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(2010)ThesisThe study examines the impact of the Global Financial Crisis (GFC) on changes in auditor reporting behaviour in Australia, in particular, whether auditors change their likelihood of issuing a going concern opinion and change their audit effort in response to a challenging audit environment. Using non-financial Australian listed companies over the period 20052009, I test whether the propensity of going concern modifications issued by auditors, audit report lag and audit fees vary in the financial crisis period (2007-2009) compared with the pre-financial crisis period (2005-2006). I find an increase in the propensity to issue going concern opinions by auditors during the period 2008•2009 compared with the period 20052006; that Big N auditors respond to the GFC earlier than non-Big N auditors; and that all Big auditors increase their propensity to issue going concern opinions in response to the GFC, though the degree of increase varies between Big N auditors. However, variation between Big N auditors in propensity to issue going concern opinions is sensitive to model specification and definition of the GFC period. I also find evidence of increased audit fees but no evidence of longer audit report lags during the crisis period relative to the pre-crisis period. Overall, I provide evidence on to what ex tent auditors exercise their professional scepticism regarding particular issues and how much resources they invest in conducting audit engagements during the GFC. My findings are of interest to regulators, auditors and financial information users because it assists auditors and regulators to assess the appropriateness of the strategies implemented and it also informs financial information users of the extent to which audit opinions are informative during the financial crisis. Also, the study informs the policy and law makers as to the impact of shareholder actions on auditor opinion issuance.
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(2010)ThesisI investigate market reactions to a star resource analyst Keith Goode’s recommendations over daily and intraday horizons. Goode is a well known analyst with a strong media presence, specialising in gold and precious metals, and unique in that he is an independent commissioned analyst. In daily analysis, I find size and industry matched mean buy-and-hold abnormal returns of 8.7% over a short run window, mostly coming from gold stock performance. I argue he is a valuable information intermediary in a high information asymmetry setting, being the Australian mining industry. I also contribute to the literature in relation to Development Stage Enterprises (DSE) and analyst ‘learning-by-doing’ (LBD) theory by measuring the differences between performance of recommended stocks partitioned on a DSE-like criterion and on time-based measures of experience. I find no significant results that an alternative informational signal is move valued by DSE-like firms; nor do I find evidence for LBD in relation to this star analyst. I pose a general, non-parametric method for measuring abnormal values of a wide range of intraday metrics capturing various microstructure features, while controlling for idiosyncratic stock-metric effects. Using this method, I detect abnormal trade frequency, volume, traded value and amount of limit order book activity during the first hour, and trade imbalance during the first 2 hours, of the market opening following Goode’s recommendations. I am unaware of any prior research which measures intraday reactions to analyst recommendations.
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(2010)ThesisThis dissertation examines how well auditors triangulate audit evidence in an electronic audit workpaper environment. Evidentiary triangulation is an audit evidence evaluation technique argued to help auditors face the challenges of the contemporary audit environment. It is a technique formally proposed by Bell, Peecher and Solomon (2005) and involves the simultaneous consideration of evidence from three sources (Entity Business States, Management Information Intermediaries, Management Business Representations) that differ in their specificity and source. In particular, it is a technique argued to increase the likelihood that financial statement fraud will be prevented and/or detected. It is, however, a cognitively onerous technique, one that auditors will likely struggle to successfully apply. The proliferation of electronic audit workpaper systems, however, presents an environment with the potential to reduce (or increase) the cognitive demands of evidentiary triangulation. In particular, the way in which electronic workpapers are linked (i.e., the hyperlinking structure) may help or hinder auditors in their efforts to identify important relationships between evidence items. Evidentiary triangulation performance was investigated across three types of hyperlinking structures (indexed, embedded, combined) and two levels of experience (manager, senior) in a controlled experiment. Analysing the judgments made by 32 managers and 69 seniors, the results revealed that different hyperlinking structures were associated with superior and inferior triangulation performance across different experience levels. Inexperienced auditors’ (seniors’) triangulation performance was inhibited by the simultaneous provision of both indexed and embedded hyperlinks, but facilitated by the individual presentation of each structure. The opposite was the case for experienced auditors (managers), whose triangulation performance was facilitated by a combined hyperlinking structure but inhibited by the individual presentation of each structure. Possibly reflecting a lack of training and experience in applying the evidentiary triangulation technique, the facilitating characteristics of different hyperlinking structures were not reflected in improved judgments. The results were also not consistent across differences in the directional implications of the Entity Business State evidence. The findings of this dissertation have implications for accounting firms both in terms of the ability of their auditors to triangulate audit evidence and the way in which they should structure their electronic presentation of workpapers.
