Diana Andreea Traistaru, Ph. D. University of Craiova Faculty of Economics and Business Administration Craiova, Romania ABSTRACT

Transcription

1 THE FACTORS INFLUENCING IAS/IFRS ADOPTION BY COMPANIES LISTED AT BUCHAREST STOCK EXCHANGE FOLLOWING THE EXAMPLE OF ORSOVA SHIPYARD S.A AND S.C SEVERNAV S.A DROBETA TURNU-SEVERIN Diana Andreea Traistaru, Ph. D University of Craiova Faculty of Economics and Business Administration Craiova, Romania ABSTRACT T he motivation of the present research is that of identifying the advantages of IFRS adoption in Romania and in the EU, but also the challenges faced when turning to IFRS from the national accounting regulations. IFRS implementation is a complex process and needs to take into account various aspects when evaluating their adoption, such as: the characteristics of the accounting system in Romania, its future prospects, the features and atittudes of Romanian entities, the users of financial statements and the features of the accounting profession. Both the regulatory and accounting standards organisations and the decisions taken at a national and international level, have focused on the effects of financial reporting on economy, considering the presentation of useful information about an entity a position and performance. Keywords: IFRS adoption, Accounting quality, Romania EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 114

2 1. Introduction Both the European economic framework and the global one are focused on improving the level of international accounting normalization and the level of national adoption, Romania being the member state that has certain reasons for applying IFRS: the numerous european investors, such as Germany, Italy, Greece, France and the resemblance of the Romanian economic context to the European one, from a structural point of view, but also from the perspective of the geographic position. (Albu et al., 2014) Mihai et al. (2011) states that IFRS adoption reflects an activity with a high degree of complexity that requires the existence of significant professional training in the field, but also an understanding of the accounting factors. Barth et al. (2014) find that IFRS/IAS adoption had a great success in the developing countries, where these standards have been applied without being amended. In countries from the Western Europe, and also in Japan, IAS/IFRS are considered to be an advantage which gives the Anglo-Saxon system an international perspective, and from this point of view, these standards have sometimes been understood as unfavourable for the perception of other standards from Japan and Europe. Starting from the main international accounting referentials (IFRS and US GAAP) and from the actual tendency toward convergence and harmonization of accounting regulations, a series of empirical researches have investigated whether IFRS adoption is beneficial to the participants on the stock market. (Cai et al., 2014) The objective of IAS/IFRS adoption is that of communication improvement, transparency and comparability, and these standards are issued in order to be applied to the financial statements and other financial reporting of enterprises oriented towards profit. (Albu et al., 2011) In Romania, IFRS adoption was not seen from the beginning as a way of gaining opportunities, but the contrary. 2. Research Methodology We consider compulsory to describe the research methodology as it presents all the methodologic approaches used in the study. The starting point of the research are the necessity and the importance of analyzing the financial situation of a company. The effects of European and international regulation on financial statements are presented by means of results obtained from the analysis of the financial staments issued by Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin, considering a five-year period ( ). Our study represents a beginning in determining the main directions for the IAS/IFRS implementation on a macroeconomic level, as their adoption is viewed like an influence also on this macroeconomic level. We have dealt with an economic-financial analysis of the information obtained from the financial statements issued according to European Directives and IAS/IFRS. The analysis implies the calculation of some financial indicators from a five-year period using data from the annual financial statements of an entity and applying specific methods and techiques in order to get information on the activity of the companies that are being analized in this report. As a first step, I focused on a general view of the entity s financial position, its evolution and development. I have also given a look to indicators related to the solvency, reliability and liquidity of the company so as to gain insight on the capacity of Orsova Shipyard S.A and S.C. Severnav S.A Drobeta Turnu-Severin to manage the short term and long term debts. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 115

