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.

Preserving patent policy space and securing access to medicines in developing countries: the role of states and pharmaceutical corporations

This thesis examines the tension between patent rights and the right to health and it recognizes patent rights on pharmaceutical products as one of the factors responsible for the problem of lack of access to affordable medicines in developing countries. The thesis contends that, in order to preserve their patent policy space and secure access to affordable medicines for their citizens, developing countries should incorporate a model of human rights into the design, implementation, interpretation, and enforcement of their national patent laws. The thesis provides a systematic analysis of court decisions from four key developing countries (Brazil, India, Kenya, and South Africa) and it assesses how the national courts in these countries resolve the tension between patent rights and the right to health. Essentially, this thesis demonstrates how a model of human rights can be incorporated into the adjudication of disputes involving patent rights in national courts. Focusing specifically on Brazil, the thesis equally demonstrates how policy makers and law makers at the national level can incorporate a model of human rights into the design or amendment of their national patent law. This thesis also contributes to the ongoing debate in the field of business and human rights with regard to the mechanisms that can be used to hold corporate actors accountable for their human rights responsibilities. This thesis recognizes that, while states bear the primary responsibility to respect, protect, and fulfil the right to health, corporate actors such as pharmaceutical companies also have a baseline responsibility to respect the right to health. This thesis therefore contends that pharmaceutical companies that own patent rights on pharmaceutical products can be held accountable for their right to health responsibilities at the national level through the incorporation of a model of civic participation into a country’s patent law system.