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Influence of stock market manipulations on manipulations of financial statements (CROSBI ID 165781)

Prilog u časopisu | izvorni znanstveni rad

Gulin, Danimir ; Perčević, Hrvoje Influence of stock market manipulations on manipulations of financial statements // Journal of international scientific publications : economy & business, 2 (2008), 2; 335-346

Podaci o odgovornosti

Gulin, Danimir ; Perčević, Hrvoje

engleski

Influence of stock market manipulations on manipulations of financial statements

In financial and accounting literature and practice the terms «manipulation» and «speculation» are often used, usually as synonyms. These terms are interpreted as machinations, tricks or cheating. In terms of activities, these terms are interpreted as intentions to achieve a quick and easy profit, using permitted and non-permitted means. In further text the term manipulation will be used. In contemporary finance and accounting, the term manipulation is, besides in accounting practice, more and more used in professional literature. Today, we, therefore, more and more talk about two activities or operations in terms of finances as well as in terms of accounting: (a) stock market or financial market manipulations, and (b) accounting manipulations. The aim of this research is to systematise the methods of manipulations of financial markets and determine their influence on manipulations of financial statements. In this research the method of analysis of secondary sources will be used. Although the term manipulation has negative connotations, implying on illegal operations, it should be emphasised that it does not always relate to negative activities. Not all manipulations are a priori illegal and negative. In different countries manipulations are defined as illegal by laws or respective standards of those particular countries. Illegal manipulations are best defined by and most prohibited in the USA, where SEC determines which manipulations are illegal . Moreover, EU countries tend to regulate and limit certain manipulations of financial markets by amendments to existing Directives . The connection between stock market manipulations and accounting manipulations began strengthening during the last several decades of the 20th Century, especially today. The reasons for this are numerous, the most important being: globalisation of financial markets, development of modern financial market information technologies and internet, development of new financial instruments and application of new methods for valuation of assets and liabilities. The trade in shares is most concentrated on North American and European stock markets where approximately 70% of companies are quoted. The number of European companies quoted on the most prestigious world stock market, NYSE (New York Stock Exchange), is increasing on a yearly basis. In 1994, 65 European companies were quoted on NYSE, in 2000, 141 of them . The globalisation and high concentration of companies on largest stock markets are connected with and result from the development of trade by means of modern information technologies, especially internet. Electronic trade allows for acquisition of European investors' securities on Tokyo or Singapore stock exchange. Certain companies are simultaneously quoted on Tokyo, London or New York stock exchange. A decrease in price of shares on Tokyo Stock Exchange is reflected on New York Stock Exchange and vice versa. Consequently, electronic trade increases the dependence among the largest world stock exchanges. Anomalies, as well as manipulations, on one stock exchange are instantaneously reflected as anomalies and manipulations on other stock exchanges. Such phenomenon reflects negative consequences of globalisation. An increase in concentration of quoted companies on a relatively small number of stock markets requires a better equalisation of financial reporting framework. Globalisation of financial markets requires harmonisation of financial standards. In 1998, an agreement between IOSCO (International Organisation of Securities Commission) and IASC (International Accounting Standards Committee) on application of International Accounting Standards on American stock exchanges was consequently reached. Since then, the concentration of quoted companies that use American standards (US GAAP) or International Accounting Standards (IAS) has increased. According to NYSE information, in 1999, approximately 10% of companies disclosed their financial statements in accordance with IAS . The beginning of 21st Century recorded changes in the field of valuation. The traditional principle of valuation – the cost principle, originating from the past centuries – has, notwithstanding all reasonable resistance, been changed. Contemporary form of electronic trade requires provision of true and fair information on financial position and operation of companies in short intervals, for example, each day or every hour, etc. National and international committees (especially the American FASB or international IASC) prepared accounting standards in which they introduced the principle for evaluating assets and liabilities according to their fair value . The application of this principle primarily relates to investments in securities and their disclosure in the balance sheet. This principle mostly “effects” financial institutions such as banks and investment funds, the assets of which mostly comprise securities portfolios. Manipulations of prices of quoted securities provoke manipulations of and mis-valuation in balance sheets. The effect of stock market manipulations on mis-valuations in balance sheets became more visible by application of fair value principle. Possibilities to perform accounting manipulations in order for certain interest parties (i.e. management or shareholders) to achieve the goals set are becoming real.

stock market; manipulations; financial statements; accounting methods

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Podaci o izdanju

2 (2)

2008.

335-346

objavljeno

1314-7242

Povezanost rada

Ekonomija