3 The general conclusions on the financial situations of Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin comprehend the advantages and disadvantages observed as well as the possible opportunities and challenges encountered by the two entities in their activity Research materials and information processing methodology Sources of information The information needed for the present research were obtained from various sources: Internet sites that offer information referring to the stock market: or Internet sites that present information about the analized entities: (for Orsova Shipyard S.A) and (for S.C. Severnav S.A Drobeta Turnu-Severin) The annual finacial statements of the entities for : - the abridged balance sheet; - the profit-and-loss account; - specific information; - the situation of the permanent capital; - the situation of assets amortization; - annotation to the simplified annual financial position. I considered important that the companies should be registered at the first or the second category at the Bucarest Stock Exchange. 1. Orsova Shipyard S.A. Core Business: fluvial ship building (CAEN code rev. 2: 3011 «The building of ships and buoyancy equipment»). Subscribed and paid-in shared capital: ,5 lei. The market. Orsova Shipyard S.A. is a company whose shares are being accepted on a regulated market and it is listed at the Bucarest Stock Exchange, first category, under the SNO symbol. Main competitors. The main competitors of the company are: - at national level : all national shipyards; - at international level: mainly shipyards from China and Koreea, followed by Poland, Serbia, Turkey, Slovakia, The Czech Republic and Ukraine. 2. S.C Severnav S.A Drobeta Turnu-Severin Core Business: fluvial ship building (CAEN code rev. 2: 3011 «The building of ships and buoyancy equipment»). Subscribed and paid-in shared capital: lei. The market. S.C Severnav S.A Drobeta Turnu-Severin is a company whose shares are being accepted on a regulated market and it is listed at the Bucarest Stock Exchange, the second category, under the SEVE symbol. Main competitors. The main competitors of the company are all the national shipyards. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 116

4 The information processing methodology The economic-financial analysis methodology The economic-financial analysis implies two types of methods: a) Methods for a quantitative analysis they determine the structure of the activities carried by the entities. This type of methods are complementary methods such as the division of results and the comparison between them; b) Methods for a qualitative analysis they mark out the internal resources of the entities. This type of methods imply the balance method and the SWOT method (specific for financial diagnostic) Empirical study referring to the effects of the IAS/IFRS adoption by entities listed at The Bucarest Stock Exchange following the example of Orsova Shipyard S.A. and S.C. Severnav S.A. Drobeta Turnu-Severin The importance of financial statements in conformity with IFRS in analyzing the listed entities This research has as a starting point the necessity and importance of analyzing the financial situation of two entities listed at The Bucarest Stock Exchange. If we consider it to be a system, the financial analysis comprises the following elements: the analysis of financial position on the basis of the balance-sheet; the analysis of financial results on the basis of the profit-and-loss account; the forecast analysis. The financial analysis is important for raising the effieciency of the entire activity and knowing the essence of processes. The results of the study are as follows: results regarding the utility of annual fianancial statements according to IFRS for Orsova Shipyard S.A. and S.C. Severnav S.A. Drobeta Turnu-Severin; results regarding the advantages and disadvantages of IFRS reporting for Orsova Shipyard S.A. and S.C. Severnav S.A. Drobeta Turnu-Severin Analysis of financial position The financial position of an entity is given by the relation between its assets, liabilities and capital. Information about these elements can be found in the balance-sheet or from other sources. The analysis of financial standing implies an overall analysis and an analysis of financial equilibrium. The financial standing investigation for a longer period of time, more precisely, a five-year period, raises the value of such an analysis. I. Overall analysis of financial position Evolution analysis of assets, liabilities and capital of Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin When analyzing the financial position of Orsova Shipyard S.A. and S.C. Severnav S.A Drobeta Turnu- Severin, we consider some aspects such as the evolution and structure of assets, liabilities and capital. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 117

5 Information about them is drawn from the balance-sheet and the annotations. Acoording to IFRS (2013, The general terms for issuing and presenting the financial statements, paragraph 49), assets represent a source which is being controlled by the entity, as a result of past events that are supposed to bring future benefits. The evolution of assets for the two companies is presented as follows: Figure 1: Evolution of patrimonial assets for Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin The information recorded in 2009 for Orsova Shipyard S.A. show that permanent capitals are higher than current assets, while data obtained for reveal that current assets recorded values higher that the permanent capitals. On the other hand, S.C Severnav S.A Drobeta Turnu-Severin we may notice that current assets exceed the permanent capitals in 2009, while in , permanent capitals are much higher than the current assets. On the basis of the research it can be observed that the Orsova Shipyard S.A permanent capitals decrease is due to investements made by the company, investments in land and building. Considering the raise of assets and the rate of turnover, we may concluse that in 2009, at Orsova Shipyard S.A. level, the current assets rythm of growing was inferior to that of the rate of turnover, fact that reveals a high speed of turnover also for S.C Severnav S.A Drobeta Turnu-Severin. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 118

6 The evolution of liabilities for the two entities is presented as follows: Figure 2: Evolution of patrimonial liabilities for Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu Severin Figure 3: Evolution of permanent capitals on elements for Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu- Severin EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 119

