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Australian Accounting Review

Impact factor: 0.833 Print ISSN: 1035-6908 Online ISSN: 1835-2561 Publisher: Wiley Blackwell (Blackwell Publishing)

Subject: Business, Finance

Most recent papers:

  • The Business Model in Integrated Reporting: Evaluating Concept and Application.
    Dale Tweedie, Christian Nielsen, Nonna Martinov‐Bennie.
    Australian Accounting Review. August 09, 2017
    A key feature of the International Integrated Reporting Council's (IIRC) agenda to improve corporate reporting is to encourage companies to use Integrated Reports to disclose their underlying business models. However, extant research suggests that the IIRC's distinctive business model concept is not well understood. This paper aims to unpack and critically evaluate the core features of the IIRC's business model concept. To unpack the IIRC's business model, the paper conducts a structured comparative analysis of the IIRC's model against eight influential alternatives in prior business model research. The paper then evaluates the extent to which Integrated Reporting's distinctive business model is: (1) internally coherent and consistent; and, (2) consistent with the IIRC's broader reporting objectives. The paper identifies tensions in both these areas. Since the IIRC's business model is central to its agenda to improve corporate reporting, these tensions are relevant to both Integrated Reporting research and broader discussions about whether, or how, disclosing business models advances mainstream reporting frameworks.
    August 09, 2017   doi: 10.1111/auar.12196   open full text
  • The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis.
    David Hay, Jenny Stewart, Nives Botica Redmayne.
    Australian Accounting Review. August 09, 2017
    Corporate governance is of growing importance in Australia, New Zealand and all over the world. Corporate governance interacts with auditing and it is useful to understand how corporate governance and auditing affect companies. A related issue is whether better governance is a substitute for auditing or a complement. Previous studies of that issue have had mixed results. This review article provides a synthesis of Australian and New Zealand research about corporate governance and auditing that assesses what has been found and examines issues that can be explored using multiple studies. We conclude that despite extensive research, there is still considerable uncertainty about how corporate governance mechanisms are related to auditing and how auditing is associated with corporate governance. We conclude that recommendations for better governance (beyond a minimum level) are not yet supported by evidence. The results are intended to be helpful in providing advice about policy in Australia and New Zealand, and in determining directions for new research.
    August 09, 2017   doi: 10.1111/auar.12190   open full text
  • Utilising Accounting and Accountants in the Management of Water Efficiency.
    Matthew Egan.
    Australian Accounting Review. August 09, 2017
    This paper explores how five Australian organisations utilised accounting techniques and accountants as they developed an increasing focus on water efficiency during a period of drought. In those cases where top management were responsive to developing community logics that argued for the importance of efforts to maximise water efficiency, non‐accountants found space to experiment with a diversity of decision‐useful accounting initiatives. While initially bypassed, accountants ultimately became important for their ability to link evolving initiatives to core organisational concerns. Alternatively, in those organisations where senior responsiveness to evolving community concerns about water efficiency was limited, accountants dominated from the outset, presiding over a limited range of responses that offered an appearance, but little substance, of change.
    August 09, 2017   doi: 10.1111/auar.12191   open full text
  • Who Influences the Design of Management Accounting Systems? An Exploratory Study.
    Sophie Hoozée, Falconer Mitchell.
    Australian Accounting Review. August 09, 2017
    This paper outlines the results of an exploratory, survey‐based study of the relative influence of managers and management accountants on management accounting system (MAS) design. The findings reveal that, on average, corporate management have the stronger influence on MAS design. However, the strength of their influence does vary both across firms and the sub‐areas of management accounting and, in a significant number of cases, the management accountants’ influence is the greater. The results, therefore, suggest that the processes by which MASs evolve differ across firms due to the variation that exists in the influence exerted by these two parties in MAS design. This finding is significant for researchers studying change and difference in management accounting practice.
    August 09, 2017   doi: 10.1111/auar.12193   open full text
  • Value for Money and Risk Relationships in Public–Private Partnerships: Evaluating Program‐based Evidence.
    Michael Opara.
    Australian Accounting Review. August 09, 2017
    Value for money – VfM (the provision of improved public infrastructure and services at lower cost) – is a central rationale for the deployment of public–private partnerships (P3s). However, it remains unclear how VfM is actually created in P3s. There are several issues that surround the ex ante evaluation conducted during P3 assessment, including: transparency of the process, engagement of stakeholders, potential restrictions on current and future public sector flexibility, and political influences that call into question the legitimacy of the process. This study examines these issues using Alberta's P3 projects executed since 2003, and interviews 35 key participants and stakeholders. The findings suggest that while the transfer of risk from the public to the private sector is a key driver of VfM, it may overstate the extent to which planning related risks can be transferred. This paper recommends enhanced VfM component disclosures and transparency as the evaluation process evolves. Furthermore, a more rigorous approach to risk conceptualisation and valuation should be adopted. Risk allocation should be about managing not only occurrence, but also impact of the risk factor. Finally, political interference must be moderated to allow for the optimal realisation of the best possible choices presented by P3 deployments.
    August 09, 2017   doi: 10.1111/auar.12194   open full text
  • Accounting and Accountability in Fiji: A Review and Synthesis.
    Umesh Sharma, Yi An.
    Australian Accounting Review. August 09, 2017
    This paper reviews accounting and accountability research in Fiji. The review is based on 47 papers published since 1978 in accounting refereed journals, professional journals, edited book chapters and theses and other refereed journals outside accounting. In addition to categorisation of the reviewed papers according to accounting topics, theories and methods of data collection, some themes to which the papers could be related are discussed. Financial reporting/accountability research is the most popular research in Fiji followed by new public management research, with sustainability accounting research the third most popular. The paper's findings suggest some directions for future accounting research in Fiji and where the data can possibly be sourced for such research. We conclude that more research is needed in the Fijian context that focuses on accounting and the state, performance auditing, indigenous accounting, SMEs and accountability.
    August 09, 2017   doi: 10.1111/auar.12197   open full text
  • An Economics Perspective on Financial Reporting Objectives.
    Anthony D. Miller, David Oldroyd.
    Australian Accounting Review. August 09, 2017
    The paper examines the IASB and FASB's stated objectives of financial reporting, and in particular the decision to disregard the motivational aspects of stewardship information. The paper shows this view to be flawed from a theoretical perspective and considers the practical consequences.
    August 09, 2017   doi: 10.1111/auar.12192   open full text
  • Application of International Financial Reporting Standards in the Transition Economy of Serbia.
    Vladimir Obradović, Milan Čupić, Dragomir Dimitrijević.
    Australian Accounting Review. July 12, 2017
    This paper explores the attitudes of the preparers of financial statements in the emerging economy of Serbia towards International Financial Reporting Standards (IFRS). Our research shows that preparers are mainly satisfied with the quality of IFRS and the environment for IFRS application in Serbia and that they generally support the process of global convergence of financial reporting standards. Nevertheless, we find that there is a need to improve the environment for IFRS application in Serbia, and we identify areas that financial reporting regulators in emerging economies should address when attempting to improve the environment for IFRS application. Our research also shows that perceived IFRS quality is dependent on the preparer's experience in applying IFRS and his or her perceptions of the environment in which IFRS are applied. Perceived IFRS quality and attitudes towards the compatibility between IFRS and the environment for application of IFRS affect the level of support for the global convergence of financial reporting standards.
    July 12, 2017   doi: 10.1111/auar.12187   open full text
  • The Impact of Corporate Governance Quality on Earnings Management: Evidence from European Companies Cross‐listed in the US.
    Ujkan Bajra, Simon Cadez.
    Australian Accounting Review. July 12, 2017
    The study reported herein examines the impact of two central corporate governance mechanisms (internal audit function quality and board of directors’ quality) on the incidence of earnings management. Unlike most prior studies in the area, focused mainly on US firms, this study looks at European firms that are cross‐listed in the US and covers a long time span – before and after major changes were implemented in corporate governance policies (Sarbanes‐Oxley Act in the US and the 8th Company Law Directive in the European Union). Using novel and comprehensive measurement approaches for internal audit function quality and board of directors’ quality, we find that both mechanisms have a negative direct effect on the incidence of earnings management, while their interactive effect is positive. A longitudinal analysis of both mechanisms also reveals that internal audit function quality and the quality of boards of directors have increased significantly since the policy changes.
    July 12, 2017   doi: 10.1111/auar.12176   open full text
  • The Importance of Intellectual Capital for Firm Performance: Evidence from Australia.
    Muhammad Nadeem, Christopher Gan, Cuong Nguyen.
    Australian Accounting Review. July 12, 2017
    This study investigates the dynamic relationship between intellectual capital (IC) and firm performance (FP) through system generalised methods of moments, when previous studies produced divergent results based on static OLS or fixed‐effects estimations. Based on 571 listed firms in Australia for the period of 2005–2014 (5518 firm‐years) this study reveals that IC efficiency is positively significant with ROA and ROE – which endorses resource‐based theory. Further analysis shows that human capital, structural capital and physical capital are also significant and confidently endorse resource‐dependency and organisation‐learning theories. The findings of this study are vital for stakeholders such as management, shareholders and potential investors to understand the role of IC for FP. Moreover, the findings are particularly important for policy‐setters to highlight the importance of IC and develop a systematic framework for IC disclosure. This study also opens new avenues for future research to consider the dynamic nature of the IC–FP relationship and account for endogeneity.
    July 12, 2017   doi: 10.1111/auar.12184   open full text
  • IFRS Adoption in Emerging Markets: The Case of Jordan.
    Khaldoon Al‐Htaybat.
    Australian Accounting Review. July 12, 2017
    The aim of this study is to research the adoption of International Financial Reporting Standards (IFRS) in Jordan, which was one of the first Middle Eastern emerging economies to adopt IFRS. The paper investigates the related factors that pressure and prevent such adoption over time, and illustrates the developmental aspects of such adoption. An interpretive methodology is employed, and perceptions of the study's participants are analysed regarding the adoption of IFRS in Jordan, which is an area that is under researched. Semi‐structured interviews were undertaken to collect Jordanian experts’ perceptions. Based on the empirical data analysis and prior theoretical and empirical literature, an adoption model was developed, which can serve future studies as well. The model illustrates the paradox of accounting changes in emerging economies, in which the actual conditions that pressure IFRS adoption are also the conditions that prevent full adoption. The model also provides an explanation of the implementation process of IFRS in emerging economies at both country and corporation levels. It combines practical features and related theories in an integrative model seeking to explain the phenomenon of IFRS as a new accounting regulation change.
    July 12, 2017   doi: 10.1111/auar.12186   open full text
  • Examining the Usefulness of an Accounting Work‐readiness Program as Perceived by Employed Program Graduates.
    Riccardo Natoli, Beverley Jackling, Asheley Jones.
    Australian Accounting Review. July 12, 2017
    This study investigates the usefulness of an Australian accounting work‐readiness program as perceived by international accounting graduates. Using logistic regression, the study reports the results of a survey of 186 graduates who completed the program in the period 2010–2013 and are now employed in either accounting or non‐accounting roles. The results show that graduates who were employed in an accounting role perceived internships and critical thinking skills to be the most useful curriculum components of the work‐readiness program in obtaining their employment. The findings have implications for various stakeholders, in particular educators and professional bodies involved in the curriculum design of the work‐readiness program. The government also has an interest in the value of this program as they grant visas for international students to study in Australia and fill a skills shortage in the profession. The results also provide insights for other Western economies that attract large numbers of international graduates as skilled migrants.
    July 12, 2017   doi: 10.1111/auar.12188   open full text
  • Can Employees Be Used to Overcome Independent Audit Limitations?
    Joe Christopher, Philomena Leung, Shane Leong.
    Australian Accounting Review. June 07, 2017
    Independent financial statement auditors are appointed by shareholders to provide reasonable assurance on the reliability of financial statements published by management of reporting entities. However, in the last two decades questions have been raised concerning the credibility of external audits due to their apparent failure, especially following the spate of corporate collapses. This paper applies a critical review of literature and a multi‐theoretical governance perspective to examine the inherent limitation of independent external audits and argues that employees can contribute to reducing the limitation gap by strengthening governance through a structure that incorporates a board and employee management representation. It is argued that through this arrangement, auditors can benefit as they will be privy to additional information from employees about issues such as irregular matters that impact upon shareholders and other stakeholders, and control weaknesses across governance levels, allowing auditors to establish a broader understanding of organisational information that may otherwise be less readily available. Thus auditors can base their judgements in terms of audit risks, and develop audit plans based on more reliable information. The theoretical proposition emerging from these findings is that the traditional governance model should be refined to include employees as an additional component of governance.
