Voluntary disclosure of forward-looking earnings forecasts in Australia

This study examines the voluntary disclosure of future earnings information in annual reports for Australian listed companies. We find that most Australian companies in our sample do not provide quantitative earnings, forecasts in their annual reports, although more than half of the sample do disclose forward-looking information relating to earnings, without specifically disclosing point estimates for the future. These companies mostly supply qualitative information with a positive bias, while the remainder of the sample discloses no forward-looking information relating to earnings. Our findings also suggest that larger companies with less volatile earnings tend to provide more future earnings information than smaller companies with relatively volatile earnings.

Impact of the Corporate Law Economic Reform Program Act 1999 on initial public offering prospectus earnings forecasts

Commencing 13 March 2000, the Corporate Law Economic Reform Program Act 1999 (Cth) introduced changes to the regulation of corporate fundraising in Australia. In particular, it effected a reduction in the litigation risk associated with initial public offering prospectus disclosure. We find that the change is associated with a reduction in forecast frequency and an increase in forecast value relevance, but not with forecast error or bias. These results confirm previous findings that changes in litigation risk affect the level but not the quality of disclosure. They also suggest that the reforms' objectives of reducing fundraising costs while improving investor protection, have been achieved.

Auditor independence and fee dependence

This study investigates whether fee dependence within the audit firms' offices jeopardises auditor independence. Fee dependence is examined at both the national audit firm level as well as the local office level and in a setting where public disclosure of fees is mandatory. We focus our tests on audit fee dependence and at the same time we control for the effects of non-audit service fee dependence post the 1989 mergers. We operationalise the exercise of independent judgement in auditing by the propensity to issue qualified audit opinions. If fee dependence affects auditors' independent judgement, then auditors are less likely to qualify the accounts. The study's results show that the level of auditor fee dependence does not affect auditor propensity to issue unqualified audit opinions. The findings remain robust to a number of sensitivity tests including the analyses controlling for the effects of non-audit service fee dependence and other settings in which there is heightened pressure on auditors to confront the effects of fee dependence on exercising independent audit judgement. (C) 2002 Elsevier Science B.V. All rights reserved.

Earnings management in response to the introduction of the Australian gold tax

Earnings from gold mining in Australia remained tax-exempt for almost seven decades until January 1, 1991. In the early 1980s, rapid economic prosperity induced by escalated gold prices brought the Australian gold-mining industry under intense political scrutiny. Using a variant of the modified Jones model, this paper provides evidence of significant downward earnings management by Australian gold-mining firms, which is consistent with their attempts to mitigate political costs during the period from June 1985 to May 1988. In contrast, test of earnings management over a similar period in a control sample of Canadian gold-mining firms produced insignificant results. Further, empirical results are robust to several sensitivity tests performed. During the period from June 1988 to December 1990, the Australian firms were found to have engaged in economic earnings management. This is consistent with the sample firms' incentive of maximizing economic earnings immediately prior to the introduction of income tax on gold mining. The findings of this study help to understand the impact of earnings management on the efficient resource allocation in an economy. They also contribute toward understanding the linkage between regulation of accounting for special purposes and general-purpose financial. reporting.

Long range forecasts of the numbers of Helicoverpa punctigera and H-armigera (Lepidoptera : Noctuidae) in Australia using the Southern Oscillation Index and the Sea Surface Temperature

