP and Non GAAP requirements are also analysed in the light of the financial information need of the investor. The aim of the research process is to help answer the question raised in the report and to address the hypothesis.

Expected Outcomes

After the research is conducted, it is expected that all the research questions raised will be answered. It is expected that the role of the directors in proving the non-gap information’s will be substantially analysed. The research will also help to answer the usefulness of the non-gap information’s. The research aims to clearly answer the difference between the GAAP and Non GAAP financial requirements. It is expected that after the research is conducted the hypothesis that the investors will be benefited from the inclusion of the Non GAAP information’s will be prove to be corrected.

Conclusion

It can be concluded that the above research will help to understand the difference between the GAAP and Non GAAP requirements of the standards. The research questions and hypothesis that are raised in the research will be adequately addressed through the research procedures applied.

References

Business Insider. (2016). Chart of the Day: Here's How You Should Think About 'Adjusted' Earnings. [online] Available at: https://www.businessinsider.in/CHART-OF-THE-DAY-Heres-How-You-Should-Think-About-Adjusted-Earnings/articleshow/27979957.cms [Accessed 15 Aug. 2016].

Curtis, A.B., McVay, S.E. and Whipple, B.C., 2013. The disclosure of “Non-GAAP” earnings information in the presence of transitory gains. The Accounting Review, 89(3), pp.933-958.

Johnson, A., Percy, M., Stevenson‐Clarke, P. and Cameron, R., 2014. The Impact of the Disclosure of Non‐GAAP Earnings in Australian Annual Reports on Non‐Sophisticated Users. Australian Accounting Review, 24(3), pp.207-217.

Malone, L., Tarca, A. and Wee, M., 2016. IFRS non‐GAAP earnings disclosures and fair value measurement. Accounting & Finance, 56(1), pp.59-97.

Phx.corporate-ir.net.(2016).Perficient-InvestorRelations -Financial Reports. [online] Available at: https://phx.corporate-ir.net/phoenix.zhtml%3Fc%3D83872%26p%3Dirol-reports [Accessed 15 Aug. 2016].

Rainsbury, E.A. and Hart, C., 2014. The Impact of the FMA Guidelines of Non-GAAP Earnings Disclosures. Unpublished working paper.

Skadden, A., Slate, M. and Flom, L.L.P., 2012. Corporate Finance Alert.

Venter, E.R., Emanuel, D. and Cahan, S.F., 2014. The Value Relevance of Mandatory Non‐GAAP Earnings. Abacus, 50(1), pp.1-24.