7 Orsova Shipyard S.A records a decrease of permanent capital on the entire period, due esclusively to the decrease of ownership equity in 2010 compared to S.C Severnav S.A Drobeta Turnu-Severin presents an increase of permanent capital, contrasting with a decrease in 2013 compared to The mentioned accruals come as a result of the increase in ownership equity, as the company did not contract long-term loans. Analysis of the structure of assets, liabilities and ownership equity for Orsova Shipyard S.A and S.C. Severnav S.A Drobeta Turnu-Severin In order to calculate and analyze the rate structure of assets for Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin, information from the balance-sheet is being used, as it is presented in Figure 4. Figure 4: Evolution of rate structure of assets for Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin When looking on these rates, it may be concluded that in the case of Orsova Shipyard S.A.: The permanent capitals had a percentage of 53.44% of the total assets in 2009, it decreased to 50.34% in 2010, to 43.04% in 2011, to 41.62% in 2012 and to 43.39% in 2013, as a consequence to a slower growth of permanent capitals compared to total assets. The current assets had an incresing percentage in 2009, from 46.55% to 49.65% in 2012, to 56.95% in 2011, to 58.37%, followed by a decrease to 56.60% in 2013, due to a much slower rythm of increase of current assets compared to total assets. In the case of S.C. Severnav S.A. Drobeta Turnu-Severin, the following may be concluded: The permanent capitals had a percentage of 27.91% in 2009, they increased to 57.45% in 2010, to 77.95% in 2011, to 84.83% in 2012, and they decreased to 79.18% in 2013, due to a significant decrease in the level of permanent capitals compared to total assets. The current assets had a decreased percentage in 2009, from 72.08% to 4.54% in 2010, to 22.04% in 2011, to 15.15% in 2013, as a consequence of a slower ryhtm in their increase compared to total assets. Useful reccomendations: The necessity of a new outlet, so that the percentage of debts could be similar to the one of stocks; The maintaining of a percentage of permanent capitals over 70%, in order to continue to make investments. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 120

8 In order to calculate and analyze the rate structure of liabilities for Orsova Shipyard S.A. and S.C Severnav S.A Drobeta Turnu-Severin, information from the balance-sheet is being used, as it is presented in Figure 5. Figure 5: Evolution of rate structure of liabilities for Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin After analyzing the rate structure of liabilities for the two listed entities, the following conclusions arise: Total debts had a developing balance during the period we analyzed (the percentage grew to 11.47% in 2009 and to in 2013) for Orsova Shipyard S.A. and they decreased in the case of S.C. Severnav S.A. Drobeta Turnu-Severin (from 83.16% in 2009 to 25.10% in 2013); The balance of ownership equity decreased at Orsova Shipyard S.A. (from 88.53% in 2009 to 83.92% in 2013) and it also recorded a growth at S.C.Severnav S.A. Drobeta Turnu-Severin (from 16.4% in 2009 to 74.90% in 2013). Useful reccomendations: The growth of ownership equity, which denotes a decrease of more than 85% of the percentage of capitals in the total of liabilities; An increase of the percentage of economic and financial outputs in the total of ownership equity. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 121

9 As a conclusion, the financial position is briefly presented in Table 1. Table 1 Short description of the financial position of Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu Severin during : Elements Assets Orsova Shipyard S.A Permanent capitals are higher than current assets. Advantages S.C Severnav S.A Drobeta Turnu-Severin Current assets are higher than permanent capitals; Significant raises of tangible assets; Orsova Shipyard S.A Significant losses of tangible assets; Growths of physical assets Disadvantages S.C Severnav S.A Drobeta Turnu-Severin The volume of balance The volume of balance assets decreases for the assets decreases for the whole period which entire period of time. was analyzed; The growth rhythm of current assets is lower than the increase of the rate of turnover. Liabilities and ownership equity The balance of total debts increased. The raise of permanent capital for the entire period which was analyzed. The growth rhythm of current assets is lower than the increase of the rate of turnover. The decrease of permanent capital for the entire period; The decrease of ownership equity for the analyzed period of time. The balance of total liabilities (debts) decreased. Analysis of the equilibrium of financial position The financial equilibrium of the the two companies (Orsova Shipyard S.A. and S.C. Severnav S.A. Drobeta Turnu-Severin) is expressed by the equality between the financial resources necessary for the accomplishment of what has been planned and the possibilities of supplying these resources obtained from various sources. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 122