The use of long-term forecasts of pest pressure is central to better pest management. We relate the Southern Oscillation Index (SOI) and the Sea Surface Temperature (SST) to long-term light-trap catches of the two key moth pests of Australian agriculture, Helicoverpa punctigera (Wallengren) and H. armigera (Hubner), at Narrabri, New South Wales over 11 years, and for H. punctigera only at Turretfield, South Australia over 22 years. At Narrabri, the size of the first spring generation of both species was significantly correlated with the SOI in certain months, sometimes up to 15 months before the date of trapping. Differences in the SOI and SST between significant months were used to build composite variables in multiple regressions which gave fitted values of the trap catches to less than 25% of the observed values. The regressions suggested that useful forecasts of both species could be made 6-15 months ahead. The influence of the two weather variables on trap catches of H. punctigera at Turretfield were not as strong as at Narrabri, probably because the SOI was not as strongly related to rainfall in southern Australia as it is in eastern Australia. The best fits were again given by multiple regressions with SOI plus SST variables, to within 40% of the observed values. The reliability of both variables as predictors of moth numbers may be limited by the lack of stability in the SOI-rainfall correlation over the historical record. As no other data set is available to test the regressions, they can only be tested by future use. The use of long-term forecasts in pest management is discussed, and preliminary analyses of other long sets of insect numbers suggest that the Southern Oscillation Index may be a useful predictor of insect numbers in other parts of the world.

Cost effectiveness of adding magnetic resonance imaging to the usual management of suspected scaphoid fractures

Objective: To determine the cost effectiveness of a magnetic resonance imaging scan (MRI) within 5 days of injury compared with the usual management of occult scaphoid fracture. Methods: All patients with suspected scaphoid fractures in five hospitals were invited to participate in a randomised controlled trial of usual treatment with or without an MRI scan. Healthcare costs were compared, and a cost effectiveness analysis of the use of MRI in this scenario was performed. Results: Twenty eight of the 37 patients identified were randomised: 17 in the control group, 11 in the MRI group. The groups were similar at baseline and follow up in terms of number of scaphoid fractures, other injuries, pain, and function. Of the patients without fracture, the MRI group had significantly fewer days immobilised: a median of 3.0 (interquartile range 3.0-3.0) v 10.0 (7-12) in the control group (p = 0.006). The MRI group used fewer healthcare units (median 3.0, interquartile range 2.0-4.25) than the control group (5.0, 3.0-6.5) (p = 0.03 for the difference). However, the median cost of health care in the MRI group ($594.35 AUD, $551.35-667.23) was slightly higher than in the control group ($428.15, $124.40-702.65) (p = 0.19 for the difference). The mean incremental cost effectiveness ratio derived from this simulation was that MRI costs $44.37 per day saved from unnecessary immobilisation (95% confidence interval $4.29 to $101.02). An illustrative willingness to pay was calculated using a combination of the trials measure of the subjects' individual productivity losses and the average daily earnings. Conclusions: Use of MRI in the management of occult scaphoid fracture reduces the number of days of unnecessary immobilisation and use of healthcare units. Healthcare costs increased non-significantly in relation to the use of MRI in this setting. However, when productivity losses are considered, MRI may be considered cost effective, depending on the individual case.

Risk attitude, planting conditions and the value of seasonal forecasts to a dryland wheat grower

The value of a seasonal forecasting system based on phases of the Southern Oscillation was estimated for a representative dryland wheat grower in the vicinity of Goondiwindi. In particular the effects on this estimate of risk attitude and planting conditions were examined. A recursive stochastic programming approach was used to identify the grower's utility-maximising action set in the event of each of the climate patterns over the period 1894-1991 recurring In the imminent season. The approach was repeated with and without use of the forecasts. The choices examined were, at planting, nitrogen application rate and cultivar and, later in the season, choices of proceeding with or abandoning each wheat activity, The value of the forecasting system was estimated as the maximum amount the grower could afford to pay for its use without expected utility being lowered relative to its non use.