    June 07, 2017   doi: 10.1111/auar.12183   open full text
  • Insights from Accounting Practitioners on China's Convergence with IFRS.
    Helen Hong Yang, Colin Clark, Changyu Wu, Alan Farley.
    Australian Accounting Review. June 07, 2017
    This study provides insights from accounting practitioners on China's convergence with International Financial Reporting Standards (IFRS). Through a survey of 33 senior financial executives of Chinese listed companies in 2014, the study reports their perceptions on the following issues: first, the degree of convergence between IFRS and Chinese Accounting Standards (CAS); second, the choice between fair value and historical cost accounting, and the usefulness of fair value accounting for Chinese companies’ financial reporting; third, challenges in the process of China's harmonisation with IFRS; and finally, essential capabilities of Chinese accounting professionals in the process of China's harmonisation with IFRS. Multivariate regression was used for further analysis. The survey findings reveal that in general CAS have converged with IFRS, with a few exceptions that reflect the unique Chinese context. Historical cost accounting is the preferred measurement base to fair value accounting. Exercising professional judgement was identified as a challenge for China's full convergence with IFRS. Ownership structure and the expertise of accounting practitioners were found to affect respondents’ judgements on China's convergence with IFRS. This study has policy implications for international accounting standard setters and accounting educators to consider the contextual issues of implementing IFRS in an emerging economy.
    June 07, 2017   doi: 10.1111/auar.12182   open full text
  • Value Relevance of Comprehensive Income.
    Shahwali Khan, Michael E. Bradbury, Stephen Courtenay.
    Australian Accounting Review. June 07, 2017
    In this paper, we investigate the value relevance of comprehensive income and its components for a sample of 92 New Zealand companies over the period 2003–2010. We find a stronger association of aggregate comprehensive income with stock price and market returns relative to net income. The change in the asset revaluation reserve and the change in fair value of available‐for‐sale securities drive this association. However, foreign currency translation and cash flow hedges are also associated with prices and returns.
    June 07, 2017   doi: 10.1111/auar.12181   open full text
  • Institutional Investor Protection Pressures versus Firm Incentives in the Disclosure of Integrated Reporting.
    Isabel‐María García‐Sánchez, Ligia Noguera‐Gámez.
    Australian Accounting Review. June 07, 2017
    Corporate disclosures aim to decrease the expectation gap between investors, decrease the advantage of informed investors and consequently reduce information asymmetry. However, the existence of higher numbers of companies’ reports makes the decision making of firms’ stakeholders difficult. To avoid these problems, companies have started to disclose integrated reports. Previous studies have observed that this voluntary corporate disclosure is a consequence of large firms’ incentives associated with preventing abnormal earnings. In this paper, we examine whether these internal factors have a lower/higher impact than institutional contracting pressures. Our results are evidence that firms’ incentives are the main determinants of the voluntary disclosure of integrated reports, and we observe that there is a substitutive role between institutional country pressures and firms’ transparency decisions. However, the contracting environment plays a complementary role when firms suffer from lower asymmetry problems.
    June 07, 2017   doi: 10.1111/auar.12172   open full text
  • SME Reporting in Australia: Where to Now for Decision‐usefulness?
    Karen Handley, Sue Wright, Elaine Evans.
    Australian Accounting Review. June 07, 2017
    This paper develops recommendations for simplified decision‐useful SME financial reporting in Australia – a country that has traditionally allowed a wide range of reporting standards to be used by these entities. Drawing on interviews and comment letters from a number of stakeholders, and data from a survey of users of financial statements of non‐publicly accountable unlisted entities, we analyse stakeholder arguments for and against SMEs providing less detailed reports, and identify the line items that might be most useful to users for decision making.
    June 07, 2017   doi: 10.1111/auar.12179   open full text
  • Exploring the Board Structures and Member Profiles of Top ASX Companies in Australia: An Industry‐level Analysis.
    A. Chandrakumara, G. McCarthy, J. Glynn.
    Australian Accounting Review. June 07, 2017
    Using published data from the top 166 ASX companies and 1244 corporate board members, this paper presents an industry‐level analysis of board structures and member profiles, and assesses them in terms of the ASX (2014, 2003) principles and recommendations. The analysis reveals that the average board size was seven, non‐executive director (NED) representation on boards was 70%, women held 14% of seats on corporate boards, 17% of NEDs were women and 2% of firms had chairperson/CEO duality positions. The Financial, Industrial and Energy sectors consisted of a majority of executive directors from business and the accounting field and NEDs from the engineering field with work experience of 20 to 30 years. A greater degree of diversity in the field of study and previous experience in the same and different sectors was found in relation to board members in the majority of industrial sectors. The analysis reveals that board characteristics such as board size, having a clear majority of NEDs on boards, decreasing trends in chairperson/CEO duality position, board member diversity in terms of qualifications and previous experience in the same and different sectors were largely consistent with the ASX principles and corporate governance practices.
    June 07, 2017   doi: 10.1111/auar.12177   open full text
  • The Effect of IPO Risks on Auditors’ Decisions: Auditor Designation Case.
    Kwang Wuk Oh, Seok Woo Jeong, Seon Mi Kim, Seung Weon Yoo.
    Australian Accounting Review. June 07, 2017
    This study examines the effect of audit risks in the Korean initial public offering (IPO) market on the designated auditors’ decisions. The Korean External Audit Act requires firms to switch from incumbent to new auditors designated by the Securities and Futures Commission after the firm announces a future IPO. This study shows the effects of audit risks by examining if the quality of reported earnings and audit fees significantly differs between IPO‐eligible and IPO‐ineligible firms. Empirical tests first show that discretionary accruals are significantly lower for IPO‐ineligible firms than for IPO‐eligible firms in both the IPO designation period and the following review period. We interpret this result to mean that designated auditors evaluate the IPO‐ineligible (and eventually failed) firms’ listing possibility as low. Second, audit fees are higher for IPO‐ineligible firms in the auditor designation period. This reflects the fact that designated auditors are exposed to future audit risks associated with firms’ post‐IPO financial market troubles if IPO‐ineligible firms attempt to go public. Our study contributes to IPO‐related research by showing the effects of auditors’ risk evaluation on discretionary accruals and audit fees. This study also contributes to accounting policymaking regarding auditor independence.
    June 07, 2017   doi: 10.1111/auar.12175   open full text
  • Do Financial Markets Care about Corporate Social Responsibility Disclosure? Further Evidence from China.
    Shan Xu, Duchi Liu.
    Australian Accounting Review. May 29, 2017
    Corporations increasingly define their corporate social responsibility (CSR) activities as a part of their business. However, is this trend beneficial to investors? Based on an event study methodology and a sample of Chinese listed companies, we extend the literature on voluntary disclosure by exploring the role of CSR disclosure in reducing stock market information asymmetry, as proxied by share price volatility and liquidity. Our results show that the share price volatility after CSR disclosure is lower than before CSR disclosure; however, the trend is that it decreases first and then increases for three months following disclosure. Stock liquidity also significantly improves after CSR disclosure; however, it increases first and then decreases. Additionally, by dividing CSR disclosure into economic (hard) disclosure and generic (soft) disclosure, we find that the reduction in information asymmetry is higher for hard disclosure than soft disclosure, suggesting that although CSR disclosure does indeed have an impact on investors’ behaviour in China, an economic‐based disclosure contributes more substantially. Finally, to better understand the characteristics of the Chinese financial market, we also explore the role of marketisation with results that show that the effect in reducing information asymmetry is greater for companies located in a region with a higher degree of marketisation.
    May 29, 2017   doi: 10.1111/auar.12161   open full text
  • The Impact of Audit Committee Characteristics on CSR Disclosure: An Analysis of Australian Firms.
    Ranjith Appuhami, Shamim Tashakor.
    Australian Accounting Review. May 29, 2017
    This study examines the influence of audit committee (AC) characteristics on voluntary corporate social responsibility (CSR) disclosure in the corporate annual reports of Australian listed firms. It develops hypotheses about the relationship between voluntary CSR disclosure and AC characteristics such as size, frequency of meetings, independence, independent chair, financial expertise and gender diversity. Using multiple regression analysis on data collected from the corporate annual reports of 300 listed firms, the study finds that AC characteristics such as size, frequency of meetings, committee independence and gender diversity have a significant positive influence on the level of CSR disclosure. However, there is no evidence that AC characteristics such as independent chair and members’ financial expertise affect CSR disclosure in Australian firms. Based on an additional analysis, the study also sheds some light on the effect of AC characteristics on environmental disclosure. The findings of this study may be of particular interest to regulators, shareholders, investment analysts and managers in assessing CSR disclosure in annual reports, and in strengthening the monitoring and oversight role of ACs.
    May 29, 2017   doi: 10.1111/auar.12170   open full text
  • Transitioning to IFRS in Japan: Corporate Perceptions of Costs and Benefits.
    Chikako Ozu, Miho Nakamura, Kyoko Nagata, Sidney J. Gray.
    Australian Accounting Review. May 29, 2017
    This paper examines the ongoing transition to International Financial Reporting Standards (IFRS) in Japan with a particular focus on recent institutional developments and corporate concerns. While Japan has committed to the convergence of Japanese generally accepted accounting principles (J‐GAAP) with IFRS it has not as yet formally adopted IFRS. This paper reports on Japanese corporate perceptions of the likely costs and benefits of adopting and implementing IFRS using survey data collected from senior financial executives of 292 Japanese listed companies in 2013–14. Our findings reveal that Japanese companies identify a number of major areas of general concern with the adoption and implementation of IFRS. Most importantly, uncertainty regarding the interpretation of standards followed by staff training, IT systems, technical knowledge and differences between J‐GAAP and IFRS were reported as major concerns. Our survey also highlights that revenue recognition, depreciation, consolidated financial statements, financial statement presentation and the retrospective application of IFRS were viewed as key IFRS accounting issues. While the large majority of companies expected a moderate degree of benefits to arise from IFRS, substantial benefits were perceived more likely to apply to large and overseas listed companies mainly arising from improvements in the international comparability of financial statements.
    May 29, 2017   doi: 10.1111/auar.12168   open full text
  • ‘Pushing the Boundaries’ versus Identifying the Boundaries: An Institutional Perspective on NPM Principles.
    Belinda Luke, Kate Kearins, Martie‐Louise Verreynne.
    Australian Accounting Review. May 19, 2017
    This paper considers the boundaries of new public management (NPM) principles in the context of the mandate for a commercial approach within a New Zealand state‐owned enterprise (SOE). Investigating a commercial approach to NPM through an institutional theory lens, the case study highlights complexities and potential conflict between structured NPM principles and the more complex reality. Analysis reveals blurred lines and boundaries have implications for public sector organisations such as SOEs, government and other stakeholders, where managers push the boundaries beyond the point where stakeholders are comfortable. Thus, a key challenge involves developing clearer institutional boundaries to balance freedoms with stakeholder acceptability.
    May 19, 2017   doi: 10.1111/auar.12142   open full text
  • Commentary on the Adjustments Required for Intercompany Transactions when Equity Accounting Under IAS 28.
    Michael E. Bradbury.
    Australian Accounting Review. May 19, 2017
    The IASB has several projects on the equity method of accounting that involve the transfer of assets between an investor and its associate or joint venture. This paper provides a commentary on this issue by providing example of alternative methods of adjusting for inter‐company profits. The IASB has several projects on the equity method of accounting that involve the transfer of assets between an investor and its associate or joint venture. This paper provides a commentary on this issue by providing examples of alternative methods of adjusting for inter‐company profits. The underlying concepts for alternative approaches are discussed. The conclusion outlines the steps the IASB needs to take to resolve this issue.
    May 19, 2017   doi: 10.1111/auar.12180   open full text
  • Auditors’ Economic Incentives and the Sensitivity of Managerial Pay to Accounting Performance.
    Bum‐Jin Park.
