Australasian Accounting Business and Finance Journal

Technical Note: Company Risk-related Disclosures in a Code Law Country: A Synopsis

Jonas Oliveira — Mon, 01 Apr 2013 19:00:51 PDT

This synopsis provides a concise historical contextualisation of current risk disclosure issues, highlights major factors influencing contemporary risk reporting practices, and engages in a reflective overview of four recently published papers on aspects of corporate risk-related disclosures in a code law country, Portugal. The breadth and depth of our analysis is modest. Nonetheless we report findings indicating that risk-related disclosures are inadequate, lack transparency, and compound the difficulty of assessing the risk profile of a company. We contend that recent regulation initiatives have been of dubious effectiveness in improving the quality of risk information disclosed. In respect of the Portuguese context, we find that companies disclose risk-related information principally to reduce agency costs and to enhance corporate reputation. We contend that enhanced corporate accountability would be more likely to ensue if further disclosures of relevant risk-related information were mandated. One mechanism to do so would be through regulations recommended by the International Integrated Reporting Committee (IIRC).

Technical Efficiency of Thai Manufacturing SMEs: A Stochastic Frontier Analysis

Teerawat Charoenrat — Mon, 01 Apr 2013 19:00:49 PDT

A major motivation of this study is to examine the factors that are the most important in contributing to the relatively poor efficiency performance of Thai manufacturing small and medium sized enterprises (SMEs). The results obtained will be significant in devising effective policies aimed at tackling this poor performance. This paper uses data on manufacturing SMEs in the North-eastern region of Thailand in 2007 as a case study, by applying a stochastic frontier analysis (SFA) and a technical inefficiency effects model. The empirical results obtained indicate that the mean technical efficiency of all categories of manufacturing SMEs in the North-eastern region is 43%, implying that manufacturing SMEs have high levels of technical inefficiency in their production processes.

Manufacturing SMEs in the North-eastern region are particularly labour-intensive. The empirical results of the technical inefficiency effects model suggest that skilled labour, the municipal area and ownership characteristics are important firm-specific factors affecting technical efficiency. The paper argues that the government should play a more substantial role in developing manufacturing SMEs in the North-eastern provinces through: providing training programs for employees and employers; encouraging a greater usage of capital and technology in the production process of SMEs; enhancing the efficiency of state-owned enterprises; encouraging a wide range of ownership forms; and improving information and communications infrastructure.

A Comparison of Qualitative and Quantitative Methods of Detecting Earnings Management: Evidence from two Fijian Private and twoFijian State-owned Entities

Dharmendra Naidu — Mon, 01 Apr 2013 19:00:47 PDT

This paper compares the performance-matched discretionary accrual model (quantitative) and the Mulford and Comiskey (2002) qualitative measure to compute earnings management in two state-owned and two private entities for 1998 to 2009. The results provide evidence that the two measures are unable to provide similar results for the existence of earnings management. The difference in the results between the two methods is attributed to the different ontological and epistemological views and the primary focus of the respective models. The results do not imply superiority of any model.

Fraud Risk Factors and Audit Programme Modifications: Evidence from Jordan

Modar Abdullatif — Mon, 01 Apr 2013 19:00:45 PDT

This study explores how audit firms in Jordan deal with the presence of fraud risk factors in audit clients. In doing so, the study seeks to explore which fraud risk factors are more important to Jordanian auditors, and how Jordanian auditors consider modifying their audit programmes when fraud risk factors are present in clients. The study uses a structured questionnaire that was administered to senior level auditors in the largest Jordanian audit firms. The findings show that almost all of the 20 fraud risk factors included in the questionnaire were only slightly important (if not unimportant), a finding that is arguably alarming. The perceived importance of modifying the audit programme in the presence of each fraud risk factor was related to the perceived importance of the fraud risk factor itself. However, changes in the nature and extent of audit procedures were more important than changes in the timing of the procedures or the members of the audit team. The most important fraud risk factors were related to the characteristics of management and its attitude towards the audit, while the least important fraud risk factors were related to the difficulties in the client’s financial performance. Factor analysis found that the fraud risk factors could be classified into four separate groups. Possible interpretations of the findings were discussed, such as considering the Jordanian business environment characteristics, and the findings were compared to those of extant international studies.

