Soft Information and the Stewardship Value of Accounting Disclosure

In light of IASB’s statement to drop stewardship as a separate objective of financial accounting and the ongoing debate about increasing the disclosure of soft information, we investigate the economic consequences of publicly reported soft information from a stewardship perspective. In an LEN model we include market price as a performance measure and investigate whether the principal benefits from disclosing additional information. While the principal can only use contractible performance measures in the contract with the agent, capital market participants can only use disclosed information when pricing firm value. We find that the disclosure of information can decrease the principal’s expected net profit. This result follows from either a noisier or a less congruent market price as a consequence of disclosing additional information. Thus, we present a rationale for partial disclosure in the absence of proprietary costs or the uncertainty of information endowment

Essays on accounting disclosure and the use of stock price in incentive contracts

This thesis studies the interplay of changes in accounting disclosure and the solution to the stewardship problem. I develop theoretical models that try to explain the different decisions managers, current shareholders, and potential shareholders face. The models incorporate different interdependent aspects of the decision to disclose information, the design of contracts between current shareholders and the corporation’s management, and the aggregation of information into price. My results indicate, for example, that the different interests current and potential shareholders have leads to far reaching impacts of the disclosure of accounting information. The simple statement that more information is always better does not hold and changes of mandatory disclosure can lead to losses for different types of current investors as well as for potential investors

The development of an engagement risk management instrument for Zimbabwean audit firms

Abstract : Following the collapse of audit firms and the attendant reputational damage, the principal objective of the study was to develop an Engagement Risk Management Instrument (ERMI) in the Zimbabwean context. This tool would be used by these firms to assess the engagement risk associated with certain clients. Related literature was reviewed for desk research and structured interviews conducted on Audit Partners and Chief Risk Officers from purposively sampled audit firms in order to determine generic engagement risk factors. The Delphi process was selected as a methodology because it allowed the validation and rating of identified engagement risk factors by a panel of experts, the Audit Partners and Chief Risk Officers, in engagement risk assessment before client acceptance. Data for this study was collected in two phases. The data that was collected from the Delphi process was then analysed using the SPSS software resulting in the identification of eight (8) levels of engagement risk factor importance. The study established that through the desk research thirty-four (34) engagement risk factors were identified. These thirty-four (34) identified engagement risk factors were used to guide the structured interviews as part of data collection in phase 1. The interviews identified six more engagement risk factors while confirming twenty-two and rejecting twelve (12) from the desk research. The total number of engagement risk factors consolidated after phase 1 was forty (40) and these forty (40) engagement risk factors were used to construct the Delphi Questionnaire which was employed to collect data in phase 2. Data analysis from phase 2 yielded eight levels of importance of the forty (40) engagement risk factors and these levels guided the construction of the ERMI. The study recommended the use of the ERMI as a tool for assessment and re-assessment of clients by audit firms. As an assessment tool, the ERMI would be used in the initial assessment of potential clients for client acceptance decision making. As a re-assessment tool, the ERMI would be used for existing clients; those that were already engaged. In this case, re-assessment is a necessary on-going process because some of the engagement risk factors are economy-based and the economy is dynamic. It is therefore necessary to continuously assess the companies to curb potential engagement risks that might ruin the reputation of audit firms.D.Phil. (Auditing

Essays in Applied Corporate Economy

This work includes the results of broad research carried out during the PhD course in Economics and Political Economy at the University of Genoa. The aim of my thesis is to apply empirical methods to investigate corporate finance issues. During these years, I have collected a unique dataset on the compensation and tenure of board members in Italy. In this dataset, each board member is represented by a row containing his or her generalities, role, tenure, and compensation, divided into more components: fixed salary, committee fee, benefits, bonus, equity instruments, and severance pay. This dataset is the starting point for my empirical research. The first chapter investigates the hardly discussed relationship between the two functions of accounting information in financial reporting: stewardship’ and valuation’s usefulness. This study explores the current debate on the expandability of the role of the stewardship function within 'decision usefulness' as the purpose of financial reporting. The main contribution of the chapter to the literature is the discovery of the existence of a positive relationship between the two usefulness of accounting information for 'top' board members, while no relationship was found for 'non-top' board members. The second and third chapters examine the relationship between firm performance and executive pay. In particular, the second chapter addresses this analysis using the 'tournament' model. It considers firm performance as a function of compensation and other firm characteristics. While the third chapter adopts the 'agency theory' model and sets up the reverse models by regressing compensation on firm performance. Using a wide range of empirical models, the second and third chapters take an innovative approach to studying the relationship between firm performance, executive pay, and other corporate governance indicators. For the first time, this relationship (in both causal directions) is analyzed along two unexplored dimensions: individual directors (rather than the CEO or the board as a whole) and individual components of total compensation (rather than total or cash compensation). This contributes to the literature by highlighting previously unconsidered variables, such as the different characteristics of different board members and their impact on the performance-pay’s and pay-performance’s relationships. Both chapters also contribute to an in-depth study of the sensitivity of pay to performance (and vice versa) in a context characterized by a corporate governance model that is very different from the ones typically studied in the literature