    Australian Accounting Review. May 15, 2017
    The use of managerial incentives to manage earnings in order to enhance accounting performance‐based compensation is greater when auditors have economic incentives to compromise their independence. Hence, compensation committees face more difficulties in determining cash compensation when earnings quality declines. This study investigates whether boards of directors can mitigate the agency problems between managers and shareholders by being aware of the opportunistic earnings management encouraged by auditors’ economic incentives and actively adjusting performance‐based compensation for the reduced earnings quality. To this end, it examines how auditors’ economic incentives affect the sensitivity of managerial pay to accounting performance. The findings show a negative association between the client's economic importance to the auditor and the sensitivity of managerial pay to accounting performance, with this association more pronounced for firms that opportunistically inflate earnings, suggesting that boards mitigate agency problems by actively intervening to modify performance‐based compensation schemes for the reduced earnings quality. Additional analyses show that board effectiveness in determining compensation depends on its characteristics. These results suggest the urgent need to oblige companies to establish compensation committees, particularly in countries that lack such a mandatory requirement or where few companies have such committees.
    May 15, 2017   doi: 10.1111/auar.12154   open full text
  • Communicating the Impact of the Global Financial Crisis in Annual Reports: A Study of Australian NGOs.
    Kshitij Khanna, Helen Irvine.
    Australian Accounting Review. May 15, 2017
    This paper analyses the extent and nature of communication by Australian non‐governmental organisations (NGOs) about the impact of the global financial crisis (GFC). NGOs need to balance their communications about financial need against news that could potentially reflect negatively on stakeholders’ impressions of their worthiness to receive funding. Recognising this, we content analyse the annual report narratives of 10 Australian NGOs for information about the impact of the GFC and their use of impression management (IM) techniques. All NGOs in the study experienced some financial impact from the GFC, with nine referring to it in their annual report narratives. However, the information was very limited, indicating a missed opportunity to communicate meaningfully with stakeholders. Further, of the nine NGOs providing disclosures about the GFC's impact, eight used at least one IM technique, indicating a lack of transparency that has potentially negative implications for trust‐building with their stakeholders. This study focuses on a limited number of NGOs, but further research could broaden this approach to examine organisations in the broader not‐for‐profit (NFP) sector, other modes of communication or communication patterns at other times of crisis, and currently, in an era of austerity.
    May 15, 2017   doi: 10.1111/auar.12162   open full text
  • Do US Corporate Governance Standards Effectively Discourage Risk in the Emerging Markets?
    Naz Sayari, Bill Marcum.
    Australian Accounting Review. May 15, 2017
    This study provides an examination of the effect of various corporate governance factors on the management of the risks inherent in business and the potential divergent impact of these factors on US firms and firms in emerging countries. In particular, the study scrutinises corporate governance and corporate risk‐taking behaviour across different political and socioeconomic environments. In a cross‐sectional time‐series setting, two‐step generalised least squares regression outcomes reveal that the impact of corporate governance on corporate risk taking demonstrates similar implications for US and emerging markets firms in several ways. Nonetheless, the findings also indicate that although some of the US governance standards are effective in the emerging markets, further strengthening of governance standards may be required. Specific governance aspects of the emerging markets, such as board and committee composition, are still lacking when compared to those of the US. Regardless of these differences, the outcomes reveal that those US governance standards adopted by the firms in the emerging markets strengthen governance structures and discourage corporate risk‐taking behaviour.
    May 15, 2017   doi: 10.1111/auar.12160   open full text
  • Sustainability Reporting by New Zealand's Local Governments.
    Radiah Othman, Nirmala Nath, Fawzi Laswad.
    Australian Accounting Review. May 15, 2017
    This study examines New Zealand (NZ) local government's sustainability disclosure during the five years prior to changes in the legislative environment through the introduction of the Environmental Reporting Bill. Local councils appeared to persistently increase their social and environmental disclosure practices in view of the forthcoming Bill. This is consistent with the underpinnings of legitimacy theory in that pending legislation may introduce restrictive policies and rules in the future that are not consistent with current reporting practices. The highest reporting categories were public agency and the environment, which indicates councils’ drive to maintain legitimacy. Further, the results show that local government environmental reporting focused on non‐monetary, and to a lesser extent monetary, information. In the absence of mandatory guidelines, the results also indicate that NZ local councils have voluntarily reported sustainability information consistent with GRI indicators.
    May 15, 2017   doi: 10.1111/auar.12153   open full text
  • The Changing Face of the Auditor's Report: Implications for Suppliers and Users of Financial Statements.
    Pranil Prasad, Parmod Chand.
    Australian Accounting Review. May 15, 2017
    The International Auditing and Assurance Standards Board (IAASB) recently finalised several significant and controversial reforms of the audit reporting model. The reforms are in response to long‐standing criticisms about the form and content of the existing audit report. This study critically examines the current audit report reforms and their implications. In particular, we investigate the perceptions of prominent stakeholders in respect of these reforms and then evaluate the implications of the reforms on the informational value of the audit report, audit quality and audit costs. The findings suggest that the changes to the audit report are of significant informational value to users, while the implications for audit quality are unclear. Indeed, the changes would increase audit costs and potentially the legal liability of auditors. This appraisal is timely given the efforts made by the IAASB in commissioning these reforms to enhance the relevance and informational value of the audit report.
    May 15, 2017   doi: 10.1111/auar.12137   open full text
  • The Adequacy of Pre‐purchase Due Diligence in Independent Small Business and Franchising.
    Jenny Buchan, Lorelle Frazer, Scott Weaven, Binh Tran‐Nam, Anthony Grace.
    Australian Accounting Review. May 15, 2017
    This research reports an in‐depth study of the due diligence activities that prospective independent small business operators and franchisees in Australia undertake prior to purchasing or starting up their businesses. Although academic literature and industry publications promote undertaking ‘proper due diligence’, there is a lack of empirical research into the nature of due diligence and its effect on business outcomes. Using a qualitative approach, 60 currently and formerly operating independents and franchisees were personally interviewed, exploring the diversity of approaches to undertaking due diligence prior to entering business. The research revealed that differences occur in both the type and amount of due diligence undertaken by independents and franchisees and highlighted further differences between current and former operators. In general, the due diligence undertaken by participants was relatively unsophisticated with few exceptions of rigour and planning. Where prospective independents and franchisees were entering business for the first time, their appreciation of business was naïve. A steep learning curve followed during which they often recognised flaws in their initial research. As a result of this qualitative in‐depth research, we present a set of propositions regarding due diligence and a model for future testing on a large sample.
    May 15, 2017   doi: 10.1111/auar.12164   open full text
  • Hired Guns: Local Government Mergers in New South Wales and the KPMG Modelling Report.
    Brian Dollery, Joseph Drew.
    Australian Accounting Review. May 15, 2017
    Across the developed world, including Australia, public policymaking now rests heavily on commissioned reports generated by for‐profit consultants, contrasting starkly with the earlier customary reliance on the civil service to provide informed policy advice to political decision makers. Dependence on commercial consultants is problematic, especially given the moral hazards involved in ‘hired guns’ providing support for policy ‘solutions’ desired by their political paymasters. This paper provides a vivid illustration of some of the dangers flowing from the use of consultants by examining the methodology employed by KPMG in its empirical analysis of the pecuniary consequences of proposed municipal mergers as part of the New South Wales’ (NSW) Government's Fit for the Future local government reform program. We show that the KPMG (2016) modelling methodology is awash with errors which render its conclusions on the financial viability of the NSW merger proposals fatally flawed.
    May 15, 2017   doi: 10.1111/auar.12163   open full text
  • Spenders or Savers? An Examination of the Reserves of Australian NGOs.
    Michael Booth, Helen Irvine, Christine Ryan, Myles McGregor‐Lowndes.
    Australian Accounting Review. May 14, 2017
    Not‐for‐profit (NFP) organisations experience a tension between societal perceptions about maximising mission expenditure on one hand, and their need to accumulate reserves to ensure longer term financial sustainability on the other. While studies have examined the level of reserves in UK and US contexts, there is little Australian research or guidance about what constitutes an appropriate level of NFP reserves. This paper examines the levels and implications of the reserves of 52 Australian NFP non‐governmental organisations (NGOs) over eight years, identifying two groups. Spenders, with less than three months of expenditure in reserve, were more financially vulnerable, had higher levels of debt, yet spent a relatively greater proportion of their revenue on mission‐related activities than savers. Savers, with more than three months’ reserves, demonstrated a greater proportion of revenue from fundraising, proportionately greater equity levels, and higher returns on assets. Providing unique insights into the financial reserves of Australian NGOs, this empirical study contributes to existing NFP literature on reserves, which to date has focused primarily on US and UK contexts. Further, we propose that by developing, monitoring and communicating their reserves’ strategies, NFP boards and managers will be able to improve their organisations’ financial sustainability and manage societal perceptions about reserves.
    May 14, 2017   doi: 10.1111/auar.12152   open full text
  • Earnings Quality in a Bubble Period: The Case of Construction Activity Firms in Spain.
    Juan Carlos Navarro‐García, Antonia Madrid‐Guijarro.
    Australian Accounting Review. May 12, 2017
    Housing bubbles may result in deep crises that affect all economic systems. This study investigates how the recent housing bubble in Spain has affected earnings quality during the whole bubble. To this end, we use data on mostly private construction activity firms in Spain, that is, construction and real estate companies. Earnings quality is studied by means of the predictive ability of earnings, conservatism, discretionary accruals and real earnings management. The results indicate a progressive decrease in the quality of financial reporting as the bubble develops, as managers try to conceal an underlying downward trend. We further show that earnings quality continues to decline even after the bubble bursts. Overall, this contribution, together with those of other environments, may suggest that, in a bubble context, we have to take care of firms’ earnings quality even some years before the crisis comes to the fore.
    May 12, 2017   doi: 10.1111/auar.12139   open full text
  • Fair Value Measurement and Mandated Accounting Changes: The Case of the Victorian Rail Track Corporation.
    Malcolm Abbott, Angela Tan‐Kantor.
    Australian Accounting Review. April 24, 2017
    VicTrack in the State of Victoria in Australia began using fair value to value its assets in 2011. In doing this the company encountered the difficulties normally associated with valuing long‐lived assets that are specific to their use. In this paper, a case study is presented centred on VicTrack in order to provide information on the basic difficulties of determining the fair value of assets that are long‐lived, specific‐to‐use and in markets that are incomplete; and to better understand some of the implications of the switch from historical costs to fair value.
    April 24, 2017   doi: 10.1111/auar.12171   open full text
  • Does IFRS Mandatory Adoption Affect Information Asymmetry in the Stock Market?
    David Abad, M. Fuensanta Cutillas‐Gomariz, Juan Pedro Sánchez‐Ballesta, José Yagüe.
    Australian Accounting Review. April 24, 2017
    The purpose of International Financial Reporting Standards (IFRS), adopted mandatorily by European listed firms in 2005, is to increase the transparency and the comparability of accounting information, which should have led to improvements in these firms’ information environments. This study uses market microstructure proxies for information asymmetry to examine the effects of IFRS adoption on the level of information asymmetry in the Spanish stock market. Therefore, we consider a setting with substantial differences between local standards – Spanish Accounting Standards (SAS) ‒ and IFRS and where the level of enforcement is low. By controlling for conventional determinants of information asymmetry and firms’ characteristics that influence their information environments, we find a reduction of information asymmetry after IFRS adoption. Our findings suggest that the mandatory switch from local accounting standards to IFRS conveys benefits to the market, even when the enforcement level is not strong.
    April 24, 2017   doi: 10.1111/auar.12165   open full text
  • The Effect of Ultimate Ownership on the Disclosure of Environmental Information.
    Peng Wang, Fangjun Wang, Nan Hu.
    Australian Accounting Review. April 24, 2017
    This study empirically examines whether environmental information disclosure (EID) is influenced by the characteristics of a firm's ultimate owners. Based on the EID of publicly listed firms in China, we qualitatively measure the quality of EID of each firm and link those quality scores to firm characteristics to understand the determinants of EID. We further link the EID scores to market valuation of the firm through the Ohlson valuation model to understand whether the market appreciates EID. Our results show that EID is more likely for government‐controlled firms, firms with less hierarchy in their ultimate ownership and firms with more discrepancy between voting rights and cash flow rights. Our results also indicate that the stock market appreciates environmental issues and that EID itself, as well as disclosure quality, is associated with a higher market valuation. Our results still hold with the endogeneity issue controlled.
    April 24, 2017   doi: 10.1111/auar.12166   open full text
  • The Public Accountability Value of a Triple Bottom Line Approach to Performance Reporting in the Water Sector.
