IFRS errors, CFOs’ Accounting Talent, Compensation and Turnover

42 Pages Posted: 12 Feb 2011 Last revised: 25 May 2011

See all articles by Anna Bedford

Anna Bedford

University of Technology, Sydney - School of Accounting; Financial Research Network (FIRN)

Zoltan P. Matolcsy

University of Technology Sydney (UTS) - School of Accounting

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ; Financial Research Network (FIRN)

Date Written: February 10, 2011

Abstract

This paper builds on and contributes to the currently emerging literature on CFO’s compensation and turnover. We focus on the association between the CFO’s compensation and turnover and his/her “accounting talent.” We contend that the accounting talent of CFOs can be measured by accounting errors that occur when a country moves to the International Financial Reporting Standards (IFRS) by adopting a “big bang” approach, in which all firms have to adopt IFRS within the same accounting period without the opportunity of early or late adoption. We hand-collect eighteen different accounting errors for a sample of 280 Australian companies. These are then used to calculate the CFO’s accounting talent. We find (i) a positive relation between the CFO’s accounting talent and the CFO’s compensation ex ante in the transition year, (ii) a positive relation between the CFO’s accounting talent and the CFO’s bonus in the subsequent year (adoption year) and (iii) an inverse relationship between the CFO’s accounting talent and CFO turnover in the subsequent year (adoption year). Further tests on the Chief Executive Officer’s (CEO) accounting talent and compensation and alternative specifications of our variables confirm our results.

Keywords: Accounting Errors, CFO Compensation, CFO Turnover, International Financial Reporting Standards

JEL Classification: M51, M52

Suggested Citation

Bedford, Anna and Matolcsy, Zoltan Paul and Wells, Peter Alfred, IFRS errors, CFOs’ Accounting Talent, Compensation and Turnover (February 10, 2011). Available at SSRN: https://ssrn.com/abstract=1759024 or http://dx.doi.org/10.2139/ssrn.1759024

Anna Bedford (Contact Author)

University of Technology, Sydney - School of Accounting ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Zoltan Paul Matolcsy

University of Technology Sydney (UTS) - School of Accounting ( email )

P.O. Box 123
Broadway NSW 2007
Australia

Peter Alfred Wells

University of Technology Sydney, Accounting Discipline Group ( email )

P.O. Box 123
Broadway NSW 2007
Australia
+61 (02) 9514 3628 / 3629 (Phone)
+61 (02) 9514 5515 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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