Diversity in Risk Communication

Agung Nur Probohudono — Mon, 01 Apr 2013 19:00:43 PDT

This study analyses the communication of the five major categories of risk (business, strategy, market and credit risk disclosure) over the volatile 2007-2009 Global Financial Crisis (GFC) time period in key South East Asian countries’ manufacturing listed companies. This study is important as it contributes to the literature by providing insights into the voluntary risk disclosure practices using sample countries with different economic scenarios. Key findings are that business risk is the most disclosed category and strategy risk is the least disclosed. Business and credit risk disclosure consistently increase over the three year period, while operating, market and strategy risk disclosure increase in 2008, but then decrease slightly in 2009. Statistical analysis reveals that country of incorporation and size help predict risk disclosure levels. The overall low disclosure levels (26- 29%) highlight the potential for far higher communication of key risk factors.

Belief and Investing: Preferences and Attitudes of the Faithful

Mark Brimble — Mon, 01 Apr 2013 19:00:39 PDT

This Australian study seeks to better understand the disparity between the positive attitudes towards Socially Responsible Investing (SRI) and the level of investment in SRI (Saulwick & Associates 2001; Watmore & Bradley 2001; Williams 2007; Arjalies 2010), by examining both the attitudes to SRI and the investment choices that are made. It is hypothesised that those who are more committed to religious belief principles are more likely to invest in SRI.

To test this 322 people from two large Queensland organisations were surveyed in relation to their investment attitudes and preferences. Results show that those who are more religious are no more likely to invest in SRI, and that the level of importance placed on SRI and financial criteria are similar in most instances for the more and less religious. In addition, women who are religious place more importance on conservative general investment criteria than less or non-religious women.

Accounting for Heritage, Cultural and Community Assets – Alternative Metrics from a New Zealand Māori Educational Institution

Susan Wild — Mon, 01 Apr 2013 19:00:36 PDT

In the 1980s, with the rise to dominance of governments with neoliberal economic and social agendas, the public sector in major western countries underwent a process of fundamental reforms. A key aspect of the change imposed was the implementation of a market-oriented, cost-efficiency focus towards the management of public sector organisations, described collectively as the New Public Management (NPM) model (Kelsey, 1995; Boston et al, 1996; Easton 1996; Barton, 2002, 2005a, 2005b; Carnegie & West, 2005; Ball & Grubnic, 2008; Davis, 2010). This reform process included the imposition of regulatory measures requiring public sector organisations to provide annual financial reports prepared on an accounting basis comparable to those for the private sector, and incorporated an obligation to disclose (at economic values) all assets held. For public benefit entities holding heritage, cultural and community assets (HCA), this reporting requirement has been particularly problematic, entailing substantive changes to public accounting policy.

This paper critiques the political ideologies and practices of the NPM model, and challenges its assumptions that private sector financial reporting requirements, based on international accounting standards and Generally Accepted Accounting Practice (GAAP), are appropriate for universal application to public benefit and other not-for-profit entities holding HCA. In particular, the paper argues against the NPM assumption that reporting all HCA in economic terms improves accountability in public benefit entities. Instead, the paper proposes an alternative reporting model based on a set of cultural rather than economic values for reporting HCA. It suggests as an exemplar the ‘Wellbeing of Communities’ reporting and accountability framework devised for application by an indigenous New Zealand Māori educational institution, Te Wānanga-o-Raukawa.

Editorial Volume 7 Issue 1

Ciorstan Smark — Mon, 01 Apr 2013 19:00:34 PDT

The articles published in this issue of AABFJ cover a variety of discipline areas as well as providing a contrast in methodologies for research.

Anybody can do Value at Risk: A Teaching Study using Parametric Computation and Monte Carlo Simulation

Yun Hsing Cheung — Mon, 21 Jan 2013 20:00:31 PST

The three main Value at Risk (VaR) methodologies are historical, parametric and Monte Carlo Simulation. Cheung & Powell (2012), using a step-by-step teaching study, showed how a nonparametric historical VaR model could be constructed using Excel, thus benefitting teachers and researchers by providing them with a readily useable teaching study and an inexpensive and flexible VaR modelling option. This article extends that work by demonstrating how parametric and Monte Carlo Simulation VaR models can also be constructed in Excel, thus providing a total Excel modelling package encompassing all three VaR methods.