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(2010)ThesisAuditors have been shown to subconsciously bias the processing of audit evidence towards the views held by their supervisor, a phenomenon referred to as predecisional distortion (Wilks 2002). Given its subconscious nature, predecisional distortion in an audit setting is of particular concern. Unlike conscious distortion which can be responsive to external interventions such as those aimed at increasing the level of effort applied to the task, predecisional distortion might be difficult to mitigate because it occurs without the awareness of auditors. While predecisional distortion may not be responsive to external interventions, certain environmental factors may decrease or increase the extent of the distortion, thereby improving (or detracting from) the quality of audit judgments. This dissertation reports on two studies examining one such environmental factor, namely, the hierarchical distance between the supervisor and the subordinate auditor making the judgment. Study One examines the impact of hierarchical distance on the level of predecisional distortion. Two aspects of hierarchical distance are examined, namely, the position of the auditor’s supervisor (hierarchical status) and the extent to which the auditor’s national culture emphasises hierarchical authority (hierarchical culture). When analysing data collected from auditors employed in a single Big 4 international practice in Australia and South Korea, predecisional distortion was found to be a phenomenon confined to superior-subordinate relationships, suggesting that hierarchical distance is a necessary condition of predecisional distortion. Unexpectedly, the level of distortion exhibited by the South Korean auditors working in a strong hierarchical culture was less than that exhibited by the Australian auditors working in a weak hierarchical culture. Interviews conducted with a number of participants following the conduct of Study One suggested that the South Korean auditors might perceive their supervisors to have lower levels of expertise than is the case for Australian auditors. Study Two investigates whether the unexpectedly low levels of predecisional distortion exhibited by South Korean auditors can be explained by variations in the perceived expertise of the supervisor. The results revealed that predecisional distortion is a phenomenon restricted to situations where there is no information that suggests the supervisor lacks expertise. Predecisional distortion was most pronounced when there was clear evidence that the supervisor was an expert. Further, where there was an absence of information about the supervisor’s expertise, predecisional distortion was most pronounced when the supervisor’s view encouraged a more conservative audit approach. The results from the two studies reported on in this dissertation highlight that while predecisional distortion is a pervasive phenomenon in audit settings, the consequences of predecisional distortion of audit evidence may not be as negative as previously thought, and in fact, may even facilitate audit efficiency.
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(2010)ThesisThis thesis examines the role of backdoor listing transactions (BDL) as an alternative route for private firms to go public in the Australian market. In addition, it examines the motivations and performance of firms engaging in such activities. Based on a hand-collected sample of 200 backdoor listing transactions completed during 1992-2007, it is found that Australian BDL transactions are characterised by a high proportion of concurrent equity raisings, information disclosure by way of a prospectus and re-meeting of the re-admission requirements of the listing rules. Public companies that participate in BDL transactions are mostly defunct, with the mining sector being the largest supplier of shell companies. The backdoor-listed private firms are mostly small, development-stage firms, engaging in high-tech businesses. Using three different constructs of shareholder return (viz., buy-and-hold abnormal return, expert-based return and implied shell premium), public firm shareholders are found to gain substantially, with returns ranging from 32 to 49 percent. Multivariate analysis confirms that the measured shell premium is positively related to the pre-event shareholder base and the invocation of regulatory impediments to the takeovers process. Results from an empirical choice model indicate that BDL firms are less liquid, less profitable and more at a development stage than their initial public offering (IPO) counterparts. BDL transactions generally take longer to complete than IPOs and are associated with more cashing-out activity and lower retained ownership by private firm owners. However, no significant difference in the degree of underpricing (first-day return) between the matched BDL and IPO sample is found. BDL firms are found to underperform, in terms of both accounting and stock price measures, a control sample of IPO firms in the three years subsequent to listing, although this underperformance seems to attenuate over longer horizons. The average buy-and-hold abnormal return (BHAR) of BDL firms by the end of the 36-month holding period is −37.0, −62.6 and −87.7 percent relative to three benchmark portfolios of IPOs and value- and equally-weighted market indices. The underperformance in BHARs is robust to tests based on a calendar-time portfolio approach.