    Lai Ken Tan, Matthew Egan.
    Australian Accounting Review. April 24, 2017
    Global water resources are subject to increasing supply constraints. We respond by exploring how novel public sector performance reporting can service public accountability. Here our focus is an exploration of the drivers and utility of a unique ‘sustainability’‐focused, publicly disclosed, performance reporting initiative undertaken by a water agency in Australia. Semi‐structured interviews were conducted with a range of individuals from 2013 to 2014. A disclosure index was also constructed to assess the quality of the disclosures. While the key purpose of the reports was to provide managerial accountability with intra‐governmental stakeholders, they were also drawn on to serve a secondary public accountability purpose with external stakeholders. We argue that the prioritisation of internal stakeholders could threaten utility for public accountability purposes. However, in this case, the reports were also found to be largely relevant to the general public. The study demonstrates that reporting developed for managerial accountability purposes can be designed and targeted also to contribute usefully to ancillary public accountability objectives. Our engagement with the public sector to explore the role and effectiveness of novel reporting strategies in support of sustainability and accountability objectives is topical, and contributes to understanding potential solutions in other contexts.
    April 24, 2017   doi: 10.1111/auar.12173   open full text
  • Integrated Reporting in an Internet and Social Media Communication Environment: Conceptual Insights.
    Sumit Lodhia, Gerard Stone.
    Australian Accounting Review. March 19, 2017
    This paper discusses the potential role of Internet communication technologies, including social media, in the integrated reporting process. A media richness framework provides a conceptual basis to examine the features of Internet technologies, which can facilitate the important external communication aspect of integrated reporting. We find that Internet technologies possess rich features and capabilities that have potentially significant application in enhancing external communications with integrated reporting stakeholders. We also identify risks and challenges associated with utilising Internet technologies to enable the external communication aspect of integrated reporting. Through its focus on the potential role of Internet communication technologies in integrated reporting, the paper extends the nascent integrated reporting literature and accounting communications research. The paper also offers practical guidance and insights for business and accounting's integrated reporting communication practices. To our knowledge, this is the first conceptual paper to comprehensively examine the role of Internet communication technologies in integrated reporting.
    March 19, 2017   doi: 10.1111/auar.12143   open full text
  • The Impact of Australian Accounting Education on Repatriates' Career Development.
    Jie Hao, Qingsong Liu.
    Australian Accounting Review. January 20, 2017
    The aim of this article is to explore the impact of Australian accounting education on the career development of Chinese self‐initiated repatriates (SIRs) in different business settings. It is acknowledged in the literature that international education has an impact on the career development of SIRs. However, in this study, we explore the impact in terms of professional knowledge, qualifications and international exposure. A multi‐case study was conducted with Chinese SIRs in different industries in an effort to understand the specific impacts and potential adverse effects across different types of enterprises in China. Our research found that international accounting knowledge has a positive influence on individuals’ careers, especially in foreign enterprises. Skills obtained from international experience are highly valued in the foreign financial industry, while the CPA qualification is highly valued in accounting firms. Readjustment, competition from local counterparts and employers’ unreasonable expectations do have adverse effects. By analysing how SIRs’ professional knowledge in accounting disciplines has impacted their job performance in different industries, this article not only contributes to contemporary literature from a direct perspective but also presents practical recommendations regarding Chinese and Australian professional education.
    January 20, 2017   doi: 10.1111/auar.12141   open full text
  • Disclosures of Social Value Creation and Managing Legitimacy: A Case Study of Three Global Social Enterprises.
    Muhammad Azizul Islam.
    Australian Accounting Review. January 20, 2017
    This study seeks to fill the gap in the existing literature by examining how and whether disclosure of social value creation becomes a part of the legitimation strategies of social enterprises. In particular, using Suchman's (1995) moral dimension of legitimacy theory, this study sets out whether and how disclosures by three global social organisations – Grameen Bank, Charity Water and the Bill & Melinda Gates Foundation – conform to the expectations of the broader community. The study finds that there is an apparent disconnection between disclosure and action by social enterprises. With reference to a few incidents, social enterprises use disclosure as a part of their managerial efforts, rather than to create moral legitimacy. The notion of apparent disconnection between disclosure and real action by social enterprises is evident. The notion is consistent with extant disclosure literature capturing the motivations for the disclosure practices of corporations. The findings of this paper suggest that when an organisation (whether it is a corporation or a social enterprise) faces a legitimacy crisis, it appears to disclose good news rather than bad news, which calls into question organisational moral legitimacy.
    January 20, 2017   doi: 10.1111/auar.12130   open full text
  • Benchmarking and Learning in Public Healthcare: Properties and Effects.
    Natalie Buckmaster, Jan Mouritsen.
    Australian Accounting Review. January 20, 2017
    This research investigates the effects of learning‐oriented benchmarking in public healthcare settings. Benchmarking is a widely adopted yet little explored accounting practice that is part of the paradigm of New Public Management. Extant studies are directed towards mandated coercive benchmarking applications. The present study analyses voluntary benchmarking in a public setting that is oriented towards learning. The study contributes by showing how benchmarking can be mobilised for learning and offers evidence of the effects of such benchmarking for performance outcomes. It concludes that benchmarking can enable learning in public settings but that this requires actors to invest in ensuring that benchmark data are directed towards improvement.
    January 20, 2017   doi: 10.1111/auar.12134   open full text
  • Does the Presence of Female Executives Curb Earnings Management? Evidence from Korea.
    Hyun Ah Kim, Seok Woo Jeong, Tony Kang, Dongyoung Lee.
    Australian Accounting Review. January 20, 2017
    We investigate the role of female executives in curbing earnings management behaviour in Korea, a country known for its strong male‐dominant culture. In a sample of Korean firms from 2002 to 2010, we find that female presence in top management is negatively associated with discretionary accruals, suggesting that gender diversity in senior management deters opportunistic financial reporting even in a highly male‐dominant corporate environment. Further, this association is primarily observed in firms with stronger (weaker) female (male) dominance. This finding is consistent with the idea that female executives can exert more influence on corporate decisions in a more female‐friendly environment. These findings have implications for academics and practitioners seeking to understand the impact of the role of top executive gender diversity in corporate accounting practices.
    January 20, 2017   doi: 10.1111/auar.12169   open full text
  • Accounting Choice and Theory in Crisis: The Case of the Victorian Desalination Plant.
    Angela Tan‐Kantor, Malcolm Abbott, Christine Jubb.
    Australian Accounting Review. January 20, 2017
    This paper traces the financial developments of the desalination plant in the State of Victoria in Australia. The desalination plant was built via a public–private partnership (PPP) vehicle, and commissioned at a time when water storage levels in the state were low. Subsequent rainfall has meant that no water has yet been ordered by the Victorian Government from the plant. In the paper an analysis is undertaken of the impact of the manner in which accounting treatment has been used in valuing this infrastructure asset. It is concluded that the applied accounting policy choices and treatments for this infrastructure asset are not consistent with conventional accounting theory, the Conceptual Framework for accounting or generally accepted accounting principles.
    January 20, 2017   doi: 10.1111/auar.12149   open full text
  • Impact of Partner Change on Audit Quality: An Analysis of Partner and Firm Specialisation Effects.
    Neal Arthur, Medhat Endrawes, Shawn Ho.
    Australian Accounting Review. January 20, 2017
    This study investigates the impact of audit partner rotation on audit quality and whether industry specialisation moderates such a relationship. The results of this study show that audit partner rotation can enhance audit quality but only when both the incoming audit partner and the audit firm are industry specialists. The results of the study provide valuable insights into the effectiveness of audit partner rotation and auditor industry specialisation practices, and their impact on audit quality. The results have implications for the profession as well as regulators regarding audit partner and audit firm industry specialisation. This is the first study to examine the moderating effect of industry specialisation on the auditor rotation–audit quality relationship at the partner level. The introduction of industry specialisation as a moderating factor provides additional insights into the auditor rotation–audit quality relationship at the partner level.
    January 20, 2017   doi: 10.1111/auar.12150   open full text
  • The Effect of Board Diversity on Earnings Quality: An Empirical Study of Listed Firms in Vietnam.
    Trang Cam Hoang, Indra Abeysekera, Shiguang Ma.
    Australian Accounting Review. December 27, 2016
    Previous studies have established that firms’ effectiveness can differ based on the differences among directors within a board, and between boards. However, studies have yet to establish the effectiveness of the diverse attributes of the board on firms’ quality of earnings in an emerging market setting such as Vietnam. This study investigates the effect of board diversity on earnings quality in a sample of Vietnamese listed firms. The two dimensions of board diversity measures in this study cover a wide range of structural and demographic attributes of board of directors, using a diversity‐of‐boards index (dissimilarities among firm boards, i.e., board structure) and a diversity‐in‐boards index (dissimilarities among directors within a board, i.e., demographic attributes of board members). Earnings quality is an aggregate measure compiled from four accounting‐based measures of earnings quality: accruals quality, earnings persistence, earnings predictability and earnings smoothness. We find a significant, positive linear relationship between diversity of boards and earnings quality, while the relationship between diversity in boards and earnings quality is non‐linear, with a U‐shaped curve.
    December 27, 2016   doi: 10.1111/auar.12128   open full text
  • Future Cash Flow Predictability of Non‐IFRS Earnings: Australian Evidence.
    Elisabeth Sinnewe, Jennifer L. Harrison, Albert Wijeweera.
    Australian Accounting Review. December 26, 2016
    The global proliferation of reporting non‐International Financial Reporting Standards (IFRS) (pro forma) earnings has been subject to academic debate and regulatory reform. This study examines whether non‐IFRS earnings contain statistically significant information on future cash flow predictability that could be useful for investors. The study uses data from large Australian listed companies over a six‐year period (2006–11) covering three distinctive periods around the global financial crisis (GFC): pre‐GFC, GFC and post‐GFC. Results based on fixed effects panel estimation methods suggest non‐IFRS earnings do exert a significantly positive impact on future cash flow predictability but only during pre‐crisis and crisis periods.
    December 26, 2016   doi: 10.1111/auar.12113   open full text
  • Accounting Research: A Bibliometric Analysis.
    José M. Merigó, Jian‐Bo Yang.
    Australian Accounting Review. December 23, 2016
    Bibliometrics is a fundamental field of information science that studies bibliographic material quantitatively. It is very useful for organising available knowledge within a specific scientific discipline. This study presents a bibliometric overview of accounting research using the Web of Science database, identifying the most relevant research in the field classified by papers, authors, journals, institutions and countries. The results show that the most influential journals are: The Journal of Accounting and Economics, Journal of Accounting Research, The Accounting Review and Accounting, Organizations and Society. It also shows that US institutions are the most influential worldwide. However, it is important to note that some very good research in this area, including a small number of papers and citations, may not show up in this study due to the specific characteristics of different subtopics.
    December 23, 2016   doi: 10.1111/auar.12109   open full text
  • Accounting Education and the Prerequisite Skills of Accounting Graduates: Are Accounting Firms’ Moving the Boundaries?
    Sally Chaplin.
    Australian Accounting Review. December 17, 2016
    The current requisite skills of accounting graduates guide the graduate attributes delivered by university learning outcomes. A recent trend by Australian accounting firms to outsource accounting services may impact on accounting graduates if entry‐level tasks normally completed by graduates are sent to offshore processing centres. This study examines the impact of the outsourcing of accounting services by Australian accounting firms and classifies the current requisite skills for accounting graduates identified by accounting firms. Following a review of the current academic literature, a positivist approach using empirical data is taken in this paper. The responses elicited from a survey questionnaire mailed to a random sample of Australian accounting firms provide information for the data analysis. One of the most widely outsourced services identified is the preparation of income tax returns, which has been identified as a key area where graduate accountants normally learn the basic skills required to phase them into the profession. Accounting firms that considered the outsourcing of accounting services would change the 12 ranked prerequisite skills for graduates presented in this paper in order of importance.
    December 17, 2016   doi: 10.1111/auar.12146   open full text
  • Can Investors Identify Managerial Discretion in Corporate Social Responsibility Practices? The Moderate Role of Investor Protection.
    Jennifer Martínez‐Ferrero, Óscar Villarón‐Peramato, Isabel María García‐Sánchez.
