Disclosure in insurance law : contemporary and historical economic considerations

This article examines the importance of accurate classification and identification of risk with particular reference to the problem of adverse selection. It is argued that, historically, this concern was the paramount consideration influencing standard form contract formation and disclosure laws. The scope of its relevance today however is less apparent in that contemporary insurance contracting is conducted in a vastly different environment from that which prevailed at the time Lloyd's was better known as a coffee house. Accordingly, the second part of this article looks at the contemporary framework of information disclosure and those dynamics within it designed to elicit information weighing on risk forecasting : specifically, (a) direct inquiry and testing requirements; (b) signaling - or incentive based structuring of insurance contractual and (c) bargaining in the shadow of the utmost good faith doctrine. Finally, certain conclusions arising out of contemporary and historical economic considerations underpinning disclosure in insurance law are outlined.

Disclosure under the prescribed insurance contracts regime : Section 35 of the Insurance Contracts Act 1984 and consumer protection revisited

Section 35 of the Insurance Contracts Act 1984 requires insurers offering insurance policies in six prescribed areas "to clearly inform" prospective insureds of any departure their policies may constitute from the standard covers established by the Act and its accompanying Regulations. This prescribed insurance contracts regime was designed to remedy comprehension problems generated by the length and complexity of insurance documents and to alleviate misunderstanding over the terms and conditions of individual policies. This article examines the rationale underpinning s 35 and the prescribed insurance contracts regime and looks at the operation of the legislation with particular reference to home contents insurance in Australia. It is argued that the means whereby disclosure of derogation from standard cover may be effected largely negates the thrust of the prescribed insurance contract reform. Recommendations to address these operational deficiencies are made.

The insured's non-disclosure in the formation of insurance contracts : a comparative perspective

The requirements that an insured disclose all facts material to a transaction as well as not misrepresent material facts in the formation of an insurance contract are universal requirements of insurance law. The nature and extent of these obligations varies from one jurisdiction to the next. Disclosure in the insurance context is distinct from the general approach in commercial contracts, and in others between persons dealing at arm's length. It is the purpose of this article therefore to examine, on a comparative basis, the approaches adopted in the Anglo-Commonwealth context of England, Australia New Zealand and Singapore to the resolution of disclose issues in the formation of insurance contracts. Particular attention is focused on the Insurance Contracts Act 1984 (Australia) as this statue effects the most significant overhaul of the common law and the National Consumer Council in the United Kingdom has advocated that similar reforms be adopted.

Disclosure and concealment in consumer insurance contracts

This book provides an in-depth examination of the theoretical,legal, social and economic foundations to disclosure and concealment of information in relation to the formation of consumer insurance contracts. A comparative treatment of this issue is undertaken with particular attention given to the judicial and legislative approaches adopted in the United Kingdom, the United States of America, Australia and New Zealand.

Role of corporate governance in mitigating the selective disclosure of executive stock option information

We examine the nature and extent of statutory executive stock option (ESO) disclosures by Australian listed companies over the 2001 to 2004 period, and the influence of corporate governance mechanisms on these disclosures. Our results show a progressive increase in overall compliance from 2001 to 2004. However, despite the improved compliance, the results reveal managements’ continued reluctance to disclose more sensitive ESO information. Factors associated with good internal governance, including board independence, audit committee independence and effectiveness, and compensation committee independence and effectiveness are found to contribute to improved compliance. Similarly, certain external governance factors are associated with improved disclosure, including external auditor quality, shareholder activism (as proxied by companies identified as poor performers by the Australian Shareholders’ Association), and regulatory intervention.

Compliance with international financial reporting standards (IFRS) and the value relevance of accounting information in emerging stock markets : evidence from Kuwait