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(2010)ThesisWhile carbon emissions have received mounting attention from regulators, academics and practitioners for the past two decades, little is known about the current reporting and assurance practices in this area. More recently, there has been a growth in studies related to carbon emissions disclosures. Although disclosures are the first step towards carbon emissions reduction, these disclosures would be less meaningful if they lacked a certain degree of credibility. This is where the assurance on carbon emissions disclosures plays an indispensible role. However, few studies have examined the assurance practice specifically on carbon emissions. This thesis fills in the gap by providing an international comparison of the determinants underlying the decision to purchase assurance on carbon emissions as well as the factors associated with the choice between accounting firm providers and other providers of such assurance. Building on legitimacy theory, stakeholder theory and institutional theory, it is expected that certain country, industry and company specific characteristics will have an impact on companies‘ decisions to adopt the assurance services on their carbon emissions disclosures. It is also expected that those characteristics will have a similar effect on companies‘ choice of assurance providers, which in this thesis have been classified into two types, i.e. accounting firm providers and other providers. To identify those characteristics, this thesis examines the carbon assurance practices for 3008 companies across 47 countries between 2006 and 2008 as included in the Carbon Disclosure Project (CDP) databases 2007 to 2009. CDP is an independent not-for-profit organization that collects carbon emissions data by sending out questionnaires to the world‘s largest companies. To promote the consistency and comparability among the responses of responding companies, a detailed examination of the responses to CDP by participating companies was performed to retrieve information about the nature of the assurance services including: Whether the assurance was purchased in response to regulatory requirements or was it voluntary? And whether the assurance services were at the corporate level or facility level? Further information was also hand collected from the assurance statements of responding companies including: the type of assurance providers, i.e. accounting firm providers and other providers; the subject matters included in the assurance services, i.e. sustainability as a whole or carbon emissions specifically; the report containing the assurance statements, i.e. sustainability reports or annual reports or carbon emissions reports; the level of the assurance provided, i.e. limited or reasonable, and also the assurance standards used to carry out the assurance services, i.e. ISAE3000 or AA1000 or others. Results indicate that the assurance decisions exhibit a strong country and industry pattern, with companies from stakeholder oriented countries and environmentally sensitive industries such as ―Energy‖ and ―Materials‖ more inclined to purchase the assurance services on their carbon emissions. At the same time, company level characteristics such as internal control and corporate governance were found to be important in the assurance decisions, with companies having certain forms of internal control on their carbon emissions disclosures and those having a board responsible for the climate change issues more likely to have their carbon emissions disclosures assured. In relation to the choice of assurance provider decisions, country and industry characteristics were found to have an impact on the decision, with companies domiciled in stakeholder oriented countries and companies from environmentally sensitive industries more likely to select accounting firm providers than other providers. However, company level characteristics were not found to be highly correlated with the choice of assurance providers. These results indicate that the choice of assurance provider is mostly determined by country and industry factors rather than company specific factors. Future research could explore whether additional company level factors not examined in this thesis are associated with companies‘ choice over different assurance providers.