    Australian Accounting Review. December 17, 2016
    This paper analyses investors’ ability to identify if managers use corporate social responsibility as an entrenchment practice to conceal the risk of dismissal associated with managerial discretion and if this detection is determined by the level of investor protection orientation. Results based on an international database of 1949 companies show that investors and markets do not identify managerial entrenchment based on the promotion of sustainable practices, except when such entrenchment is developed by companies located in countries with strong investor protection. In these countries, investors identify and penalise such companies with lower financial performance.
    December 17, 2016   doi: 10.1111/auar.12138   open full text
  • Board Characteristics, Firm Profitability and Earnings Management: Evidence from India.
    Nimisha Kapoor, Sandeep Goel.
    Australian Accounting Review. December 17, 2016
    The present paper explores the association between earnings management and specific board characteristics and the firm's profitability in the Indian context. In India, the corporate ownership model is the promoter dominated shareholders model. This is the first study based on a panel data framework that employs a fixed effect model to control for time‐invariant endogeneity. It also contributes to the literature by exploring the role of the firm's profitability in transmitting the impact of audit committee independence on earnings management. The study finds that profitability is an important variable, as it moderates the association between audit committee independence and earnings management. Managers of a profit‐making company would have little need to modify their earnings. This signifies that independent audit committees are more effective monitors of earnings management in profitable firms than in non‐profitable firms. Independent directors with multiple directorships are also found to be ineffective monitors. The findings are of material significance to policymakers in analysing board effectiveness and earnings management and improving policymaking for corporate governance by using profitability and related variables.
    December 17, 2016   doi: 10.1111/auar.12144   open full text
  • The Impact of the FMA Guidelines on Non‐GAAP Earnings Disclosures.
    Elizabeth A. Rainsbury.
    Australian Accounting Review. December 17, 2016
    In 2012 the New Zealand Financial Markets Authority (FMA) introduced guidelines for the disclosure of non‐GAAP financial information. This study investigates the effect of those guidelines on New Zealand listed companies. The findings show that, despite not being mandatory, these guidelines are modifying corporate disclosure behaviour. Companies have improved the way in which they disclose non‐GAAP earnings information and there has been a reduction in the emphasis given to non‐GAAP earnings compared with the emphasis given to audited statutory profit. However, the study also highlights areas for improvement, including the depth of explanation of non‐GAAP earnings calculations and adjustments, and concern about multiple adjusted earnings figures to explain performance.
    December 17, 2016   doi: 10.1111/auar.12148   open full text
  • Managing Employee Stock Option Expense: A Fair Value Approach.
    Ming‐Cheng Wu, I‐Cheng Lin, Yi‐Ting Huang.
    Australian Accounting Review. December 14, 2016
    Owing to special characteristics, classic option pricing models are not well suited to the valuation of employee stock options (ESOs). This paper attempts to conduct a more general fair value estimation based on attaching performance targets to option vesting. Considering a setting that includes factors such as options that may be exercised early at employee discretion, employee exit rates and firm default risk, this paper presents a sensitivity analysis and empirical tests of option value. The results highlight the importance of considering the characteristics of ESOs in the design of performance‐vested option plans so as to provide the most attractive incentives for employees.
    December 14, 2016   doi: 10.1111/auar.12111   open full text
  • Goodwill and Mandatory Disclosure Compliance: A Critical Review of the Literature.
    Carla Carvalho, Ana Maria Rodrigues, Carlos Ferreira.
    Australian Accounting Review. December 14, 2016
    The aim of this paper is to critically analyse the literature published from 2002 to mid‐2015 on disclosures of goodwill and their respective impairment tests; identify the main contributions of the literature, as well as its limitations; and suggest new approaches for future research. We also present a summary of the main determinants of disclosures on goodwill in the literature as well as the still scarce studies’ conclusions of those disclosures in the market. After a review of the literature, we discuss the need to reinforce enforcement mechanisms, so as to improve the level of compliance of disclosures on goodwill and their impairment tests. The majority of the analysed literature reveals that the information disclosed about goodwill is incomplete and largely heterogeneous, indicating a reduced level of compliance with the disclosures required by accounting standards. The paper may support the development of future empirical studies about goodwill's disclosures, which will bridge the identified gaps in the literature.
    December 14, 2016   doi: 10.1111/auar.12129   open full text
  • The Impact and Implications of International Financial Reporting Standards in the United Kingdom: Evidence from the Alternative Investment Market.
    Arshad Ali, Saeed Akbar, Phillip Ormrod, Syed Zulfiqar Ali Shah.
    Australian Accounting Review. December 14, 2016
    This paper investigates the implications of the adoption of International Financial Reporting Standards (IFRS) from the perspective of small and growing companies listed on the United Kingdom's (UK) Alternative Investment Market (AIM). We consider the cost–benefit issues of IFRS adoption and investigate its economic consequences. The results reveal that only a small number of comparatively larger AIM companies have voluntarily adopted IFRS for some anticipated economic objectives. The results also suggest that most of the mandatory adopters have done so for regulation compliance purposes and they would not have adopted IFRS if a choice was available to them. As the existing literature mainly covers the impact of IFRS adoption on large listed companies, the findings of this study will give better insights into extending IFRS to private companies. The findings show an association between the early adoption of IFRS and firm size and conclude that size matters in both the adoption and implications of IFRS. This study also contributes to the debate on the implications of the new IFRS‐based UK GAAP for SMEs‐FRS 102, which will replace the majority of existing UK accounting standards for small and medium enterprises (SMEs) with effect from 2015. Our findings have implications for managers, regulators, market participants, practitioners and other stakeholders.
    December 14, 2016   doi: 10.1111/auar.12140   open full text
  • The Impact of AASB 8 Operating Segments on Analysts’ Earnings Forecasts: Australian Evidence.
    Liyu He, Elaine Evans, Rong He.
    Australian Accounting Review. December 14, 2016
    This paper evaluates the impact of firms’ adoption of AASB 8 segment disclosure rules on analysts’ earnings forecasts. It examines whether providing more disaggregated segment information following the adoption of AASB 8 is associated with an increase in analysts’ ability to forecast earnings. We find that analysts’ earnings forecasts have not improved significantly after adopting AASB 8 in Australia, regardless of whether firms disclosed more disaggregated segment information. Our use of control firms provides assurance that the results are due to AASB 8 and not to some other events concurrent with the adoption of AASB 8. Overall, our results imply that the benefits associated with the management approach as experienced by financial analysts in the United States have not been realised by financial analysts in Australia. This suggests that the successful adoption of an accounting standard in one country should not be the justification for recommending adoption in other countries. Further, our results raise questions about whether the enhanced disclosures required in the new standard are more for the other users of financial statements, such as investors, rather than analysts.
    December 14, 2016   doi: 10.1111/auar.12132   open full text
  • Accounting for Research: Academic Responses to Research Performance Demands in an Australian University.
    Ann Martin‐Sardesai, Helen Irvine, Stuart Tooley, James Guthrie.
    Australian Accounting Review. November 11, 2016
    This study examines the perceptions of individual academics about performance management systems (PMS) developed by an Australian university to meet government research assessment requirements. Using a case study method, the research examines the period 2006–2010 within a university, relying on academics’ responses to a survey on the effect of research PMS, contextualised with publicly available organisational documents. The case study university performed well in the Australian Government's first research assessment exercise, Excellence in Research for Australia (ERA) 2010. However, academics reported increasing levels of stress and decreasing job satisfaction, consistent with research that identifies the commodification of academic research. This process of commodification has occurred as a result of the implementation of PMS designed to assess academics’ research‐focused performance and thereby strengthen the university's performance under ERA. In investigating in detail the responses of individual academics to Australia's research assessment initiative, the paper reveals a disconnect between the macro‐institutional demands placed on the higher education sector, university changes made to accommodate these demands, and the ability of academics to meet these demands in a sustainable way.
    November 11, 2016   doi: 10.1111/auar.12151   open full text
  • Accounting Conservatism: A Literature Review.
    Yuxiang Zhong, Wanli Li.
    Australian Accounting Review. November 02, 2016
    Accounting conservatism is one of the most important properties of financial reporting. The goal of this article is to gain a better understanding of accounting conservatism. We explicate the evolution of conservatism over its long history. Accounting conservatism is indispensable because the main parties of a firm demand conservatism to mitigate agency costs. Various methods are used to measure accounting conservatism, which include balance sheet measures, income statement measures and earnings/stock return relation measures. Empirical research into accounting conservatism has flourished over the last two decades and we focus on the cross‐sectional and time‐series variations in conservatism. We conclude that accounting conservatism is important and cannot be excluded from accounting standards.
    November 02, 2016   doi: 10.1111/auar.12107   open full text
  • Corporate Life Cycle and Earnings Benchmarks.
    Jeongmi Choi, Wooseok Choi, Eunsuh Lee.
    Australian Accounting Review. October 31, 2016
    We examine whether and how corporate life cycle significantly influences meeting or beating earnings benchmarks (MBE). We find that corporate life cycle plays a significant role in a firm's meeting or beating earnings benchmarks behaviour. Developing strategies that fit into the stage of corporate life cycle is crucial for corporate success. MBE is an important financial goal that requires strategies. In this study, we examine whether and how corporate life cycle significantly influences MBE. Specifically, we focus on the incentives of MBE in growth and mature firms. We find that corporate life cycle significantly influences a firm's tendency to meet or beat zero earnings, prior earnings and analysts’ earnings forecasts. Based on logit regressions for the period from 1988 to 2008, the results indicate that growth firms are more likely to meet or beat all three earnings benchmarks. Overall, the results of this study indicate that a firm's MBE behaviour should be examined in the context of its life cycle stage.
    October 31, 2016   doi: 10.1111/auar.12100   open full text
  • Earnings Reported under IFRS Improve the Prediction of Future Cash Flows? Evidence from European Banks.
    Vera Palea, Simone Domenico Scagnelli.
    Australian Accounting Review. October 20, 2016
    This paper examines the relative costs and benefits of International Financial Reporting Standards (IFRS) adoption in the European Union by testing the ability of earnings computed under IFRS to predict future cash flows. The study considers the contribution of net income, comprehensive income and other comprehensive income to the usefulness of earnings to predict cash flows, and it compares IFRS with domestic Generally Accepted Accounting Principles (GAAP). Evidence from a sample of Continental European banks shows that IFRS improve the ability of net income to predict future cash flows. Comprehensive income, too, provides relevant information to predict future cash flows, although with a measurement error which is higher than that in net income for greater lags of time. In our interpretation, these findings are consistent with unrealised gains and losses recognised in other comprehensive income being more transitory and volatile in nature. Overall, our results are relevant to academics and standard setters debating the merits of IFRS adoption and to those who use financial statements and adopt reported earnings to form expectations about future cash flows.
    October 20, 2016   doi: 10.1111/auar.12115   open full text
  • Human Rights Performance Disclosure by Companies with Operations in High Risk Countries: Evidence from the Australian Minerals Sector.
    Muhammad Azizul Islam, Shamima Haque, Robin Roberts.
    Australian Accounting Review. October 20, 2016
    The aim of this study is to explore whether Australian mineral companies operating in high human rights risk countries provide more human rights disclosures than companies operating in low risk countries. A content analysis instrument containing 88 specific human rights performance items derived from a number of international human rights guidelines has been developed to investigate the annual reports, social responsibility reports and corporate websites of the top 50 Australian mineral companies (2010/2011). The findings show that human rights performance disclosures by companies with operations in high human rights risk countries are significantly higher than companies with operations in low risk countries. By disclosing extended human rights performance information, companies operating in high risk countries appear to ease community concerns about human rights violations. The finding is consistent with legitimacy theory, which posits that organisations respond to community concerns in relation to particular social issues.
    October 20, 2016   doi: 10.1111/auar.12108   open full text
  • IFRS Disclosure Compliance in Malaysia: Insights from a Small‐sample Analytical Study.
    Anna Che Azmi, Linda M. English.
