Disclosure incentives, mandatory standards and firm communication in the IFRS adoption setting

We investigate the content, timing and relevance of firms\u27 narrative disclosure about the effects of IFRS adoption in annual statutory financial statements and firm announcements to the stock exchange for 150 large listed Australian firms in the three-year period surrounding adoption (which occurred from 1 January 2005). We observe communication about changes in financial reports, even when the change relates to accounting rather than economic events. We record more disclosure by firms experiencing an adverse change in earnings, consistent with them being sensitive to signals about future earnings. When economic performance is stronger, firms provide less discussion of the accounting effects of IFRS. We also find the discussion of IFRS impact in both disclosure channels is value-relevant for firms with relatively higher levels of disclosure, providing evidence of the usefulness of transition disclosures. The Author(s) 2013

The effect of institutional setting on attributional content in management commentary reports

We study the effect of expected regulatory and litigation costs embedded in a country’s institutional environment on the explanatory content of management commentary reports. Using a behavioural accountability lens, we argue that regulatory control and expected litigation risk affect the attributional framing of financial performance. We also investigate whether differential attributional properties have economic relevance by considering the relationship between content profiles and analyst forecast dispersion. We include 173 listed firms from four countries (USA, Canada, United Kingdom and Australia). Consistent with behavioural accountability theory, we find significant country differences in dominant attributional profiles. Compared to their counterparts in the UK and Australia, firms from the USA and Canada are generally less assertive and less defensive in explicit causal framing. They are also more extensive and formal in their explanations, relying more heavily on accounting-technical language. These tendencies are more pronounced in the USA, where the aggregate of private and public enforcement is greatest. Moreover, we establish that causal defensiveness and attributional extensiveness are negatively associated with analyst forecast dispersion, while level of causal assertiveness and formality are not.Management Discussion and Analysis (MD&A), Operating and Financial Review (OFR), Cross-country effects, Enforcement, Analyst forecast dispersion

An investigation of the usefulness of accounting data in extractive industry operations

Abstract This study investigates the value relevance of accounting numbers presented by Australian extractive industry companies over the period 1998-2003. We proposed that specific extractive industry assets would have explanatory power, and our results support this conjecture. We also argued that intangible assets and capitalised pre-production expenditure would be value relevant, despite managerial discretion in their measurement, because these assets hold information about future economic benefits expected to flow to the company. Similarly, we expected disclosure about capital expenditure commitments to be value relevant. We found mixed results in relation to these propositions. Intangible assets and disclosure of capital commitments appeared to be more important in the later years, while capitalised pre-production expenditure was relevant in the earlier years of the sample

IFRS adoption and analysts' earnings forecasts: Australian evidence

We study 145 large listed Australian firms to explore the impact of IFRS adoption on the properties of analysts’ forecasts and the role of firm disclosure about IFRS impact. We find that analyst forecast accuracy improves and there is no significant change in dispersion in the adoption year, suggesting that analysts coped effectively with transition to IFRS. However, we do not observe the expected relationship between firms’ IFRS impact disclosures in their financial statements issued at the end of the transition year with forecast error and dispersion in the adoption year. The results question the timeliness and usefulness of financial statement disclosure, even in a setting where disclosure was mandated by accounting standards (AASB 1047 and AASB 1) and firms had strong incentives to provide information to analysts

Factors affecting MD&A disclosures by SEC registrants : views of practitioners

This study identifies factors influencing the preparation, scope and content of management discussion and analysis (MD&A) reports provided by SEC registrants. We interviewed U.S., Canadian, U.K., and Australian financial executives during the period December 2009 to May 2010 to better understand how the reporting environment affects managers’ ability to provide useful disclosures. Interviewees agree MD&A should be through the eyes of management ; however, many describe a tension between statutory requirements and providing relevant information for investors. Some believe MD&A is useful for analysts and investors as a summary of the past year and by functioning as a benchmark. Interviewees frequently view other media as more timely and having a different disclosure tone. The backward-looking nature of MD&A is perceived as a weakness. Other limitations on MD&A usefulness arise from limits on non-GAAP measures, lack of forward-looking information (i.e. legal liability issues) and reluctance to release competitively sensitive data. Our findings reveal by-country institutional differences. Canadians note less impact of regulatory differences, due to SEC dispensation in their reporting requirements and similarity of U.S. and Canadian reporting requirements. U.K. and Australian preparers more frequently remark on fundamental differences between U.S. and home reporting environment, citing greater freedom at home with fewer restrictions on non-GAAP measures and lower legal risk