Analysis of risk management disclosures by Australian publicly listed companies

In the aftermath of the global financial crisis, effective risk management (RM) and its communication to stakeholders are now considered essential components in corporate governance. However, despite the importance of RM communication, it is still unclear how and to what extent disclosures in financial reports can achieve effective communication of RM activities. The situation is hampered by the paucity of international RM Research that captures institution differences in corporate governance standards. The Australian setting provides an ideal environment in which to examine RM communication because the Australian Securities Exchange (ASX) has since 2007 recommended RM disclosures under its principle-based governance rules. The recommendations are contained in Principle 7 of the Corporate Governance Principles and recommendations (ASX CGPR). Accordingly, to assess the effectiveness of the AXS's RM governance principle, this study examines the nature and extent of RM disclosures reported by major ASX-listed firms. Using a mixed method approach (thematic content analysis and a series of regression analysis) we find widespread divergence in disclosure practices and low conformance with the Principle 7 recommendations. Certain corporate governance mechanisms appear to influence some categories of RM dislcosure but equity risk has surprisingly little explanatory power. These results suggest that the RM disclosures practices observed in the Australian setting may not be meeting the objectives of regulators and the needs of stakeholders.

Wrecking ball: could big tech firms ruin the Spotify party?

YouTube is contemplating the launch of a new music service. But how would such a service fare against established music services like Spotify, Rdio, and Pandora? All these services are referred to as “access-based music services”. They offer music listeners access to millions of songs they can listen to as much as they want for free (with advertising and only basic functionality) or for a monthly subscription fee (without advertising)...

Corporate governance and bankruptcy risk

We examine how firm characteristics, particularly the degree of firm complexity and the firm’s need for specialty knowledge, affect the relationship between corporate governance and the risk of bankruptcy. We find that having larger boards reduces the risk of bankruptcy only for complex firms. Our results also suggest that the proportion of inside directors on the board is inversely associated with the risk of bankruptcy in firms that require more specialist knowledge, and that the reverse is true in technically unsophisticated firms. The results further reveal that the additional explanatory power from corporate governance variables becomes stronger as the time to bankruptcy is increased, implying that although corporate governance variables are important predictors, governance changes are likely to be too late to save a firm on the verge of bankruptcy.

Teaching peer review reflective processes in accounting

A well designed peer review process in higher education subjects can lead to more confident and reflective learners who become skilled at making independent judgements of their own and others’ work; essential requirements for successful lifelong learning. The challenge for educators is to ensure their students gain these important graduate attributes within the constraints of a range of internal and external tensions currently facing higher education systems, including, respectively, the realities of large undergraduate Accounting subjects, culturally diverse and time-poor academics and students, and increased calls for public accountability of the Higher Education sector by groups such as the OECD. Innovative curriculum and assessment design and collaborative technologies have the capacity to simultaneously provide some measure of relief from these internal and external tensions and to position students as responsible partners in their own learning. This chapter reports on a two phase implementation of an online peer review process as part of the assessment in a large, under-graduate, International Accounting class. Phase One did not include explicit reflective strategies within the process, and anonymous and voluntary student views served to clearly highlight that students were ‘confused’ and ‘hesitant’ about moving away from their own ideas; often mistrusting the conflicting advice received from multiple peer reviewers. A significant number of students also felt that they did not have the skills to constructively review the work of their peers. Phase Two consequently utilised the combined power of e-Technology, peer review feedback and carefully scaffolded and supported reflective practices from Ryan and Ryan’s Teaching and Assessing Reflective Learning (TARL) model (see Chap. 2). Students found the reflective skills support workshop introduced in Phase Two to be highly useful in maximising the benefits of the peer review process, with 83 % reporting it supported them in writing peer reviews, while 90 % of the respondents reporting the workshop supported them in utilising peer and staff feedback.

Managing climate change ‘by the numbers’ in a UK energy company

This paper examines how ideas and practices of accounting come together in turning the abstract concept of climate change into a new non-financial performance measure in a large energy company in the UK. It develops the notion of ‘governmental management’ to explain how the firm’s carbon dioxide emissions were transformed into a new organisational object that could be made quantifiable, measureable and ultimately manageable because of the modern power of accounting in tying disciplinary subjectivities and objectivities together whilst operating simultaneously at the level of individual and the organisation. Examining these interrelations highlights the constitutive nature of accounting in creating not just new categories for accounting’s attention, but in turn new organisational knowledge and knowledge experts in the making up accounting for climate change. Significantly, it appears these new knowledge experts are no longer accountants: which may help explain accounting’s evolution into evermore spheres of influence as we increasingly choose to manage our world ‘by the numbers’.