    Australian Accounting Review. October 20, 2016
    This study provides unique insights into the disclosure practices of large Malaysian publicly listed companies. Using an expanded compliant/non‐compliant data classification scheme, the 2011 annual reports of nine government linked companies (GLCs) and their non‐GLC industry equivalents are examined to determine compliance with all the disclosure requirements of eight accounting standards that form part of International Financial Reporting Standards. Results indicate that overall compliance is 45.8%, is not predictable and differs widely between standards. Contributions to the literature include distinguishing between ‘Note 1’ disclosures and standard‐specific disclosures that impact current or future year profitability and financial position, investigating incidences of partial disclosures and errors in disclosure, detection and analysis of patterns in disclosure/non‐disclosure, and reflections on the influence of data classification decisions on findings in compliance research. Firms tend to routinely comply with ‘Note 1’ descriptive disclosures and with standard‐specific disclosures that impact current year profitability and financial position. They routinely fail to provide details and explanations of undisclosed financial statement/off balance sheet items that impact future profitability and financial position. There is some evidence that GLCs demonstrate higher levels of standard‐related compliance in five (of eight) industries than do non‐GLCs. The study finds no association between disclosure and auditor.
    October 20, 2016   doi: 10.1111/auar.12105   open full text
  • ‘Fair Value’ of Core Deposits in the EU version of IFRS: A Critical Review.
    Josef Jílek.
    Australian Accounting Review. September 14, 2016
    The paper presents seven impacts of the introduction of core deposits models in credit institutions into International Financial Reporting Standards (IFRS). First, the equity of the credit institution will be higher for the core deposit premium adjusted for deferred tax. Second, the models make it possible for some financial instruments (e.g., interest rate swaps where the credit institution receives fixed payments and pays floating payments) to be designated as hedging instruments. Third, there is lower comparability of financial statements, as no standard business model of core deposits exists. Fourth, the models can be understood at the next step of relaxing of prudence (conservatism) and neutrality of IFRS. Fifth, there is inconsistency in the core deposit definition. By definition, these deposits should be stable for a long (infinite) period. Then, the present value of core deposits should be zero which is flawed. Sixth, there is inconsistency in the interest rate risk definition. Seventh, according to available information, the core deposits models have not been introduced into accounting in any national generally accepted accounting principles (GAAP) such as US GAAP. Thus the fair value of core deposits should be equal to the nominal value of these deposits. The accounting should not reflect the core deposits models. The carve‐out in the European version of IFRS should be removed.
    September 14, 2016   doi: 10.1111/auar.12127   open full text
  • Impairment of Goodwill and Deferred Taxes Under IFRS.
    Dominic Detzen, Tobias Stork genannt Wersborg, Henning Zülch.
    Australian Accounting Review. September 14, 2016
    This article discusses the effect of deferred tax liabilities (DTLs) on an impairment test of goodwill. While IAS 12.66 acknowledges that DTLs arising in a business combination influence the amount of goodwill an entity recognises, International Financial Reporting Standards are silent on the implications of this rule, in particular that DTLs trigger a ‘day one’ impairment of goodwill. To avoid this impairment charge, the professional literature suggests deducting DTLs from the carrying amount of the cash generating unit. This method appears contentious conceptually and is unable to shield the entity from an impairment in subsequent periods. The article discusses four proposed solutions to the problem, but recommends a conceptual re‐think of the mechanical recognition of deferred taxes in a business combination.
    September 14, 2016   doi: 10.1111/auar.12112   open full text
  • The Financial Crisis and the Value‐relevance of Recognised Deferred Tax Assets.
    Wessel M. Badenhorst, Petri H. Ferreira.
    Australian Accounting Review. September 14, 2016
    The objective of this study is to consider if the value‐relevance of recognised deferred tax assets, which often represent unused tax losses, was affected by the financial crisis. A regression analysis of a sample of Australian and United Kingdom firms reveals that the value‐relevance of recognised deferred tax assets was affected by the financial crisis. However, the impact of the financial crisis differed between the sample countries. The study shows that a plausible explanation for this difference might be found in the tax law of the two countries. Findings of this paper will be of interest to regulators and standard setters, as they highlight how interaction between accounting requirements and tax law affects the relevance of accounting and tax information.
    September 14, 2016   doi: 10.1111/auar.12101   open full text
  • Some Economics of Audit Market Reform.
    Boon Seng Tan, Yew Kee Ho.
    Australian Accounting Review. September 14, 2016
    The purpose of audit market reforms since 2001 is to restore public confidence in the institution of auditing based on two considerations: (1) ensuring audit quality; and (2) controlling the ‘adverse effect of competition’ in audit supply. Market reforms for audit quality are delivered through a package of prescribed actions motivated by an analytical relationship between audit quality and its possible determinants: (1) limiting audit tenure through a combination of mandatory firm rotation, partner rotation and re‐tendering; (2) limiting provision of non‐audit services (NAS) by the incumbent auditor; and (3) joint auditing and empowering the audit committee to enhance audit quality. This paper examines the competing independence hypothesis and expertise hypothesis that produce ambiguous theoretical relationships for audit quality–audit tenure and the independence‐provision of NAS. We then review whether the empirical literature resolves these conundrums. We also review the usefulness of joint auditing and empowering the audit committee to improve audit quality in the context of audit market reform.
    September 14, 2016   doi: 10.1111/auar.12114   open full text
  • Audit Effort and Market‐perceived Risk: Evidence from South Korea.
    Sung Hwan Jung.
    Australian Accounting Review. September 14, 2016
    Auditors incur a loss of credibility and/or status or litigation costs only when investors recognise audit failures. In this respect, auditors may be concerned about an increase in market‐perceived risk even though the total amount of audit risk is constant. Consistent with this reasoning, I find that auditors increase audit effort in response to increases in market‐perceived information risk. This suggests that the expected costs of audit failures are a function of investors’ recognition, and thus increased market‐perceived risk causes auditors to become more concerned about their audit failures and to increase audit effort. Further, this study shows that audit effort is effective in reducing market‐perceived information risk, suggesting that auditors contribute to the information environment.
    September 14, 2016   doi: 10.1111/auar.12099   open full text
  • Trends in Auditor Reporting in Australia: A Synthesis and Opportunities for Research.
    Elizabeth Carson, Neil Fargher, Yuyu Zhang.
    Australian Accounting Review. September 14, 2016
    The purpose of this review is to synthesise the existing research literature regarding audit reporting and, in particular, the going concern decision. We consider the findings of research conducted in Australia and New Zealand on these issues. We then analyse trends in audit reporting from 2005 to 2013. We identify an increase in auditors’ reports highlighting going concern issues well beyond the global financial crisis period confirming that this period represents a period of prolonged economic uncertainty. We identify trends by audit firm type, by industry and company size. We analyse the subsequent year outcomes for firms receiving going concern opinions. We also identify opportunities for future research.
    September 14, 2016   doi: 10.1111/auar.12124   open full text
  • Accounting for Extractive Industries: Has IFRS 6 Harmonised Accounting Practices by Extractive Industries?
    Hafez Abdo.
    Australian Accounting Review. September 12, 2016
    Accounting for extractive industries has historically been practiced by one of a number of methods: successful efforts, full costing, area of interest, appropriation and reserve recognition accounting. The choice of method adopted leads to different accounting figures. The difference in the treatment of the costs leads to different accounting figures being reported in the financial statements of extractive companies. This means that the ‘tell it like it is’ criteria of accounting functions differently, so that stakeholders find like‐with‐like comparisons for decision‐making purposes difficult. These difficulties have culminated in the release of IFRS 6 Exploration for and Evaluation of Mineral Resources, to help harmonise accounting practice. This paper, through content analysis of annual reports of 122 upstream oil and gas companies from around the world, investigates the role of IFRS 6 in harmonising extractive industries’ accounting practices. Our analysis identifies seven types of company, which differ in their compliance with IFRS 6. Hence, we conclude that IFRS 6 has had some success in harmonising accounting treatments of exploration and evaluation expense but that this success is limited and more needs to be done to achieve wider harmonisation for the extractive industries.
    September 12, 2016   doi: 10.1111/auar.12106   open full text
  • Do ATMs Increase Technical Efficiency of Banks in a Developing Country? Evidence from Indian Banks.
    Suneeta Sathye, Milind Sathye.
    Australian Accounting Review. September 12, 2016
    Prior studies have confirmed that the greater the investment in information technology (IT), the better the performance of the firm. In the present study, we use bootstrap data envelopment analysis (DEA), which has previously been used in the accounting literature, and which has an edge over traditional accounting‐based measures, to compute the performance efficiency of Indian banks. Specifically, we measure the impact of automated teller machine (ATM) investment intensity on the production efficiency of Indian banks. We also study the impact of bank ownership, soundness, size and risk on efficiency. The study contributes to the literature on the productivity paradox and also draws on structure–conduct–performance theory. We find that ATM intensity has a significant negative association with bootstrap DEA technical efficiency. These results differ from prior research in developed countries. The results could be ascribed to heavy investment in IT such as ATMs by banks, and their inability to reduce labour costs given that many processes still continue to be manual. Accordingly, the study suggests that investment decisions with regard to IT need to be taken with great caution. If the related processes are not simultaneously automated, such investments are unlikely to yield the results that management may have envisaged.
    September 12, 2016   doi: 10.1111/auar.12110   open full text
  • A Consideration of Literature on Trust and Distrust as they Relate to Auditor Professional Scepticism.
    Noel Harding, Mohammad I. Azim, Radzi Jidin, Janine P. Muir.
    Australian Accounting Review. July 01, 2016
    With a view to expanding the discussion on professional scepticism, and motivating a broader perspective in research undertaken with the aim of helping auditors meet ongoing demands for an elevated level of professional scepticism, we consider the literature on trust and distrust as it relates to auditor professional scepticism. We draw on literature from a range of disciplines, and highlight new opportunities and previously unidentified challenges in helping auditors exercise an elevated level of professional scepticism. We distinguish between trust and distrust and note that the issue of professional scepticism is likely to be as much about auditors being insufficiently distrusting as it is about auditors being overly trusting. A number of potentially fruitful means by which professional scepticism might be enhanced are highlighted but we also encourage caution in that lower levels of trust in management, and increased distrust in management, may have unintended negative consequences.
    July 01, 2016   doi: 10.1111/auar.12126   open full text
  • Large Shareholders and Independent Director Equity Compensation.
    Pattarin Adithipyangkul, Tak Yan Leung.
    Australian Accounting Review. June 16, 2016
    This paper investigates the use of equity compensation for independent directors, with a focus on the impact of large shareholders on a company's tendency to use equity compensation to align independent directors’ interests with those of shareholders. Based on data from 215 large Australian listed companies from 2005–2009, our analyses show that the use of equity incentive pay for independent directors is more likely when the aggregate ownership percentage of large shareholders is moderate, when there are multiple large shareholders and when the ownership stakes of large shareholders are more comparable. This paper contributes to the literature by providing new evidence of how various aspects of ownership dispersion affect compensation design for independent directors.
    June 16, 2016   doi: 10.1111/auar.12097   open full text
  • Earnings Management in Public Family Firms under Economic Adversity.
    Elisabete F. Simões Vieira.
    Australian Accounting Review. June 16, 2016
    This paper explores the relationship between the ownership of public firms and their motivation to implement earnings management practices, providing evidence on whether family businesses differ from non‐family businesses in terms of earnings management practices. In addition, it focuses on the possibility of asymmetrical earnings management policies between periods of stability and economic adversity. Based on a sample of Portuguese listed family‐controlled firms for the 1999–2011 period and using a panel data approach, we find no significant differences in the incentive to manage earnings between public family and non‐family firms, suggesting a compensation between the alignment hypothesis, the long‐term orientation of family firms and the desire to pass firms onto succeeding generations, and the entrenchment effect. The evidence shows that earnings management decreases with firms’ profitability, and non‐family firms’ discretionary accruals are mainly influenced by the board of directors. In crisis periods, the discretionary accruals of family firms are especially influenced by firm size. After controlling for different earnings management measures, the determinants of earnings management practices seem somewhat sensitive to the earnings quality proxies. The results provide evidence that directors and policy makers should prevent earnings management procedures in particular situations.
    June 16, 2016   doi: 10.1111/auar.12096   open full text
  • The Value‐relevance of Equity Accounted Carrying Amounts and Disclosed Fair Values of Listed Associates.
    Wessel M. Badenhorst, Leon M. Brümmer, Johannes H.vH. Wet.
    Australian Accounting Review. June 16, 2016
    Equity accounting is a controversial accounting treatment. Although fair value measurement represents a potential alternative measurement base, information content may be lost under a pure fair value measurement approach. This study investigates the value‐relevance of equity accounted carrying amounts and disclosed fair values of listed associates, using a sample of the largest firms listed in South Africa, Australia and the UK. The main finding is that the alternative measurement bases are incrementally value‐relevant during the sample period of 31 December 2005 to 31 December 2011, implying that equity investors do not blindly accept either measurement base. Rather, investors include their own assessment of the intrinsic value of an entity's listed associates in their valuations.
