Accounting ethics – an empirical investigation of managing short-term earnings

Short-term earnings are managed in most, if not all, companies. The management of short-term earnings is vulnerable to misinterpretation, manipulation or deliberate deception even if these misleading accounting practices are prohibited by accounting regulations. Hence, the problem with managing short-term earnings is that it becomes an ethical practice, regardless of who is or may be affected by the practice or the information that flows from it. As a result of the publicity received by Enron and WorldCom on financial failures and fraud, and the subsequent legislation, the Sarbanes-Oxley Act in 2002, students are expected to understand the morality issues of earnings-management practices. Therefore, the ethics of earnings-management practices affects the accounting educator. Accounting students and business managers were surveyed and the findings indicated that there is no significant difference between gender regarding the ethicality of twenty earning management practices. The results, however, show that there is a significant difference between the perceptions of business managers and students regarding the morality of earnings-management practices. However, no significant differences were found between genders

An evaluation of the usefulness of the cash flow statement within South African companies by means of cash flow ratios

With the introduction of SFAS 95 in 1987, the cash flow statement became an integral part of financial reporting. With this a need arose for the development of ratios for the effective evaluation of the cash flow statement. The primary objective of this study was to determine the usefulness of the cash flow statement by means of cash flow ratios. Beaver (1966) was the first researcher to stress the importance of cash flow information for predicting financial failure and, therefore, the study investigated the available cash flow ratios of various authors. Eight cash flow ratios were suggested for inclusion in a financial analysis. Failed entities were selected and evaluated by means the selected cash flow ratios for five years prior to their failure. Non-failed entities were selected and included in the evaluation. The results of the ratios were used to calculate mean values for each ratio and year prior to failure. The ratios of the failed entities were compared with those of the non-failed entities. A comparison of the ratios revealed that the cash flow ratios have predictive value. The cash flow to total debt and ratio was identified as the ratio with the greatest potential to predict financial failure. The mean value of the ratio was weaker than the mean of the non-failed entities in four out of five years. The mean values of the cash flow ratios of the failed entities performed weaker overall than the non-failed entities. Failed entities not only have lower cash flows than non-failed entities but they also have smaller reserves of liquid assets. Therefore, they have less capacity to meet obligations and they tend to incur more debt. The ratios of the failed entities were also unstable. The study concluded that cash flow ratios calculated from the cash flow statement enhanced the usefulness of financial statements. A need, however, remains for consensus on a comprehensive set of cash flow ratios for financial analysis. If cash flow ratios are used in conjunction with traditional ratios it should lead to a better understanding of the financial strengths and weaknesses of an entity.Thesis (DCom (Financial Management))--University of Pretoria, 2006.Financial Managementunrestricte

The Behavioural Aspects of Financial Literacy

In this paper, we investigate the contribution of behavioural characteristics to the financial literacy of UAE residents after controlling for demographic factors. Specifically, we test the relationship between financial literacy and behavioural biases such as representativeness, self-serving, overconfidence, loss aversion, and hindsight bias. Using data collected through survey questionnaires, we apply the methodology developed by the Organization of Economic Co-operation and Development (OECD) to compute financial literacy scores. Our overall results show that all behavioural biases except for overconfidence bias are positively related to financial literacy. Furthermore, some biases exhibit a stronger quantitative relationship with financial literacy than others. For example, hindsight bias displays the strongest link to financial literacy, followed by self-serving bias. The weakest but still statistically significant effect is loss aversion bias. Although biases, in general, have negative connotations, behavioural biases appear to be related to higher levels of financial literacy

Heterocyclic Aromatic Amines in Meat: Formation, Isolation, Risk Assessment, and Inhibitory Effect of Plant Extracts

: Heterocyclic aromatic amines (HAAs) are potent carcinogenic compounds induced by the Maillard reaction in well-done cooked meats. Free amino acids, protein, creatinine, reducing sugars and nucleosides are major precursors involved in the production of polar and non-polar HAAs. The variety and yield of HAAs are linked with various factors such as meat type, heating time and temperature, cooking method and equipment, fresh meat storage time, raw material and additives, precursor's presence, water activity, and pH level. For the isolation and identification of HAAs, advanced chromatography and spectroscopy techniques have been employed. These potent mutagens are the etiology of several types of human cancers at the ng/g level and are 100- to 2000-fold stronger than that of aflatoxins and benzopyrene, respectively. This review summarizes previous studies on the formation and types of potent mutagenic and/or carcinogenic HAAs in cooked meats. Furthermore, occurrence, risk assessment, and factors affecting HAA formation are discussed in detail. Additionally, sample extraction procedure and quantification techniques to determine these compounds are analyzed and described. Finally, an overview is presented on the promising strategy to mitigate the risk of HAAs by natural compounds and the effect of plant extracts containing antioxidants to reduce or inhibit the formation of these carcinogenic substances in cooked meats

Accounting ethics - an empirical investigation of managing short-term earnings: financial management