Stereotypes, Students’ Perceptions and Inherent Creativity: Further Australian Evidence

Peter Baxter — Mon, 21 Jan 2013 20:00:30 PST

The objectives of this study are to: ascertain how first year university students perceive accounting in a time period following the high profile corporate collapses of the early 21^st century; understand the factors that influence these perceptions; and determine if there is an association between students’ perceptions of accounting and their inherent creativity. The findings of the study show that the majority of first year university students still hold a traditional stereotypical perception of accounting. School teachers and subjects were reported by the students as being the main influences on their perceptions. Students’ perceptions of accounting are also linked to their inherent creativity. A limitation of the study is that the sample is drawn from students at two Australian universities. Therefore, the results may not generalise to other institutions. This study contributes to the existing body of knowledge on students’ perceptions of accounting and the impact of various factors. There are implications for educators in designing appropriate curricula and the promotion of accounting by the accounting profession.

Empirical Evidence on the Link Between Compliance with Governance of Best Practice and Firms' Operating Results

Tek B. Lama — Mon, 21 Jan 2013 20:00:28 PST

This study provides robust evidence in support of the agency theory argument that corporate governance matters for a firm’s operating performance. Using the corporate governance ratings as the governance proxy from Horwath 2006 Corporate Governance Report (mid-sized Australian ASX companies) and Mid-Cap Corporate Governance Report 2007 (The University of Newcastle 2006; 2007), I examine 60 sample firms to reveal that a firm’s governance is positively and significantly related to firm performance as measured by return on equity, earning yield and return on assets. This study extends the findings of these two reports which found a disturbing trend in the corporate governance practice of Australian mid-cap companies – both a decrease in companies with excellent corporate governance, and an increase in companies with significant corporate governance deficiencies. The findings of this study suggest that those mid-size companies who have allowed corporate governance to deteriorate have adversely affected their shareholder returns.

The Impact of IFRS on Annual Report Length

Maria Morunga — Mon, 21 Jan 2013 20:00:27 PST

The move to the NZ IFRS has been surrounded by complaints of too much information being provided. This is not simply a matter of the cost of providing the information, but the possibility of data overload. Data overload is an important issue as it impacts information search strategies and decision outcomes. This is relevant for assessing whether the NZ IFRS has achieved its goals of reducing the cost of financial analysis. This paper develops a model of information processing capacity and then examines the impact of the move to international financial reporting by New Zealand listed entities on the quantity of data provided in their annual reports. Our analysis shows that the annual report length increased for 92% of our sample firms. The average increase in size was 29% above the prior years’ annual report and arose through notes to the accounts and accounting policies. Even after transitional information (e.g. accounting policies and reconciliations) the increase was 15%.

The Impact of Market Maker Competition on Market Quality: Evidence from an Options Exchange

Angelo Aspris — Mon, 21 Jan 2013 20:00:25 PST

This paper examines the dynamic relationship between competition, liquidity provision, and market structure. By examining the entry and exit of market makers in the Australian Options market, this study empirically analyses the issue of market maker competition. Results indicate that market maker entry depends on a broad range of profit, risk and market concentration characteristics, but free market maker movement does not explicitly result in a competitive market structure. This study also finds that the degree of market concentration additionally affects the marginal impact of market maker entry (exit), but the effect is significantly more pronounced for the most liquid classes of options. The implication of this finding is pertinent to market regulators since market maker competition may not necessarily contribute to enhancing market quality for less liquid securities.

The Road Less Travelled: An Overview and Example of Constructivist Research in Accounting

Jayne E. Bisman — Mon, 21 Jan 2013 20:00:24 PST

This article provides a discussion of the nature of constructivism as a research paradigm within the context of accounting and presents a detailed example of a research study to demonstrate the application of this paradigm. The commentary features a particular emphasis on how the practicalities involved in designing and conducting the research meshed with the philosophy of the research paradigm. The illustrative research project concerns an investigation of organisational justice in the context of fairness in the workplace in public accounting firms. Semi-structured interviews were used to collect data, and textual transcriptions were interpreted using thematic methods and discourse analysis. The aim of the discussion and exemplar is to render constructivist approaches to research in accounting more accessible and apprehensible for researchers unfamiliar with, or new to, this field of qualitative inquiry.