    June 16, 2016   doi: 10.1111/auar.12089   open full text
  • Readability of Notes to the Financial Statements and the Adoption of IFRS.
    Esther Cheung, James Lau.
    Australian Accounting Review. June 16, 2016
    This study examines the association between the readability of financial disclosures and IFRS adoption in Australia. Results show that the Notes (the Notes) to the Financial Statements are significantly lengthier, yet are more readable in the post‐IFRS period. Further, the disclosures in the Summary of Significant Accounting Policies, Financial Instruments and Intangible Assets drive the increased length of the Notes. This study examines the association between the readability of financial disclosures and the adoption of International Financial Reporting Standards (IFRS) in Australia by assessing: (1) the impact of the adoption of IFRS on the readability of Notes to the financial statements in the Australian context; and (2) the potential accounting policies that drive the increased length of the Notes to the financial statements post‐IFRS. Results show that financial reports are significantly lengthier, yet are more readable in the post‐IFRS period. Further, the length of disclosures in Summary of Significant Accounting Policies, Financial Instruments and Intangible Assets are significantly longer after the adoption of IFRS.
    June 16, 2016   doi: 10.1111/auar.12087   open full text
  • The Usefulness of Accrual Information in Non‐mandatory Environments: The Case of Japanese Local Government.
    Mari Kobayashi, Kiyoshi Yamamoto, Keiko Ishikawa.
    Australian Accounting Review. June 16, 2016
    This study investigates how accrual accounting is used in a system in which it co‐exists with cash accounting. It uses a survey methodology to explore the factors that influence the extent to which accrual information is useful for decision making, when used in a dual system. The results show that although accrual information was used less for budgeting, evaluation, asset management or debt management, officials found accrual information useful for performance management. Moreover, neither experience nor leadership significantly contributed to decision‐making effectiveness. The study also found that the central government was the most influential promoter of accrual accounting in Japan. Of particular interest is the link between performance measurement and accrual information.
    June 16, 2016   doi: 10.1111/auar.12093   open full text
  • Financial Performance Adjustment in English Local Governments.
    Maria Jose Arcas, Caridad Martí.
    Australian Accounting Review. June 16, 2016
    This paper analyses financial performance adjustment in English local governments and the specific accruals used to achieve it. Based on statistical approaches used in previous literature, our results indicate the use of abnormal accruals in English local governments in order to report surpluses/deficits close to zero as well as to avoid reporting big deficits. We find that depreciation and impairment expense of fixed assets is the item most significantly related to abnormal accruals. Consistent with the conservatism theory, local governments with higher leverage use more income‐decreasing accounting policies.
    June 16, 2016   doi: 10.1111/auar.12094   open full text
  • A Factor Analytic Assessment of Financial Sustainability: The Case of New South Wales Local Government.
    Joseph Drew, Brian Dollery.
    Australian Accounting Review. June 16, 2016
    Financial sustainability in local government remains a pressing problem which has seen a host of public policy interventions, including compulsory consolidation and performance monitoring through financial sustainability ratios. In September 2014, the New South Wales (NSW) Government announced a reform program centred on increasing scale in local government to make councils ‘fit for the future’. We apply factor analysis to the financial ratios informing the NSW Government's reform initiative to identify the underlying factors for observed financial performance data. We find evidence indicating that three independent underlying factors account for the adopted measures of financial sustainability. The public policy implication arising from this study suggests that the reforms imposed by the NSW Government on NSW municipalities may only meet with limited successa.
    June 16, 2016   doi: 10.1111/auar.12092   open full text
  • Peas in a Pod: Are Efficient Municipalities also Financially Sustainable?
    Joseph Drew, Brian Dollery, Michael A. Kortt.
    Australian Accounting Review. June 16, 2016
    Are efficient councils financially sustainable? We argue that an efficient council may not necessarily be financially sustainable. Our subsequent empirical analysis finds limited evidence in favour of an ‘efficiency–sustainability’ nexus. Thus, policies aimed at improving a council's efficiency may not automatically enhance their financial sustainability. Public policy makers have principally focused on improving the operational efficiency of local government on the presumption that this will result in a more financially sustainable sector. We argue that it is erroneous to assume that an efficient local government entity will necessarily be more fiscally sustainable. To test this argument, we apply an innovative method for empirically testing the association between financial sustainability and operational efficiency to the New South Wales local government system. Our results suggest limited positive associations between financial sustainability measures and municipal efficiency.
    June 16, 2016   doi: 10.1111/auar.12098   open full text
  • Evidence of Avoiding Working Capital Deficits in Australia.
    Wei Jiang, Meiting Lu, Yaowen Shan, Tingting Zhu.
    Australian Accounting Review. March 17, 2016
    This study examines the incidence of managerial interventions in Australian firms to avoid reporting working capital deficits. We document a significant discontinuity in the distribution of current ratios at 1.0. We also find that the propensity of Australian firms to avoid working capital deficits is largely determined by the costs and benefits of management interventions. Firms with short‐term or long‐term debt are less likely to engage in accounts manipulation, while firms paying dividends are more likely to do so. Further examination of the components of current assets and current liabilities reveals that, to avoid working capital deficits, Australian firms tend to undertake actions to overstate accounts receivable rather than overstate inventory or understate current liabilities. The results provide practical guidance and implications for shareholders, auditors and regulators in identifying accounting irregularities.
    March 17, 2016   doi: 10.1111/auar.12095   open full text
  • Contingent Factors, Extent of Budget Use and Performance: A Structural Equation Approach.
    Ali Uyar, Cemil Kuzey.
    Australian Accounting Review. March 17, 2016
    The present study investigates the contextual factors that impact the extent of budget use and performance based on contingency theory. For this purpose, we carried out a questionnaire survey of Turkish firms. In order to analyse the data, confirmatory factor analysis and covariance‐based structural equation modelling were used. We find that the extent of budget use and performance are affected significantly by contextual factors. Size, structure, perceived environmental uncertainty (PEU) and information technology (IT) determine the extent of budget use. The study also finds that performance is significantly affected by the extent of budget use and other contingent factors (i.e., structure, PEU, functionality of IT). Furthermore, there is a mediating role of budget use between contextual factors and performance.
    March 17, 2016   doi: 10.1111/auar.12090   open full text
  • Overlapping Membership on Audit and Compensation Committees and Financial Reporting Quality.
    Ahsan Habib, Md. Borhan Uddin Bhuiyan.
    Australian Accounting Review. March 17, 2016
    This paper examines whether the audit committee members of a board improve financial reporting quality if they are also on their organisation's compensation committee. Audit committees are responsible for overseeing the financial reporting process of organisations and have been urged to broaden their understanding of business risk and of the incentives provided by their firms’ executive compensation structures. Acknowledging the interrelationships among executive compensation, risk‐taking and financial reporting quality, members of audit and compensation committees have been advocating more information sharing between the two committees. Using archival data from a sample of Australian Stock Exchange listed companies, and discretionary accruals as a proxy for financial reporting quality, this study finds that firms with overlapping committees have better quality financial reporting than those without such an overlap. Our evidence for this is stronger in cases where managers tend to manage earnings upwards in order to meet or beat earnings benchmarks. We also find that the beneficial effect of the existence of overlapping committees is adversely affected by the equity holdings of directors with overlapping memberships.
    March 17, 2016   doi: 10.1111/auar.12086   open full text
  • The Influence of Remuneration Structures on Financial Reporting Quality: Evidence from Australia.
    Maryam Safari, Barry J. Cooper, Steven Dellaportas.
    Australian Accounting Review. March 17, 2016
    This cross‐sectional study investigates the influence of a company's remuneration structure on managers’ opportunistic behaviour. The findings support the proposed hypothesis that a higher level of compliance with Remuneration Principle 8—ASX Corporate Governance Council) is associated with a lower level of earnings management. The findings support the efficient functioning of the ASX proposed remuneration structure. This cross‐sectional study investigates the influence of remuneration structures on financial reporting quality, based on a sample of companies listed on the Australian Securities Exchange (ASX). Compliance with Remuneration Principle eight issued by ASX (providing recommendations on formation, operation and disclosure of remuneration committees) is expected to improve financial reporting quality represented by a decreased level of earnings management. This study expands the corporate governance literature by examining an under‐researched mechanism to address the agency problem. Earnings management, as a consequence of the agency problem, is measured using the level of absolute discretionary accruals. In this study, we use the modified Jones model to measure the level of discretionary accruals and the existence of reduced earnings management. The study is conducted using a random sample of 214 firm‐year observations selected from the ASX listed companies. Our findings show a higher level of compliance with the principle on remuneration is associated with lower levels of earnings management. The findings support the efficient functioning of the ASX‐proposed remuneration structure in reducing earnings manipulations.
    March 17, 2016   doi: 10.1111/auar.12083   open full text
  • An Investigation into the Potential Adoption of International Financial Reporting Standards in the United States: Implications and Implementation.
    Aldys Tan, Bikram Chatterjee, Victoria Wise, Mahmud Hossain.
    Australian Accounting Review. March 17, 2016
    International Financial Reporting Standards (IFRS) have been adopted by most of the G20 countries. Given the broad worldwide acceptance of IFRS and significance of attaining comparability to facilitate free flow of capital, the US standard setter, the Financial Accounting Standards Board (FASB) made a commitment to jointly work with the International Accounting Standards Board (IASB) to explore the possibilities of convergence of US Generally Accepted Accounting Principles (GAAP) with IFRS. In 2007, the US Securities and Exchange Commission (SEC) eliminated the requirement that foreign companies listed on the US stock exchanges reconcile their IFRS‐based financial statements with the US GAAP. In the same year the US SEC issued a concept release to the public requesting comments on a proposal to allow US issuers to prepare financial statements in accordance with IFRS. Following these initiatives by the FASB and SEC, the aim of the present study is to investigate the implications of a potential full adoption of IFRS by the US. The present study details the challenges and benefits of adoption and outlines the steps required for a successful outcome of this process.
    March 17, 2016   doi: 10.1111/auar.12081   open full text
  • To What Extent do United Kingdom Companies Provide Oil and Gas Reserves Information Sufficient to Satisfy Statement of Recommended Practice Requirements?
    Cosmas Odo, Wilson Ani, Philip Obialor, David Ugwunta.
    Australian Accounting Review. March 17, 2016
    The uncertainty surrounding oil and gas reserves estimation and the cost of gathering reserves data discourage firms from disclosing sufficient data to satisfy SORP (statement of recommended practice) requirements, especially where oil and gas reserves disclosure is discretionary. However, the need to reduce agency cost and signal to stakeholders induces firms to disclose oil and gas reserves. The contrasting views on the rationale guiding the extent of disclosure were examined in this study. A sample was drawn from 83 United Kingdom (UK) oil and gas exploration and production companies listed on the London Stock Exchange. Appropriate statistical tools were used to investigate the extent of oil and gas reserves disclosure. The findings provide mixed results about the extent of disclosure to meet SORP's requirements. There was no particular evidence that UK oil and gas companies provide qualitatively acceptable oil and gas reserves quantity information. The observed varying degrees of disclosure in the market could be attributed to a discretionary regime that allows firms to determine how and when to disclose. Policy makers and industry regulators could find the results useful in assessing the current extent of disclosure compliance.
    March 17, 2016   doi: 10.1111/auar.12082   open full text
  • Business Continuity in the Face of Fraud and Organisational Change.
    Julie Margret, Zahirul Hoque.
    Australian Accounting Review. March 17, 2016
    We examine business continuity in the context of fraud and accounting for an organisation as a going concern. The issues addressed are timely and focus on two points. First, fraudulent activities in business are increasing worldwide with related costs reaching trillions of US dollars. Second, the conventional accounting concept of a going concern that typically signifies business continuity is arguably formed on a static view of business. As such, this view does not help mitigate opportunities for fraudulent statements of account. We contribute to the accounting literature by emphasising the dynamic nature of business and in doing so extend the discussion on Type 1 and Type 2 going concern errors. In that context we provide evidence of a possible Type 3 going concern error in an organisation's financial reporting. Drawing on an international fraud case involving an Indian company, Satyam, we illustrate the adaptive behaviour of resilient business organisations. The findings of our study show that even in the face of fraud dynamic, adaptive organisations can achieve business continuity.