Short-term earnings are managed in most, if not all, companies. The management of short-term earnings is vulnerable to misinterpretation, manipulation or deliberate deception even if these misleading accounting practices are prohibited by accounting regulations. Hence, the problem with managing short-term earnings is that it becomes an ethical practice, regardless of who is or may be affected by the practice or the information that flows from it. As a result of the publicity received by Enron and WorldCom on financial failures and fraud, and the subsequent legislation, the Sarbanes-Oxley Act in 2002, students are expected to understand the morality issues of earnings-management practices. Therefore, the ethics of earnings-management practices affect the accounting educator. Accounting students and business managers were surveyed and the findings indicated that there is no significant difference between gender regarding the ethicality of twenty earning management practices. The results, however, show that there is a significant difference between the perceptions of business managers and students regarding the morality of earningsmanagement practices. However, no significant differences were found between genders

Cash flow ratios as a yardstick for evaluating financial performance in African businesses

Purpose of this paper The purpose of this paper was to compare companies in a developing country with those of a first world country. For this purpose South African (SA) companies in the chemical, food and electronic industries were evaluated on the hand of cash flow ratios and compared to companies in the United States (US) in similar industries. Design/methodology/approach Giacomino and Mielke (1993) proposed nine cash flow ratios for performance evaluation. Ratios were calculated for companies in the US in the chemical, food and electronic industries for 1986 to 1988. Industry norms were calculated for the period, indicating that the potential existed to develop benchmarks for the ratios by industry. Jooste (1999) calculated cash flow ratios for listed companies in SA, similar to those calculated by Giacomino and Mielke (1993). The results of the SA companies were then compared to the US companies. Findings The comparison revealed some similarities and differences. The cash flow sufficiency ratio showed that the SA industries had enough cash to pay primary obligations whereas the US industries did not. At the levels of cash generated by SA industries the investments in assets and dividend payouts were more than for US industries. The cash flow generated by assets used in SA is also more than that of the US but US industries retire long-term debt in shorter period than SA industries. Research limitations/implications The periods used in the comparison differ. Research using the same periods was not available. No information was available on the state of the economies in each country for those periods. Practical implications The work done by Giacomino and Mielke is to be recommended. Further studies on the utility of cash flow data would be necessary to develop a set of cash flow-based ratios. Such ratios used in conjunction with traditional balance sheet and income statement ratios should lead to a better understanding of the financial strengths and weaknesses of a company. What is the original/value of paper By comparing industries of a developing country to those of a first world country one may have an indication of the performance of SA companies in a global market. Keywords Cash flow statement Ratio analysis Industry norms Financial statement analysis Performance evaluation Food, chemical, electronic industries Type of paper Research pape

Measuring performance of a pharmaceutical company in the MENA region by means of the cash flow statement

Similar to a product an entity passes through four life-cycles stages. These stages reflect a set of financial characteristics of the flow of funds that leads to different measurements of income and cash flows. The cash flow statement supplies information about both income and cash flows. Therefore, a combination of the life-cycle theory, financial characteristics of income and cash flows, and an analysis of the cash flow statement may be useful as a performance measure and an indication of how the entity is managing their flow of funds. This paper evaluates an entity in the pharmaceutical sector in the MENA region by means of income and cash flow during the mature cycle. This paper uses steps for analysing the flow of funds and compares the application thereof to a benchmark in the mature phase of an entity\u27s life cycle. In theory an entity will have typical income and cash flow patterns (financial characteristics) during each life-cycle stage. This study applies a model developed for performance evaluations during the different life-cycles. The results of this study show that the model may be used as an effective tool to illustrate the usefulness of the cash flow statement

An evaluation of the usefulness of cash flow ratios to predict financial distress

Purpose: With the introduction of the cash flow statement it became an integral part of financial reporting. A need arose to develop ratios for the effective evaluation of cash flow information. This article investigates cash flow ratios suggested by various researchers and suggests a list of ratios with the potential to predict financial failure. Design: The cash flow ratios suggested by researchers, from as early as 1966, are investigated and eight cash flow ratios selected for inclusion in an analysis to predict financial failure. Ten failed entities are selected for a cash flow evaluation by means of the selected ratios for five years prior to failure. For a comparison, non-failed entities, in similar sectors are selected and also evaluated by means of the cash flow ratios. The mean values of each ratio, for each year prior to failure, were then calculated and the means of the failed entities were compared to the non-failed entities. Findings: The comparison revealed that cash flow ratios have predictive value with the cash flow to total debt identified as the best indicator of failure. It was also determined that although failed entities have lower cash flows than non-failed entities, they also had smaller reserves of liquid assets. Furthermore, they have less capacity to meet debt obligations and they tend to incur more debt. The ratios of the failed entities were unstable and fluctuated from one year to the next. Finally, bankruptcy could be predicted three years prior to financial failure. Implications: Income statement and balance sheet ratios are not enough to measure liquidity. An entity can have positive liquidity ratios and increasing profits, yet have serious cash flow problems. Ratios developed from the cash flow statement should supplement traditional accrual-based ratios to provide additional information on the financial strengths and weaknesses of an entity

An evaluation of listed companies by means of cash flow ratios

The aim of this study is to determine whether the cash flow statement succeeds in increasing the usefulness of financial data to parties interested in the results of specific companies and related institutions. This South African study uses the same industries as those in a similar study by Giacomino and Mielke (1993) in the USA. The industries concerned are chemicals and oils, food and electronics. Relative performance was measured by calculating nine sufficiency and efficiency ratios. These ratios were calculated for each institution in the industry; weighted averages were also calculated for each industry. The results were compared with the norms developed for American institutions. All the listed South African companies in the industries concerned were included in the study