1,721,067 research outputs found
Do Firms Manage Earnings Through Real Activities Manipulation? Evidence From Australia
No full textDiscretions are given to managers to reflect the financial performance and value of companies in the best and most efficient approach. However, discretions do not always disclose firms’ performance and value accurately, but to create opportunities for managers to distort shareholders’ view of financial performance through managing earnings. Although there are several researches about real activity manipulation, they mainly focus on the U.S. and European firms, in contrast, studies focusing on Australian are inadequate. To fulfil this gap, this dissertation examines whether the real earnings management will be undertaken by Australian firms to beat the earnings benchmarks via testing three major activities: sales manipulation; discretionary expenditures (R&D expenses manipulation particularly); and overproduction.
The study sample comprises 3,893 firm-years in Australia for the period from 2010 to 2016. To select suspect firm-years, two benchmarks are used, BENCH 1 is net income divided by total assets and BENCH 2 is changes in net income divided by total assets. The result shows that when selecting suspect firm-years by using BENCH 2, the ABCFO and ABDISEXP of suspect firm-years are lower than those of non-suspect firm-years, and ABPROD of suspect firm-years is higher than that of non-suspect firm-years, which means that Australian firms use real activities manipulation to manage earnings. However, based on the model developed by Roychowdhury (2006), the regression result shows that it is no relationship between real activity manipulation and meeting earnings benchmarks. Although this finding is not consist with prior research, in additional test, the result shows that under BENCH 2, the suspect firm-years have higher earnings quality, which could be a reason to failing find the relationship between real activity manipulation and meeting earnings benchmarks
Do the auditors bear the consequences of corporate failures? The case of failed New Zealand finance companies
No full textThis paper examines whether auditors bear any negative consequence of the failures of finance companies in New Zealand. More than 60 finance companies failed since 2006 and these failures imposed massive financial loss on the investors. There is a wide perception of audit failure in the case of these failed finance companies. Therefore, it is important to examine whether there is evidence of poor audit quality in the case of failed finance companies. It is also important to investigate, from the perspective of audit theory and public policy, whether the auditors of these failed finance companies were punished after the failures. The study examines two consequences for the auditors – disciplinary actions against the auditors by Chartered Accountants Australia and New Zealand and client loss. The paper also examines whether the auditor has been sued after the failure of any finance company.
The sample is comprised of 37 failed finance companies for which annual reports were available on the website of Companies Office New Zealand. The study finds that auditors who gave unmodified audit opinions are not more likely to face disciplinary actions than those who gave unmodified audit opinions with going concern explanation paragraphs and modified audit opinions. Furthermore, the study utilizes auditor turnover of public listed companies in New Zealand to test another consequence of finance company failures for the auditors – client loss. While there is no significant relationship between disciplinary actions and auditor turnover, a statistically significant relationship is observed between finance company failure and auditor turnover.
The study also analyses litigation effect on auditors who involved with finance company failures. Under the primary liability rule – joint and several liability – in New Zealand, auditor is held liable for the loss of the client.
The results of this study will be of interest to practitioners, standard setters and law makers, and will fill the literature gap on the impacts of corporate failures on auditors
An investigation into culture and its influence on socio-economic development in the Kingdom of Swaziland
No full textA thesis submitted in partial fulfilment of the requirements for the Degree of Master of Business Administration (Management Strategy)In the socio-economic sphere, culture has become one of the influences or
determinants of the same. Depending on the living environment, culture has tended
to be either a resource or an impediment of socio-economic development (SED). The
purpose of this study is to investigate existing cultures influencing SED in the
Kingdom of Swaziland (KOS). The sequential mixed-method approach was used
because the study entailed identifying and evaluating different cultures and their
influence on SED, something that required both qualitative and quantitative studies.