Since the 1960s, the value relevance of accounting information has been an important topic in accounting research. The value relevance research provides evidence as to whether accounting numbers relate to corporate value in a predicted manner (Beaver, 2002). Such research is not only important for investors but also provides useful insights into accounting reporting effectiveness for standard setters and other users. Both the quality of accounting standards used and the effectiveness associated with implementing these standards are fundamental prerequisites for high value relevance (Hellstrom, 2006). However, while the literature comprehensively documents the value relevance of accounting information in developed markets, little attention has been given to emerging markets where the quality of accounting standards and their enforcement are questionable. Moreover, there is currently no known research that explores the association between level of compliance with International Financial Reporting Standards (IFRS) and the value relevance of accounting information. Motivated by the lack of research on the value relevance of accounting information in emerging markets and the unique institutional setting in Kuwait, this study has three objectives. First, it investigates the extent of compliance with IFRS with respect to firms listed on the Kuwait Stock Exchange (KSE). Second, it examines the value relevance of accounting information produced by KSE-listed firms over the 1995 to 2006 period. The third objective links the first two and explores the association between the level of compliance with IFRS and the value relevance of accounting information to market participants. Since it is among the first countries to adopt IFRS, Kuwait provides an ideal setting in which to explore these objectives. In addition, the Kuwaiti accounting environment provides an interesting regulatory context in which each KSE-listed firm is required to appoint at least two external auditors from separate auditing firms. Based on the research objectives, five research questions (RQs) are addressed. RQ1 and RQ2 aim to determine the extent to which KSE-listed firms comply with IFRS and factors contributing to variations in compliance levels. These factors include firm attributes (firm age, leverage, size, profitability, liquidity), the number of brand name (Big-4) auditing firms auditing a firm’s financial statements, and industry categorization. RQ3 and RQ4 address the value relevance of IFRS-based financial statements to investors. RQ5 addresses whether the level of compliance with IFRS contributes to the value relevance of accounting information provided to investors. Based on the potential improvement in value relevance from adopting and complying with IFRS, it is predicted that the higher the level of compliance with IFRS, the greater the value relevance of book values and earnings. The research design of the study consists of two parts. First, in accordance with prior disclosure research, the level of compliance with mandatory IFRS is examined using a disclosure index. Second, the value relevance of financial statement information, specifically, earnings and book value, is examined empirically using two valuation models: price and returns models. The combined empirical evidence that results from the application of both models provides comprehensive insights into value relevance of accounting information in an emerging market setting. Consistent with expectations, the results show the average level of compliance with IFRS mandatory disclosures for all KSE-listed firms in 2006 was 72.6 percent; thus, indicating KSE-listed firms generally did not fully comply with all requirements. Significant variations in the extent of compliance are observed among firms and across accounting standards. As predicted, older, highly leveraged, larger, and profitable KSE-listed firms are more likely to comply with IFRS required disclosures. Interestingly, significant differences in the level of compliance are observed across the three possible auditor combinations of two Big-4, two non-Big 4, and mixed audit firm types. The results for the price and returns models provide evidence that earnings and book values are significant factors in the valuation of KSE-listed firms during the 1995 to 2006 period. However, the results show that the value relevance of earnings and book values decreased significantly during that period, suggesting that investors rely less on financial statements, possibly due to the increase in the available non-financial statement sources. Notwithstanding this decline, a significant association is observed between the level of compliance with IFRS and the value relevance of earnings and book value to KSE investors. The findings make several important contributions. First, they raise concerns about the effectiveness of the regulatory body that oversees compliance with IFRS in Kuwait. Second, they challenge the effectiveness of the two-auditor requirement in promoting compliance with regulations as well as the associated cost-benefit of this requirement for firms. Third, they provide the first known empirical evidence linking the level of IFRS compliance with the value relevance of financial statement information. Finally, the findings are relevant for standard setters and for their current review of KSE regulations. In particular, they highlight the importance of establishing and maintaining adequate monitoring and enforcement mechanisms to ensure compliance with accounting standards. In addition, the finding that stricter compliance with IFRS improves the value relevance of accounting information highlights the importance of full compliance with IFRS and not just mere adoption.

Stakeholder perspectives regarding the mandatory notification of Australian data breaches

The advent of data breach notification laws in the United States (US) has unearthed a significant problem involving the mismanagement of personal information by a range of public and private sector organisations. At present, there is currently no statutory obligation under Australian law requiring public or private sector organisations to report a data breach of personal information to law enforcement agencies or affected persons. However, following a comprehensive review of Australian privacy law, the Australian Law Reform Commission (ALRC) has recommended the introduction of a mandatory data breach notification scheme. The issue of data breach notification has ignited fierce debate amongst stakeholders, especially larger private sector entities. The purpose of this article is to document the perspectives of key industry and government representatives to identify their standpoints regarding an appropriate regulatory approach to data breach notification in Australia.

Untangling the Net : The Scope of Content Caught By Mandatory Internet Filtering

The following report considers a number of key challenges the Australian Federal Government faces in designing the regulatory framework and the reach of its planned mandatory internet filter. Previous reports on the mandatory filtering scheme have concentrated on the filtering technologies, their efficacy, their cost and their likely impact on the broadband environment. This report focuses on the scope and the nature of content that is likely to be caught by the proposed filter and on identifying associated public policy implications.

Beware statutory disclosure obligations

Great care is needed to ensure strict compliance with statutory disclosure obligations in conveyancing. The types of issues that may arise are well illustrated by the facts before the court in APM Property 3 Pty Ltd v Blondeau [2009] QSC 326, decision of Mullins J.