Editorial Volume 6 Issue 5

Ron Perrin — Mon, 21 Jan 2013 20:00:22 PST

The articles published in this issue of AABFJ cover a variety of discipline areas as well as providing a contrast in methodologies for research. Cheung and Powell (2012) provide guidance on the use of the Excel modelling package to construct parametric and Monte Carlo Simulation models. Lama (2012) examined the relationship between corporate governance and a firm’s performance as measured by return on equity, earning yield and return on assets, and found and found that in mid-sized Australian ASX companies there was a positive correlation. Morunga and Bradbury (2012) report on the data overload found in the financial reports of New Zealand companies as a result of the disclosure requirements emanating from the adoption and implementation of the International Financial Reporting Standards in New Zealand.

Succession Planning in Australian Farming

John Hicks — Sun, 25 Nov 2012 18:12:41 PST

Collaborating with Industry to Enhance Financial Planning and Accounting Education

Mark Brimble — Sun, 25 Nov 2012 18:12:40 PST

Higher education is integral to the professionalisation of financial planning in Australia. However, the traditional separation between ‘content’ and ‘practice’ in tertiary curriculum does not necessarily equip students with the skills required to apply the content in a professional context. Contextualisation of the financial planning curriculum requires collaboration between higher education institutions and the profession to develop authentic learning environments, such as work-integrated learning (WIL). This paper describes the collaboration by one Australian university to develop a professionally integrated Financial Planning and Accounting degree and provides evidence of its impact from an industry perspective. The results reveal a high level of industry satisfaction with the degree, substantial professional integration, as well as the development of students’ professional skills. Students also developed an improved impression of the university, its students and its staff.

KiwiSaver and Retirement Adequacy

Kirsten L. MacDonald — Sun, 25 Nov 2012 18:12:38 PST

The Financial Life Well-Lived: Psychological Benefits of Financial Planning

Kym Irving — Sun, 25 Nov 2012 18:12:37 PST

As the financial planning industry undergoes a series of reforms aimed at increased professionalism and improved quality of advice, financial planner training in Australia and elsewhere has begun to acknowledge the importance of interdisciplinary knowledge bases in informing both curriculum design and professional practice (e.g. FPA 2009). This paper underscores the importance of the process of financial planning by providing a conceptual analysis of the six step financial planning process using key mechanisms derived from theory and research in cognate disciplines, such as psychology and well-being. The paper identifies how these mechanisms may operate to impact client well-being in the financial planning context. The conceptual mapping of the mechanisms to process elements of financial planning is a unique contribution to the financial planning literature and offers a further framework in the armamentarium of researchers interested in pursuing questions around the value of financial planning. The conceptual framework derived from the analysis also adds to the growing body of literature aimed at developing an integrated model of financial planning.

The Financial Coaching Advice Model: An Exploration into how it Satisfies Expectations of Quality Advice

Julie Knutsen — Sun, 25 Nov 2012 18:12:36 PST

For 20 years, the financial planning sector in Australia has been transitioning from a sales-orientated force to a profession of qualified and skilled practitioners. Today, the potential for professional financial planning advice to benefit Australians financially, economically and psychologically is recognised by government. Financially, these benefits include increased savings, less interest expense through faster debt reduction, higher investment returns and appropriate levels of insurance. Economically, a more financially literate society has the potential for less reliance on an already burdened social security system. Psychologically, the benefits include the peace of mind that comes from an individual being confident in financial matters. However, despite this level of recognition and development, national surveys have reported that only a small percentage of the population actually seek professional financial advice. The factors attributing to these low percentages included the gaps in financial literacy limiting an individual’s engagement in financial matters and consumer’s current mistrust of the financial advice business models that remain dominated by commission-driven product sales. These deficiencies have led some financial planning firms to break from financial product sales as the primary advice model and focus on financial coaching. Exploratory interviews with the practitioners and clients of a selected financial planning firm have generated insightful discussion into how a financial coaching advice model is achieving the financial, economic and psychological benefits recognised by government as the potential outcomes of professional financial advice. The aim of this paper is to present the findings from that discussion and demonstrate the opportunities embedded within a financial coaching advice model. It is argued that this discussion offers a foundation for future research direction in an area currently under researched in academic literature.