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(2010)ThesisThis thesis investigates whether U.S. banks’ assets and liabilities, reported using Fair Value Accounting (FVA) under SFAS 157 Fair Value Measurement, are associated with information asymmetry among equity investors during the 2008 Global Financial Crisis. Using bid-ask spread as a proxy for information asymmetry and controlling for bank size, profitability, default risk and capital adequacy, I find that bid-ask spread is positively and significantly associated with total fair value net assets and net assets measured using Level 1 inputs (unadjusted observable inputs in active markets), Level 2 inputs (other indirect observable inputs), and Level 3 inputs (unobservable inputs reflecting firm’s own assumptions and models), as specified in SFAS 157. On the other hand, the U.S. Securities and Exchange Commission (2008) has alleged that large loan loss provisions, determined based on managerial internal information and discretion, played a significant role in bank failures in the Global Financial Crisis. I, therefore, examine whether banks’ loan loss provisions, specifically Provisions for Loan Losses (PLL) appearing on the income statement and Allowance for Loan Losses (ALL) appearing on the balance sheet, are associated with information asymmetry. I find that both PLL and ALL are positively and significantly associated with bid-ask spread, with higher standardized coefficients than that of fair value net assets. As the economic condition kept worsening during the Global Financial Crisis, I also find that both fair value net assets and loan loss provisions are constantly and positively associated with information asymmetry across the four quarters of 2008. The results are robust using constant samples, analysing fair value assets and liabilities separately, using a sample of non-bank firms, and extending the dataset to the fiscal year 2009. In short, both fair value net assets and loan loss provisions are associated with information asymmetry among equity investors during the 2008 Global Financial Crisis, with loan loss provisions having the stronger of the two effects.
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(2010)ThesisThe primary aim of this study is to investigate the stock return volatility surrounding management earnings forecasts. Disclosure by managers of expected earnings are particularly important communications, and as such, it is important to understand the capital market implications surrounding them. In doing so, the research questions are essentially aimed at examining the stock return volatility, first, at the release of a management earnings forecast, and second, at the eventual announcement of the realised earnings for that period. The first test investigates whether there is an increase in volatility surrounding a management earnings forecast for those firms who release them compared to a matched-firm sample of firms without a management earnings forecast at that date, and then further examines that result based on different forecast antecedents and forecast characteristics. Next, this study tests, for firms who do release a management earnings forecast during the year, whether stock volatility is lower than firms who do not release a management earnings forecast at the eventual earnings announcement date. In brief, the evidence using the Garman and Klass [1980] ‘best analytic scale-invariant estimator’ of volatility in an Australian context, between 1993 and 2003, finds that stock return volatility is greater for bad news forecasts, forecasts of low specificity, and forecasts issued by firms perceived ex ante as being of lower credibility using both permutation analysis and modelling daily volatility. At the earnings announcement date, however, there is no evidence that stock return volatility is lower for firms that issue management earnings forecasts during the year. Overall, this result challenges the information asymmetry argument in the literature that disclosure will reduce volatility in the long-run.
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(2010)ThesisThis thesis is motivated by the growth in and significance of alliances involving transfers of intangible resources and the challenges that these alliances present to traditional management (accounting) planning and control practices. To this end, a field study was conducted in an Australian-Chinese alliance formed between two government research institutes working on a green gas project. This alliance involved the transfer of intangible knowledge-based resources between the Australian and Chinese partners. A field study examining this project considered two research questions: first, ‘what networks of actors/actants informs partner selection in a non-monetary cross-national collaborative alliance?’ and, second, ‘how are the management (accounting) planning and control practices implicated in the functioning of a non-monetary cross-national collaborative alliance?’. These questions were examined using Actor Network Theory. Data were collected via semi-structured interviewing and document study. It was found that partner selection was informed by individual social ties located in university alumni networks, time pressures and political influences. In terms of formal planning and control practices, the contract played an important role regulating this alliance because of its political and symbolic significance. Although there was no monetary exchange between the partners, accounting played a role in regulating the practices of the Australian alliance partner. Budgets were important to the financial justification and administration of the alliance. In relation to socio-ideological forms of control, actors struggled to achieve common understandings and shared values because of a lack of face to face interaction and differences in communication practices. Nonetheless, this alliance was regarded as an example of successful collaboration at the inter-governmental level. The findings from this research have three main implications in terms of how we think about alliances. First, this thesis raises issues relating to the role of contracts in non-market based exchanges. Second, this research also questions the importance of shared values and beliefs to the operation of collaborative alliances. Third, and finally, this research also motivates future research seeking to address the governance of alliances in the absence of market disciplines and shared values informing collaboration.