On measuring quality of a probabilistic commodity forecast for a system that incorporates seasonal climate forecasts

Regional commodity forecasts are being used increasingly in agricultural industries to enhance their risk management and decision-making processes. These commodity forecasts are probabilistic in nature and are often integrated with a seasonal climate forecast system. The climate forecast system is based on a subset of analogue years drawn from the full climatological distribution. In this study we sought to measure forecast quality for such an integrated system. We investigated the quality of a commodity (i.e. wheat and sugar) forecast based on a subset of analogue years in relation to a standard reference forecast based on the full climatological set. We derived three key dimensions of forecast quality for such probabilistic forecasts: reliability, distribution shift, and change in dispersion. A measure of reliability was required to ensure no bias in the forecast distribution. This was assessed via the slope of the reliability plot, which was derived from examination of probability levels of forecasts and associated frequencies of realizations. The other two dimensions related to changes in features of the forecast distribution relative to the reference distribution. The relationship of 13 published accuracy/skill measures to these dimensions of forecast quality was assessed using principal component analysis in case studies of commodity forecasting using seasonal climate forecasting for the wheat and sugar industries in Australia. There were two orthogonal dimensions of forecast quality: one associated with distribution shift relative to the reference distribution and the other associated with relative distribution dispersion. Although the conventional quality measures aligned with these dimensions, none measured both adequately. We conclude that a multi-dimensional approach to assessment of forecast quality is required and that simple measures of reliability, distribution shift, and change in dispersion provide a means for such assessment. The analysis presented was also relevant to measuring quality of probabilistic seasonal climate forecasting systems. The importance of retaining a focus on the probabilistic nature of the forecast and avoiding simplifying, but erroneous, distortions was discussed in relation to applying this new forecast quality assessment paradigm to seasonal climate forecasts. Copyright (K) 2003 Royal Meteorological Society.

Nonstationary brand variables in category management: A cointegration perspective

Category-management models serve to assist in the development of plans for pricing and promotions of individual brands. Techniques to solve the models can have problems of accuracy and interpretability because they are susceptible to spurious regression problems due to nonstationary time-series data. Improperly stated nonstationary systems can reduce the accuracy of the forecasts and undermine the interpretation of the results. This is problematic because recent studies indicate that sales are often a nonstationary time-series. Newly developed correction techniques can account for nonstationarity by incorporating error-correction terms into the model when using a Bayesian Vector Error-Correction Model. The benefit of using such a technique is that shocks to control variates can be separated into permanent and temporary effects and allow cointegration of series for analysis purposes. Analysis of a brand data set indicates that this is important even at the brand level. Thus, additional information is generated that allows a decision maker to examine controllable variables in terms of whether they influence sales over a short or long duration. Only products that are nonstationary in sales volume can be manipulated for long-term profit gain, and promotions must be cointegrated with brand sales volume. The brand data set is used to explore the capabilities and interpretation of cointegration.

Management motivation for using financial derivatives in Australia

This study takes a direct approach to determine management motivation for the use of financial derivatives. We survey a sample of Australian firms on attitudes to derivative use and financial risk management. Management views are sought on the importance of a series of theoretical reasons for using derivatives. Generally, we find that managers are focused on the broad reduction of risk and volatility of cash flows and earnings in using derivatives. Specific issues such as reducing bankruptcy costs, debt levels and taxation are not considered as important. A further interesting result from this research is that even though firms may use derivatives they may not necessarily hedge all of their annual exposures across different financial risks. This helps explain the inconsistency of results in many empirical studies on the determinants of derivative use.

The effective management of geological risk in long-term production scheduling of open pit mines

Investment in mining projects, like most business investment, is susceptible to risk and uncertainty. The ability to effectively identify, assess and manage risk may enable strategic investments to be sheltered and operations to perform closer to their potential. In mining, geological uncertainty is seen as the major contributor to not meeting project expectations. The need to assess and manage geological risk for project valuation and decision-making translates to the need to assess and manage risk in any pertinent parameter of open pit design and production scheduling. This is achieved by taking geological uncertainty into account in the mine optimisation process. This thesis develops methods that enable geological uncertainty to be effectively modelled and the resulting risk in long-term production scheduling to be quantified and managed. One of the main accomplishments of this thesis is the development of a new, risk-based method for the optimisation of long-term production scheduling. In addition to maximising economic returns, the new method minimises the risk of deviating from production forecasts, given the understanding of the orebody. This ability represents a major advance in the risk management of open pit mining.