The quality of financial information in the extractive industries: a value relevance analysis

The extractive industry is characterized by high levels of risk and uncertainty. These attributes create challenges when applying traditional accounting concepts (such as the revenue recognition and matching concepts) to the preparation of financial statements in the industry. The International Accounting Standards Board (2010) states that the objective of general purpose financial statements is to provide useful financial information to assist the capital allocation decisions of existing and potential providers of capital. The usefulness of information is defined as being relevant and faithfully represented so as to best aid in the investment decisions of capital providers. Value relevance research utilizes adaptations of the Ohlson (1995) to assess the attribute of value relevance which is one part of the attributes resulting in useful information. This study firstly examines the value relevance of the financial information disclosed in the financial reports of extractive firms. The findings reveal that the value relevance of information disclosed in the financial reports depends on the circumstances of the firm including sector, size and profitability. Traditional accounting concepts such as the matching concept can be ineffective when applied to small firms who are primarily engaged in nonproduction activities that involve significant levels of uncertainty such as exploration activities or the development of sites. Standard setting bodies such as the International Accounting Standards Board and the Financial Accounting Standards Board have addressed the financial reporting challenges in the extractive industry by allowing a significant amount of accounting flexibility in industryspecific accounting standards, particularly in relation to the accounting treatment of exploration and evaluation expenditure. Therefore, secondly this study examines whether the choice of exploration accounting policy has an effect on the value relevance of information disclosed in the financial reports. The findings show that, in general, the Successful Efforts method produces value relevant information in the financial reports of profitable extractive firms. However, specifically in the oil & gas sector, the Full Cost method produces value relevant asset disclosures if the firm is lossmaking. This indicates that investors in production and non-production orientated firms have different information needs and these needs cannot be simultaneously fulfilled by a single accounting policy. In the mining sector, a preference by large profitable mining companies towards a more conservative policy than either the Full Cost or Successful Efforts methods does not result in more value relevant information being disclosed in the financial reports. This finding supports the fact that the qualitative characteristic of prudence is a form of bias which has a downward effect on asset values. The third aspect of this study is an examination of the effect of corporate governance on the value relevance of disclosures made in the financial reports of extractive firms. The findings show that the key factor influencing the value relevance of financial information is the ability of the directors to select accounting policies which reflect the economic substance of the particular circumstances facing the firms in an effective way. Corporate governance is found to have an effect on value relevance, particularly in the oil & gas sector. However, there is no significant difference between the exploration accounting policy choices made by directors of firms with good systems of corporate governance and those with weak systems of corporate governance.

Home: the foundations of belonging

To be at home means to be embedded in a dense pattern of relationships to people and place which gives rise to an inherently meaningful experience of the world. This order is neither abstract nor imposed from without, but crystallises from the shared experience of people inhabiting a concrete location. Home involves the localisation of meaning in a concrete setting and in the activities of everyday life, and this embodies an ongoing process of ‘cosmicisation’ which is vital for both social life and individual well-being. Home is not a fixed structure, static and frozen, which shuts out the external world; it is a dynamic centre which draws in experience and gives it meaning. It is a constellation of significance rather than a singular and unitary essence. It is produced by localising processes, which work to concentrate and stabilise value around a secure centre. The elaboration of seven interlinked localising processes forms the core of the thesis: The cultivation of place The accumulation of collective memory The crystallisation of life-ways and their evolution into tradition The generation of mutuality of being through sharing in fundamental biological processes which generate and preserve life Social circles of gift exchange and recognition which reinforce this mutuality of being The elaboration of symbolic boundaries The counterparts of localising processes are globalising ones. These involve the dismantling of the taken-for-granted relationships of everyday life and their reconstitution within spatially extended networks, governed by rationalised institutions, within separate spheres of economic production, commercial transactions, political administration and cultural exchange. The global market, the public arena, technological development and the bureaucratic state are all solvents of localised associations, which result in the dissipation and relativisation of value. However globalising processes never entirely displace localising ones. Even today, localising processes shape those areas of our lives which anchor our identities and provide a sense of meaning: the everyday interactions of home, family, community and intimate circles of friendship.