10 Analysis of liquidity and solvency: A way of maintaining the financial equilibrium for the companies listed at Bucarest Stock Exchange is the countinuous support for their payment capacity on short-term and on long-term. A. Analysis of liquidity of Orsova Shipyard S.A. and S.C. Severnav S.A. Drobeta Turnu Severin The liquidity ratios investigated in the study are: a. The general liquidity ratio; b. The immediate liquidity ratio; c. The effective liquidity ratio. Figure 6: Evolution of liquidity ratio indicators for Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin There can be drawn a series of conclusion from Figure 6: The general liquidity ratio has very high values, even higher than the accepted level (thr highest value was of 6.69 in 2010) at Orsova Shipyard S.A., while at S.C. Severnav S.A. Drobeta Turnu-Severin, the general liquidity ratio has very low values, much more under the accepted level (the lowest accespted level is 2), the highest value being 0.91 in For this indicator, the standard values are between ; The immediate liquidity ratio for the analyzed period suffered a sighificant decrease. The weight for Orsova Shipyard S.A. is above the level of financial equilibrium, while in the care of S.C. Severnav S.A. Drobeta Turnu-Severin, the weight is much under the lowest level of financial equilibrium which is considered to be standard between 0.8-1; The effective liquidity ratio has significant values in the case of Orsova Shipyard S.A. and in the case of S.C. Severnav S.A. Drobeta Turnu-Severin it has low values, the standard value for this indicator being 0.3. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 123

11 Even if the situation tends to become more steady for the two listed companies, the liquidity indicators for the analyzed period do not attain the recommended value. This situation may lead to future consequences, in order to gain future economic benefits. B. Analysis of solvency of Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin Solvency is the capacity of a company to honour its debts, no matter the exigibility degree. The factors influencing solvency within a company are more varied and compex than those influencing liquidity. Figure 7: Evolution of solvency ratio indicator for Orsova Shipyard S.A and S.C Severnav S.A Drobeta Turnu-Severin. For Orsova Shipyard S.A., the general solvency ratio presents low values, unlike the general solvency ratio for S.C. Severnav S.A. Drobeta Turnu Severin, where this indicator tends to become higher, but in 2013 it gets somehow lower. When analyzing the situation, it can be noted that the values of this indicator do not fit into the standard intervals. As a conclusion, the solvency degree of Orsova Shipyard S.A. is unfavourable due to the numerous debts, while in the case of S.C. Severnav S.A. Drobeta Turnu Severin, the value of debts tends to decrease, marking out a favourable degree of solvency. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 124

12 3. Recommendations and Concluding Remarks The purpose of the research is to determine the way in which IAS/IFRS adoption for issuing the annual financial statements beginning with 2009, adoption made by companies listed at Bucarest Stock Exchange, leads to an improvement of the quality of financial reporting. The analysis and documentation were supported by the study of the literature in the field, by the investigation of relevant accounting standards and regulations, by the analysis of documents obtained from Orsova Shipyard S.A. and S.C. Severnav S.A. Drobeta Turnu-Severin (documents that were drawn up accordig to national and international regulations), and the analysis of financial statements and financial performance of the mentioned companies, in conformity with national, european and international norms. In this empirical study, a financial analysis was conducted, an investigation which adopted and applied the accounting regulations according to European directives and IFRS. Starting from data presented in the financial statements and using elaborate methods and techniques of financial analysis, information about the performance of the companies was obtained. Considering the responsabilities os Orsova Shipyard S.A. ans S.C. Severnav S.A, it must be noted that the people who manage them, economic managers, chief accountants or any other person in charge with the management of these companies, have to assure the best conditions so that IFRS could be properly applied. The contributions were highlighted by theories regarding the role and importance of financial statements within the accounting system of the entities, as well as by analyzing the main factors of financial reporting. On the basis of results, a series of recommendations can be made: The analysts should pay a greater attention to the values of financial ratios, because there is a lack of a comparison between the two periods of time the pre and post adoption of standards the necessity of a better way of informing the users of financial statements about the standards content and the way in which the accounting politics and procedures could affect the results regarding IFRS; The elaboration of new ratios that could feature the global performance and whose calculation formula considers the new term of gross profit.; The checking of the content of some elements of the financial statements in the case of Orsova Shipyard S.A. and S.C. Severnav S.A. Drobeta Turnu-Severin, when the profitability is being verified. Another future direction for the research might be the study of IFRS impact on small and medium sized enterprises, which could be started when this category of specific standards is shaped and applied by a significant number of companies. EUROPEAN JOURNAL OF BUSINESS AND SOCIAL SCIENCES 125

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