Traditional leaders, constituency heads and development practitioners were used as
sample data for the study, where stratified sampling was employed in order to
accommodate the diverse groups. Results of the study indicate that cultural influence
is most prevalent in the rural communities, while the adoption of the new national
constitution (NC) in 2005 brought an insignificant change in the way culture
influences SED. Encompassed in the purpose of the study is also the exploration of
possible ways to mitigate the adverse or stimulate the commendatory aspects of such
influences without undermining or overlooking social elements of both cultural and
national identity in the Kingdom. From the findings of the study, it was noted that
cultural governance, cultural tourism, customs and traditions, gender discrimination
and marginalisation of people living with disabilities are the main existing
components relating to the area of the central phenomenon. To validate the
authenticity of these, spin-offs such as employment, economic inequality, self sustainability and service delivery were used. Further findings, supported by
empirical evidence, indicate that culture in the Kingdom is largely epitomised by the
existence of the Monarchy authority, as a wide range of norms, beliefs, customs and
traditions are entrenched in the core values of same. This infers that the KOS is
predominated by socio-cultural values, which necessitates a telling influence on SED
issues. A major recommendation would be the formulation of constitutionalised
legislation with domesticated regulations and policies that will seek to balance the
values and systems of culture with those of socio-economic development
Do the auditors bear the consequences of corporate failures? The case of failed New Zealand finance companies
No full textThis paper examines whether auditors bear any negative consequence of the failures of finance companies in New Zealand. More than 60 finance companies failed since 2006 and these failures imposed massive financial loss on the investors. There is a wide perception of audit failure in the case of these failed finance companies. Therefore, it is important to examine whether there is evidence of poor audit quality in the case of failed finance companies. It is also important to investigate, from the perspective of audit theory and public policy, whether the auditors of these failed finance companies were punished after the failures. The study examines two consequences for the auditors – disciplinary actions against the auditors by Chartered Accountants Australia and New Zealand and client loss. The paper also examines whether the auditor has been sued after the failure of any finance company.
The sample is comprised of 37 failed finance companies for which annual reports were available on the website of Companies Office New Zealand. The study finds that auditors who gave unmodified audit opinions are not more likely to face disciplinary actions than those who gave unmodified audit opinions with going concern explanation paragraphs and modified audit opinions. Furthermore, the study utilizes auditor turnover of public listed companies in New Zealand to test another consequence of finance company failures for the auditors – client loss. While there is no significant relationship between disciplinary actions and auditor turnover, a statistically significant relationship is observed between finance company failure and auditor turnover.
The study also analyses litigation effect on auditors who involved with finance company failures. Under the primary liability rule – joint and several liability – in New Zealand, auditor is held liable for the loss of the client.
The results of this study will be of interest to practitioners, standard setters and law makers, and will fill the literature gap on the impacts of corporate failures on auditors
Association between Board Characteristics and Accounting Conservatism: empirical evidence from Malaysia
No full textThis paper examines the association between board characteristics and accounting conservatism using a sample of 716 Malaysian listed firms for the year 2008. I use five board characteristics, namely the percentage of inside directors, CEO/Chairman separation, board size, board meetings and managerial ownership. Utilising three different measures of conservatism, I find that (i) percentage of inside directors is negatively related to conservatism and (ii) board size is negatively related to conservatism. Results hold after controlling for firm size, sales growth, profitability and leverage. These findings are consistent with previous studies by Beekes et al. (2004), Ahmed and Duellman (2007) and García Lara et al. (2007). Overall, my evidence shows that firms with strong boards use conservative reporting as a governance tool, even in a unique institutional setting like Malaysia
Goodwill Accounting Under the IFRS Impairment-only Approach? An Asia-Pacific Study
No full textThe purpose of this thesis is to examine how the International Financial Reporting Standards (IFRS)-based goodwill impairment approach is implemented, and to evaluate the role of national enforcement arrangements in this implementation. The sample for the study is drawn from a selection of Asia-Pacific countries that have a variety of institutional settings for enforcing accounting standards.
In particular, this thesis has three separate but related empirical studies. The first study, entitled “Goodwill accounting with amortisation or with impairment?”, investigates the comparative value relevance to investors of goodwill measures. This study reports that goodwill information is more value-relevant in countries that have adopted the IFRS-based impairment approach than those that have not adopted the IFRS-based impairment approach. In addition, the study finds that the value relevance of goodwill numbers is greater in stronger enforcement countries than in weaker enforcement countries.