Property Agents and Motor Dealers Act (Qld) : disclosure, cooling-off and marketeers

The Property Agents and Motor Dealers Act 2000 commenced on 1 July 2001. Significant changes have now been made to the Act by the Property Agents and Motor Dealers Amendment Act 2001 (“the amending Act”). The amending Act contains two distinct parts. First, ss 11-19 of the amending Act provide for increased disclosure obligations on real estate agents, property developers and lawyers together with an extension of the 5 business day cooling-off period imposed by the original Act to all residential property (other than contracts formed on a sale by auction). These provisions are expected to commence on 29 October 2001. The remaining provisions of the amending Act provide for increased jurisdiction and powers to the Property Agents and Motor Dealers Tribunal (“the Tribunal”) enabling the Tribunal to deal with claims against marketeers. These provisions commenced on the date of assent (21 September 2001).

The level and quality of Value-at-Risk disclosure by commercial banks

In this paper we study both the level of Value-at-Risk (VaR) disclosure and the accuracy of the disclosed VaR figures for a sample of US and international commercial banks. To measure the level of VaR disclosures, we develop a VaR Disclosure Index that captures many different facets of market risk disclosure. Using panel data over the period 1996–2005, we find an overall upward trend in the quantity of information released to the public. We also find that Historical Simulation is by far the most popular VaR method. We assess the accuracy of VaR figures by studying the number of VaR exceedances and whether actual daily VaRs contain information about the volatility of subsequent trading revenues. Unlike the level of VaR disclosure, the quality of VaR disclosure shows no sign of improvement over time. We find that VaR computed using Historical Simulation contains very little information about future volatility.

Disclosure, conservatism and the cost of equity capital : a review of the foundation literature

In this review piece, we survey the literature on the cost of equity capital implications of corporate disclosure and conservative accounting policy choice decisions with the principle objective of providing insights into the design and methodological issues, which underlie the empirical investigations. We begin with a review of the analytical studies most typically cited in the empirical research as providing a theoretical foundation. We then turn to consider literature that offers insights into the selection of proxies for each of our points of interest, cost of equity capital, disclosure quality and accounting conservatism. As a final step, we review selected empirical studies to illustrate the relevant evidence found within the literature. Based on our review, we interpret the literature as providing the researcher with only limited direct guidance on the appropriate choice of measure for each of the constructs of interest. Further, we view the literature as raising questions about both the interpretation of empirical findings in the face of measurement concerns and the suitability of certain theoretical arguments to the research setting. Overall, perhaps the message which is most clear is that one of the most controversial and fundamental issues underlying the literature is the issue of the diversifiability or nondiversifiability of information effects.

Reaction to the mandatory write-down provisions of AASB 1010 : accounting for the revaluation of non-current assets

Commentators in the financial press claimed that the amendments to AASB 1010, Accounting for the Revaluation of Non-Current Assets, issued in September 1991, would have “disastrous” implications for the accounts of companies. This paper is concerned with whether the amendments did indeed affect asset write-down activities. An analysis of write-down practices of 75 Australian companies before and after the amendments were operative suggests that the commentators' judgment could have been hasty.

A longitudinal study of corporate earnings guidance in Australia’s continuous disclosure environment

Since the introduction of a statutory‐backed continuous disclosure regime (CDR) in 1994, regulatory reforms have significantly increased litigation risk in Australia for failure to disclose material information or for false and misleading disclosure. However, there is almost no empirical research on the impact of the reforms on corporate disclosure behaviour. Motivated by the absence of research and using management earnings forecasts (MEFs) as a disclosure proxy, this study examines (1) why managers issue earnings forecasts, (2) what firm‐specific factors influence MEF characteristics, and (3) how MEF behaviour changes as litigation risk increases. Based on theories in information economics, a theoretical framework for MEF behaviour is formulated which includes antecedent influencing factors related to firms‟ internal and external environments. Applying this framework, hypotheses are developed and tested using multivariate models and a large sample of hand-collected MEFs (7,213) issued by top 500 ASX-listed companies over the 1994 to 2008 period. The results reveal strong support for the hypotheses. First, MEFs are issued to reduce information asymmetry, litigation risk and signal superior performance. Second, firms with better financial performance, smaller earnings changes, and lower operating uncertainty provide better quality MEFs. Third, forecast frequency and quality (accuracy, timeliness and precision) noticeably improve as litigation risk increases. However, managers appear to be still reluctant to disclose earnings forecasts when there are large earnings changes, and an asymmetric treatment of news type continues to prevail (a good news bias). Thus, the findings generally provide support for the effectiveness of the CDR regulatory reforms in improving disclosure behaviour and will be valuable to market participants and corporate regulators in understanding the implications of management forecasting decisions and areas for further improvement.