Management accounting change in a subsidiary organisation

Parent–subsidiary relationships are commonplace nowadays, yet surprisingly there is a paucity of research analysing their dynamics over time. This paper presents a (longitudinal) case study, illuminating the dynamics implicated when a UK chemicals company imposed its systems and rules on a new subsidiary. Drawing on observations from a longitudinal case study (from 1993 to 2001), the study considers: (1) the extent to which a parent imposes its (management accounting) systems,rules and procedures on a subsidiary; (2) the role which (local) political, cultural and institutional factors in a subsidiary play in shaping the dynamics of such change implementation; (3) how new systems and practices become accepted and take root as values and beliefs and how they supplement earlier norms? The study provides insight for the questions above, and draws on institutional theories and a power mobilisation framework to assist in the interpretation of observations. We find that the operations of the subsidiary company are influenced by inter-related forces, both inside and outside the organisation encompassing issues of power, politics and culture. As such, existing institutions in a subsidiary organisation are influenced, sustained, and changed by the socio-economic context in which the subsidiary is located. Organisational practices designed to secure external legitimacy are not however always symbolic and decoupled from internal operations

Regulating audit quality : restoring trust and legitimacy

The global financial crsis, corporate failures and scandals in amny countries raise significant questions audit quality. In the UK, the FRC took the unprecedented step of codifying audit quality in its ‘Audit Quality Framework’. We analyze the extent to which audit firms, professional bodies, and investors considered the FRC proposals sufficient for addressing concerns about audit quality. Using impression management and legitimacy as a framework to analyze stakeholder responses we go beyond audit quality drivers identified by the FRC. In contrast to the drivers identified by the FRC, our focus on transparency, expertise, professionalism and commercialization of the audit shows that FRC, audit firms and professional bodies have mainly focused on issues which possibly do not pose a threat to the commercial interest of audit firms. Overall, our analysis shows that regulatory and professional bodies engaged in image management and the promotion of audit quality in an attempt to remedy tarnished image and augment their legitimacy and standing. In attempting to restore trust and legitimacy regulatory bodies, such as the FRC, have to reconcile complex often contradictory stakeholder demands.

Do Big-Four affilitates earn audit fee premiums in emerging markets?

The paper investigates whether Big-Four affiliated (B4A) firms earn audit premiums in an emerging economy context, using Bangladesh as a case. The joint determination of audit and non-audit service fees is also examined using a sample of 122 companies listed in the Dhaka Stock Exchange. Our findings reveal that although the B4A firms do not generally earn a fee premiumin Bangladesh, they charge higher audit fees for clients not purchasing non-audit services. This suggests that the B4A firms may actually lower audit fees to attract non-audit services, and cross subsidizes audit fees through non-audit-services fees. The lack of a B4A premium implies that there is lack of quality audit in emerging markets. We also document that audit and non-audit service fees are jointly determined in Bangladesh. Thus, we provide evidence of joint determination of audit and non-audit service fees in an emerging economy context.

Constraints and characteristics of flexible work arrangements in small not-for-profit firms

There is a great deal of research that examines flexible working arrangements, but this work tends to be concentrated in large organisations. This research examines the approach taken to flexible working arrangements in five small community based, not for profit organisations. We present three propositions that aim to understand the constraints and the characteristics of flexible work in this rarely studied sector.

The flip side of fly-in-fly-out : the use of 457 visas by smaller firms in the Western Australian resources sector

The focus in this article is how the extensive use of fly-in fly-out (FIFO) working arrangements in the Western Australian resources sector has an impact directly and indirectly on smaller firms and their ability to recruit workers in remote locations. We argue that the growth of FIFO working arrangements has disadvantaged smaller resource-sector firms by increasing their employment costs and decreasing their ability to attract skilled workers. As a result, smaller resource-sector firms are recruiting skilled workers on 457 visas to secure their business stability and growth, despite the complexity, costs, and risks involved.