The second study, entitled “Is goodwill impairment under IFRS timely?”, investigates the timeliness of goodwill impairments under the IFRS-based impairment approach. I find that goodwill impairment is associated with lagged market indicators and with both contemporaneous and lagged financial accounting indicators. This finding suggests that firms respond to poor economic performance, but not entirely on a timely basis. Alternatively, firms may engage in earnings management activities to manage accounting indicators so as to delay the goodwill write-offs. These findings hold up in countries with strong enforcement. In contrast, the likelihood of goodwill impairments by firms in countries with weak enforcement is solely attributable to lagged accounting indicators and “big-bath” incentives.
In the third study, entitled “Do firms manipulate cash flows to delay goodwill impairment losses?”, I find that those firms that are vulnerable to recognition of impairment for two to three years but have not impaired their goodwill exhibit significantly higher abnormal cash flow levels relative to the impairing firms. Additionally, firms continue to implement cash flow management after the delay in goodwill impairment, even though their capacity to do so diminishes within two years. The sub-optimal operational decisions by non-impairers to delay goodwill impairment are found to be detrimental to their future performance. The degree of real activities engagement to manipulate cash flows and its unfavourable effect are higher in firms in stronger enforcement countries. The likely reason for this inconsistency is the risks of regulatory scrutiny created by the more stringent regulatory arrangement of accounting practices in these countries.
Overall, this thesis documents that the benefits derived from the IFRS-based goodwill impairment approach have not yet been realised in countries with weak enforcement arrangements. The study also finds an unintended consequence of stronger enforcement is that it motivates cash flow manipulation, namely, firms resort to the more costly real operations to manipulate cash flows to provide stronger justification for the lack of impairments. The results are of potential interest to the standard setters and call for the attention of the enforcement bodies to improve the reporting regulations for financial reporting that limit different forms of accounting manipulation including real activities management
Motivation and Information Content of Consistency in Non-GAAP Reporting
No full textAn observation in the literature is that managers tend to opportunistically use non-GAAP disclosures to manipulate investors’ perceptions of firm performance. Their opportunistic incentives in this regard are noted to lead them to excluding recurring items from non-GAAP earnings to portray a more favorable picture of operating results, or to use non-GAAP earnings to achieve important earnings benchmarks that would be missed on a GAAP basis.
Consistency is an important qualitative characteristic of corporate reporting. The discretionary nature of non-generally accepted accounting principles (non-GAAP) disclosures and the numerous ways such disclosures are made have led regulators to question the violation of the consistency concept of corporate reporting. Results of later studies show that, managers are becoming more consistent in excluding items used for computing non-GAAP earnings. However, as the consistency of use of non-GAAP exclusion items is increasing the usefulness of these consistently excluded items, which is measured as its forecasting relevance to future operating performance, is receding. The question that arises in this regard, is what is causing this decline in the usefulness of non-GAAP earnings disclosures in spite of increasing consistency in the use of exclusion items.
Prior literature focuses more on the consistency of exclusion of items used for computing non-GAAP earnings. This thesis examines both the use and magnitude of exclusions and examines the relation between management’s motivations behind the use of non-GAAP earnings exclusions, the relation of such motivations with the usage consistency and magnitude consistency of such exclusions, and the information content of non-GAAP earnings disclosed based on such exclusion items.
Using a sample of hand-collected non-GAAP earnings data of S&P 500 firms from 2010 to 2016, my research finds that the management’s opportunistic incentive for non-GAAP disclosures is positively associated with the consistency in the use of non- GAAP exclusion items (usage consistency) and negatively related to the value steadiness of those items (magnitude consistency). The results indicate that opportunistic managers attempt to impress investors with high usage consistency, but elude them by managing the values of those items. In other words, these managers manipulate the magnitude of the excluded non-GAAP items under the guise of consistent exclusion of those items to alter investors’ perceptions of firm performance. However, with regard to the capital market impact of such reporting, investors appear to place less weight on non-GAAP earnings disclosures with relatively high magnitude consistency of non-GAAP exclusion items, while the usage consistency of non-GAAP exclusions items does not incrementally draw the attention of the investors.