    March 17, 2016   doi: 10.1111/auar.12079   open full text
  • The Recognition of Goodwill and Other Intangible Assets in Business Combinations – The Portuguese Case.
    Carla Carvalho, Ana Maria Rodrigues, Carlos Ferreira.
    Australian Accounting Review. March 17, 2016
    In this study, we investigate the magnitude of goodwill recognised in business combinations during the years 2005 to 2009 by the Portuguese companies listed on Euronext Lisbon, and characterise the amount of the other intangible assets recognised separately from goodwill. We also analyse the level of compliance of those companies with the main disclosure requirements of International Financial Reporting Standard (IFRS) 3 – Business Combinations. Our study, which involves the analysis of 197 business combinations, reveals that the amounts of goodwill continue to be highly material, while conversely, the value of identifiable intangible assets in those acquisitions is very low. The results suggest that Portuguese companies do not undertake sufficient efforts to individually identify and disclose intangibles acquired in business combinations. This fact is reinforced by the reduced level of compliance with the disclosures required by IFRS 3, particularly the factors that contribute to the recognition of goodwill. Our findings provide feedback to standard setters in an effort to improve practice in the application of IFRS 3. Moreover, they reinforce their recent concerns regarding the post‐implementation review of business combinations, as well as the ongoing project of the IASB, whose objective is to improve disclosures in existing standards.
    March 17, 2016   doi: 10.1111/auar.12073   open full text
  • Carbon Management Systems and Carbon Mitigation.
    Qingliang Tang, Le Luo.
    Australian Accounting Review. March 14, 2014
    This article proposes a carbon management system (CMS). The system comprises 10 essential elements from four broad perspectives: carbon governance, carbon operation, emission tracking and reporting, and engagement and disclosure. The proposed new approach focuses on cross‐functional integration, enforcement of proactive strategies and group rather than individual accountability. We then use Carbon Disclosure Project reports to examine empirically the implementation of systems by large Australian firms. Overall, we find that firms with higher quality CMS have achieved better carbon mitigation. Further, adequate assessment of carbon risk and opportunity, the presence of reduction targets, the strength of carbon programs and enhanced external disclosures appear to be the most effective elements in our sample firms. We present evidence that, by combining governance, internal process, carbon dioxide‐footprint tracking and communication activities, a CMS helps managers improve decision making. We discuss the implications of the findings for accounting practice and education.
    March 14, 2014   doi: 10.1111/auar.12010   open full text
  • Importance of Intellectual Capital Information: A Study of Australian Analyst Reports.
    Subhash Abhayawansa, James Guthrie.
    Australian Accounting Review. March 14, 2014
    This study explores the types of intellectual capital (IC) information considered important by analysts. It uses content analysis to examine IC information in 64 initiating coverage reports written on Australian listed companies. Results reveal that analysts consider several types of IC information to be important from a firm valuation perspective, many of which had not previously been examined in capital markets research. It was also found that the relative importance placed on types of IC varies by sector. Information on relational capital and company management was most commonly used within analyst reports, whilst information on employees, working environment and structural capital was used least frequently.
    March 14, 2014   doi: 10.1111/auar.12012   open full text
  • Privatisation and Franchising of British Train Operations.
    Carmen A. Li, John Stittle.
    Australian Accounting Review. March 14, 2014
    The Railways Act 1993 privatised the British railways industry resulting in the separation of ownership and control of the railway infrastructure (track, signals and stations) from that of passenger train operations. The Great North Eastern Railway (GNER), a major train operator, was unable to meet its contractual obligations shortly after successfully re‐tendering for its second franchise. By referring to the organisational form and structure of the franchising process, this paper discusses the main financial and operational problems that specifically contributed to the collapse of GNER. In particular, the paper argues that the fragmented structure of privatised train operations, the lack of industry coordination and the inherent problems of franchising an essential transport service explain the demise of GNER and have undermined the general objectives of railway privatisation. Overall, the paper highlights that privatisation of train services has failed to deliver both travelling benefits for the public and financial benefits to the state.
    March 14, 2014   doi: 10.1111/auar.12016   open full text
  • An Experimental Study on the Effect of Budget Information on Balanced Scorecard Preparer Individual Learning.
    Chadi Joseph Khalifeh, Prabhu Sivabalan.
    Australian Accounting Review. March 14, 2014
    We examine whether budgets affect individual learning in balanced scorecard (BSC) preparers for the purposes of scorecard target setting. Control systems research has called for studies examining the impact of multiple controls on common decision‐making phenomena. Given this, are there other cybernetic controls (budgets) that might influence the decisions of BSC preparers? From an experimental study involving 235 postgraduate university candidates, our findings suggest that the awareness of progressively greater budget information amongst BSC users in high uncertainty environments engenders greater individual learning about the organisation, altering BSC preparer target‐setting choices. Interestingly, this learning does not necessarily lead to better budget‐actual outcomes, but informs BSC preparers of the constraints facing the organisation from a funding ‘supply side’ perspective. The oft‐criticised budget, even within high uncertainty conditions, facilitates learning in a BSC system originally purported to replace or advance the traditional system. Finally, we contribute more broadly to a growing literature evidencing the appropriateness of budgets in flexible environments, by arguing for its impact on other performance management systems.
    March 14, 2014   doi: 10.1111/auar.12017   open full text
  • Does the Interactive Use of Headquarter Performance Measurement Systems in Foreign Subsidiaries Endanger the Potential to Profit from Local Relationships?
    Utz Schäffer, Matthias D. Mahlendorf, Jochen Rehring.
    Australian Accounting Review. March 14, 2014
    Managing distant subsidiaries is a challenge for headquarters of multinational companies. Performance measurement systems (PMS) can assist in this task. Taking a business network perspective, we study the moderating effect of the interactive use of PMS implemented by headquarters at subsidiaries on the relationship between subsidiary embeddedness and subsidiary performance. We test our hypotheses using survey data from 110 subsidiary managers in China. The results suggest that the multinational network surrounding the subsidiary affects overall headquarter control possibilities. Specifically, while interactive use may be helpful in situations of low local embeddedness of the subsidiary, it seems to have negative side effects on the subsidiaries’ ability to benefit from high local embeddedness.
    March 14, 2014   doi: 10.1111/auar.12019   open full text
  • Performance Management Systems in the Public Housing Sector: Dissemination to Diffusion.
    Nirmala Nath, Umesh Sharma.
    Australian Accounting Review. March 14, 2014
    This article examines a case study of the implementation of a performance management system in public sector housing in Fiji. The aim is to explore and provide interpretations of why performance management and measures were introduced and implemented and reveal if the indicators were appropriate to serve the strategies of the organisation. The article draws on diffusion of innovation theory and explores the effectiveness of performance management. The research approach is qualitative in nature and uses a case study strategy. Interviews and documentary evidence provide the empirical basis for the research. The organisation has established formal objectives at both institutional and departmental levels and has a performance management system at both levels. With growing pressure for commercialisation from donor agencies, the accounting and managerial practices seem to contradict the organisation's original purpose to provide housing needs for the poor. The case study extends the literature on performance management in developing countries and illuminates the deficiencies within the performance management system. This study has implications for practitioners and researchers as it promotes a better understanding of a new public management practice technique which, in this case, was inadequate to satisfy local housing needs.
    March 14, 2014   doi: 10.1111/auar.12004   open full text
  • Succession Planning in Small Accounting Practices in Regional Far North Queensland.
    Dale Wadeson, Susan Ciccotosto.
    Australian Accounting Review. June 12, 2013
    The importance of succession planning, particularly in small and medium accounting practices, continues to become increasingly important with the impending retirement of the ‘baby boomer’ generation. Planning for succession and retirement within a small practice is even more critical in rural, regional and remote areas where staff recruitment and retention is already an issue. This study provides insight into the views of principals of small accounting practices toward succession planning within a regional area of Australia. Applying Sambrook's model of succession, findings reveal that formal succession planning is no longer considered possible by these principals given the perception of generational differences and a change in employment and workplace expectations within the small accounting practice environment.
    June 12, 2013   doi: 10.1111/j.1835-2561.2012.00189.x   open full text
  • Rural and Regional Australian Public Accounting Firm Services: Service Provision, Concerns and Tensions.
    Graeme L. Wines, Rodney A. Carr, Barry J. Cooper, Colin B. Ferguson, Phil K. Hellier, Beverley F. Jackling.
    Australian Accounting Review. June 12, 2013
    Public accounting firms provide a necessary and important service for rural and regional areas. However, the provision of high‐quality services is hindered by a number of factors. This paper reports the findings from a large‐scale survey of professional accounting firm practitioners located in rural and regional Australia, identifying factors causing concerns and tensions and quantifying their scope and importance. Prominent concerns and tensions identified include adverse effects arising from the employment market, communications technology developments and legislation such as the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 and the Financial Services Reform Act 2001.
    June 12, 2013   doi: 10.1111/j.1835-2561.2012.00185.x   open full text
  • Accountants as Emotional Wellbeing Counsellors in Rural Areas.
    Amanda J. Carter, Roger L. Burritt, John D. Pisaniello.
    Australian Accounting Review. June 12, 2013
    The role of accountants in dealing with the social, emotional and stress‐related problems of their clients is explored using semi‐structured interviews with owner‐accountants and regional development workers. Findings indicate the importance to rural communities and the related public of accountants acting as ‘emotional wellbeing counsellors’; a role they are pressured to accept by their clients and community, and for which they are neither formally educated nor trained. Implications are drawn for effective counselling preparation of accounting graduates and practising accountants by educators and professional associations.
    June 12, 2013   doi: 10.1111/auar.12007   open full text
  • Valuation of Family Firms: The Limitations of Accounting Information.
    Tim Hasso, Keith Duncan.
    Australian Accounting Review. June 12, 2013
    This conceptual paper explores the extent to which reported accounting information captures unique family firm decision‐making and intangible asset factors that impact financial value. We review the family firm valuation‐relevant literature and identify that this body of research is predicated on the assumption that accounting information reflects the underlying reality of family firms. This research, however, fails to recognise that current accounting technology does not fully recognise the family firm factors in the book value of the firm or the implications for long‐run persistence of earnings. Thus, valuation models underpinning the extant empirical research, which are predicated on reported accounting information, may not fully reflect the intrinsic value of family firms. We present propositions on the interaction between accounting information, family factors and valuation as a road map for future empirical research with a discussion of appropriate methodologies.
    June 12, 2013   doi: 10.1111/j.1835-2561.2013.00202.x   open full text
  • Corporate Social and Environment‐related Governance Disclosure Practices in the Textile and Garment Industry: Evidence from a Developing Country.
    Yousuf Kamal, Craig Deegan.
    Australian Accounting Review. June 12, 2013
    We investigate the social and environment‐related governance disclosure practices of a sample of textile and garment companies operating within Bangladesh. Using content analysis we find that the disclosure of governance information lags behind general corporate social responsibility disclosures, and the textile and garment companies of Bangladesh disclose information about their governance practices in order to secure/maintain legitimacy and/or to meet community expectations. However, the governance disclosures still fall short of what would appear to be expected by the international community, and despite ongoing international concerns about workplace conditions and associated safety, the results suggest limited accountability and transparency in relation to social and environment‐related governance practices within a developing country context.
    June 12, 2013   doi: 10.1111/j.1835-2561.2012.00205.x   open full text
  • Workplace Human Rights Reporting: A Study of Australian Garment and Retail Companies.
    Muhammad Azizul Islam, Ameeta Jain.
    Australian Accounting Review. June 12, 2013
    The opening of the Australian economy in a globalised world has led to Australian garment and retail corporations moving their manufacturing overseas and acquiring goods from overseas providers. This is usually better for the corporations’ bottom‐line, as they can purchase goods overseas at a fraction of their local cost, partly due to cheap labour. Australia is one of the many OECD countries not to have a well regulated environment for workplace human rights. This study examines 18 major Australian retail and garment manufacturing corporations and finds that workplace human rights reporting is poor, based on content analysis of their annual reports, corporate social responsibility reports and websites. This is probably due to the failure of the Australian Government to provide adequate oversight by promulgating mandatory reporting standards for both local and overseas operations of Australian companies. This permits corporations to avoid reporting their workplace human rights standards and breaches.
    June 12, 2013   doi: 10.1111/auar.12009   open full text