Dynamics of industry architecture and firm’s capability development : role of knowledge integration within product innovation

Aligned with the decline of Marshalian view of industry as constituting homogeneous set of firms, the new perspective is emerging by concentrating more on dynamics of sectors as the building block of industrial changes. Based on new assumptions, much of the action in terms of strategy, technology, and knowledge development does not happen either among firms within a stable industry, or through the growth or decline of certain sectors compared to others. Instead, the action happens in terms of the definition, redefinition, drawing, and redrawing of the very nature of these sectors. Technology does not progress and develop within a sector; rather it shapes (and is shaped by) the encompassing architecture of multiple sectors.

Institutional investors, risk/performance and corporate governance

Modern portfolio theory suggests that investors minimize risk for a given level of expected return by carefully choosing the proportions of various assets. This study sets out to determine the role of the institutional investor in monitoring risk and firm performance. Using a sample of Australian firms from 2006 to 2008, our empirical study shows a positive association between firm-specific risk, risk-management policy, and performance for firms with increasing institutional shareholdings. The study also finds that the significance of this association depends on the institutional investor's ability to influence management, which in turn depends on the size of ownership and whether the investee firm does not have potential business dealings with the investor. We also find that when firms are financially distressed, institutional investors engage in promoting short-term performance or exit rather than support long-term value creation. The results are robust while controlling the potential for endogeneity and using sensitivity tests to control for variants of performance and risk. These findings add to the growing body of literature examining institutional ownership and the importance of understanding the role of risk-management in the risk and return relation.

Social Compliance Accounting : Managing Legitimacy in Global Supply Chains

This book covers key discussions involving major US and European multinational companies (MNCs) that source products from suppliers in developing countries. Due to the transfer of production from developed to developing nations, there is an urgent need to establish social compliance as a new form of Corporate Social Responsibility (CSR) and a means by which MNCs can meet expected social standards. The cases described are internationally relevant and can be seen to reflect or represent the behavior of many MNCs and their suppliers in developing nations. The discussion offers essential insights into how different levels of social compliance risk and pressure (including broader stakeholder concerns) move managers to adopt or embrace particular social compliance accounting, reporting and auditing strategies. The book will help readers to understand the major concerns, challenges and dilemmas faced by management in the supply chains of MNCs, and proposes measures that can be taken to resolve those dilemmas. Most importantly, it develops a systematic method of assessing the social compliance performance of suppliers to MNCs. This includes highly detailed accounts of the social compliance performance of suppliers within the clothing industry (in a developing nation) that supply goods to the extensive US and European markets. The book offers a valuable guide, not only for corporate managers but also for practitioners, researchers, academics, and undergraduate and postgraduate business students.

The United Nations Guiding Principles on Business and Human Rights : Putting Accounting for Human Rights into Practice

The “Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy Framework’” (the Guiding Principles), endorsed by The United Nations Human Rights Council on 16 June 2011, outline obligations for nation states that currently exist under international law and provide the first authoritative reference point for corporations’ human rights responsibilities. Of the 30 principles endorsed, half relate directly to business. The Guiding Principles have far-reaching implications for all businesses, both small and large, and represent one of the most significant developments in corporate governance this century. In response to a recognition of the potential impacts of the Guiding Principles on corporate governance, the Institute of Chartered Accountants in Australia provided La Trobe Business School with grant funding to undertake groundbreaking research on the implications of the Guiding Principles for management and accounting systems within corporate Australia. This report represents the outcome of the study.

Enhancing the auditor's report : to what extent is there support for the IAASB's proposed changes?

This article outlines proposed reforms to auditor reporting currently being considered by the International Auditing and Assurance Standards Board (IAASB), and other key national and transnational standard-setters and regulatory bodies. It adds to recent academic contributions on reforming the auditor’s report by analyzing the 165 stakeholder responses to the IAASB’s 2012 Invitation to Comment: Improving the Auditor’s Report to determine levels of support for the IAASB’s proposed reforms, and the differences, if any, between the views of various respondents based on stakeholder groups (e.g. audit and assurance firms, users, preparers, regulators, etc.) and regional classifications. Guided by insights from communication theory, our results show the levels of stakeholder support for the IAASB’s proposed reforms addressing auditors’ expectations, information and communication gaps are mixed. The strongest overall support was for enhanced auditor reporting on other information attached to, or intended to be read with, the financial statements, and the least supported initiative was including additional information in the auditor’s report about the auditor’s judgements and processes. Whilst overall there is generally consensus across both stakeholder groups and regions concerning the various questions investigated, we highlight where statistically significant differences between groups do exist. Notably, North American respondents were less likely to support a number of the IAASB’s proposed reforms than their counterparts from other regions.