This result challenges the common belief that investors view information consistency as a signal of informative financial disclosures. In fact, additional tests reveal that the weak reaction of investors to non-GAAP earnings is primarily attributable to the opportunistic adjustments of recurring item exclusions. Further, market reaction tests suggest that investors are unable to see through the intentions of managers regarding the consistency in calculating non-GAAP earnings and are misled by non-GAAP disclosures that are consistently defined over time because they only make efficient decisions in some cases of opportunistic non-GAAP reporting. These findings suggest that the regulators’ focus on the consistency of item use does not help improving the informativeness of non-GAAP disclosures to investors.
This research contributes to the literature on the consistency of non-GAAP earnings by adding empirical evidence on the management’s opportunistic incentives behind the increasing consistency of non-GAAP earnings and the incremental information content of this growing consistency to investors. Further, the findings of the research are informative for the regulators charged with crafting guidelines on non-GAAP financial disclosures. The results indicate that they should be wary of the issue that while the consistency in non-GAAP reporting is being achieved through the consistent use of non-GAAP exclusion items, opportunistic reporting is being conducted more through the variation in the magnitude of non-GAAP exclusion items. Finally, the results of this
research are informative for managers. It informs them of the fact that the potentially misleading non-GAAP disclosures do not affect the perceptions of investors in assessing the financial performance of firms
Impairment Accounting Practices of Chinese Companies: An Exploratory Case Study
No full textAsset impairment accounting is challenging for many businesses globally. This study aims to provide insight into the practice of asset impairment in China. This study is informed by the theory that financial reporting quality is jointly determined by accounting standards and the institutional environment of accounting, such as legal and political system, capital market development, and accounting education level. This study employed a qualitative research method to collect data from semi-structured interviews with four Chinese accountants and publicly available financial statements.
This study finds that the application of asset impairment does not fully comply with the Chinese Accounting Standards 8 Assets Impairement in terms of determining impairment indications, applying asset groups, estimating recoverable amount, and presentation and disclosure. The possible reasons have been discussed from perspective of China’s institutional environment in terms of the legal and political systems, capital market development, and accounting education and training. This study contributes to both the academic and professional arenas. It is the first qualitative research aiming to understanding the the implementation and practice of CAS 8. It also highlights the practical challenges faced by Chinese accountants and asks for the issuance of appropriate guidance. In addition, it reveal the difference between their practices and the requirements of CAS 8 which used to be neglected unintentionally by Chinese accountants
Changes in Value of Investment Opportunity Set and Goodwill Impairment
No full textThe adoption of International Financial Reporting Standards (IFRSs) results in many changes in goodwill impairment accounting regime in IAS 36. This study investigates the relationship between the changes in value of firms' investment opportunities set (IOS) and the amount of goodwill impairment losses for New Zealand (NZ) listed firms since the new goodwill impairment testing regime was introduced. A pooled time-series and cross-sectional analysis is adopted in this study in order to evaluate the changes of results over the examined period. The results support that the changes in value of sample firms' IOS are negatively related to their amount of goodwill impairment losses during the examined period from the financial year 2008 to the financial year 2009
Association between Board Characteristics and Accounting Conservatism: empirical evidence from Malaysia
No full textThis paper examines the association between board characteristics and accounting conservatism using a sample of 716 Malaysian listed firms for the year 2008. I use five board characteristics, namely the percentage of inside directors, CEO/Chairman separation, board size, board meetings and managerial ownership. Utilising three different measures of conservatism, I find that (i) percentage of inside directors is negatively related to conservatism and (ii) board size is negatively related to conservatism. Results hold after controlling for firm size, sales growth, profitability and leverage. These findings are consistent with previous studies by Beekes et al. (2004), Ahmed and Duellman (2007) and García Lara et al. (2007). Overall, my evidence shows that firms with strong boards use conservative reporting as a governance tool, even in a unique institutional setting like Malaysia
- …