Factors influencing the extent of accounting disclosures made in the annual reports of publicly reporting Australian not-for-profit organisations

Over the past few years, public interest in the not-for-profit (NFP) sector has increased. Following NFP-related fund misappropriation scandals making news headlines across the world, concerns have been raised about the extent to which NFPs demonstrate financial accountability in their accounting disclosures. The Australian NFP sector has been no exception to these concerns. The Australian NFP sector is large and diverse with approximately 600,000 NFPs, including 56,894 economically significant NFPs. These economically significant NFPs contribute a total value added of $54.8 billion to the Australian national accounts, by engaging in a range of activities. The four largest NFP sub-sectors operating in Australia are education and research, culture and recreation, social services, and environment: combined, these four sub-sectors account for 69.4% of the economic contributions made by NFPs to the Australian economy and for 65.9% of the goods and services provided by the Australian NFP sector. As a result of the concerns about the financial accountability of NFPs and the size of the Australian NFP sector, the financial disclosure practices of organisations operating in this sector, have attracted a lot of attention. In Australia, NFPs deal with a range of financial reporting requirements, depending on the main activities of the organisation, the jurisdiction in which the NFP operates, the legal form by which the NFP is established, among others. These different accounting disclosure requirements of Australian NFPs, lack uniformity and do not promote financial accountability, even though attempts have been make to harmonise the accounting disclosure practices among Australian NFPs. The complex and diverse financial reporting framework of Australian NFPs makes financial accountability an area of interest in the Australian context. Research related to the financial reporting practices of NFPs operating in Australia is still at its preliminary stage. Existing studies which have explored accountability in the Australian NFP sector have observed the role of annual reports in the discharge of NFP accountability, the external financial reporting environment of NFPs and a potential framework to support accountability in the NFP sector. Some recent studies have assessed the extent of NFP accountability discharged when NFPs make expenditure item disclosures, the potential survival of a national regulator in the NFP sector and the patterns involved in NFP fundraising financial reporting practices. The main objective of this study is to examine the factors which influence the extent of accounting disclosures made in the annual reports of publicly reporting Australian not-for-profit organisations (NFPs), where accounting disclosures refer to mandatory as well as voluntary financial statement information. Given the key purpose of the study, its research question is What factors influence the extent of accounting disclosures made in the annual reports of publicly reporting Australian NFPs?. The research findings associated with the main research question of this study are interpreted using a dual theoretical framework: a framework which is composed of institutional and resource dependence theories. To address the main research question of this study, internal and external factors of Australian NFPs have been considered and some testable hypotheses have been identified. These hypotheses have eventually been used to develop the research model of this study. The finalised model of the study is composed of one dependent, seven independent and three control variables. The research model of the study is explored using a judgement sample of 52 NFPs, where these organisations operate in any one of the four most economically significant Australian NFPs sub-sectors (namely, education and research, culture and recreation, social services, and environment) and also, using time series data which span over 2013 and 2014. The statistical technique which is used in this study is multiple regression, a multivariate technique. This study has observed that NFPs which operate in education and research sub-sector have the highest mean extent of mandatory accounting disclosures in their published annual reports; whereas NFPs which operate in the environment sub-sector make the highest extent of voluntary accounting disclosures in their published annual reports. On the other hand, this study has noted that organisations which operate in the culture and recreation sub-sector have the lowest mean extent of, both, mandatory as well as of voluntary accounting disclosures. The main research finding of this study is that the extent of accounting disclosures made in the annual reports of publicly reporting Australian NFPs is influenced by the revenue concentration of the organisation. This study has also noted that revenue concentration has an inverse relationship with the extent of accounting disclosures and this relationship is consistent with resource dependence theory (RDT) in the NFP context. This study has also observed that in addition to revenue concentration, for the overall study period, extent of mandatory accounting disclosures is influenced by board structure factors whilst extent of voluntary accounting disclosures is impacted by sub-sector. The influence of board structure factors and of sub-sector on each respective type of accounting disclosures aligns with institutional theory. Also, the current study has observed that a support for some of the hypotheses which it has tested, inconsistencies in the research findings across time periods, inverse relationships as opposed to expected positive relationships, and control variables which do not confirm the research findings of this study. The research findings and observations of this study confirm the potential for improvement in the current financial reporting framework of Australian NFPs. By investigating the financial reporting practices adopted by NFPs operating in Australia, this study is original as well as contributes to the literature from four main stances. First, it is the first study to address the factors influencing the extent of accounting disclosures made by Australian NFPs. Second, this study contributes to knowledge and literature about NFP financial disclosures by developing a disclosure index and a disclosure which explore accounting disclosures across different financial statements as well as the notes accompanying these statements. Third, this study considers the most economically significant NFP sub-sectors operating in Australia, compared to previous studies which have adopted a case-study approach, have focused only on service provider NFPs, or examined industry award-winning annual reports

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早大学位記番号:新7708早稲田大