Were regulatory changes in reporting "abnormal items" justified? : evidence of intra-period classificatory earnings management practices in Australia

Purpose Managers generally have discretion in determining how components of earnings are presented in financial statements in distinguishing between ‘normal’ earnings and items classified as unusual, special, significant, exceptional or abnormal. Prior research has found that such intra-period classificatory choice is used as a form of earnings management. Prior to 2001, Australian accounting standards mandated that unusually large items of revenue and expense be classified as ‘abnormal items’ for financial reporting, but this classification was removed from accounting standards from 2001. This move by the regulators was partly in response to concerns that the abnormal classification was being used opportunistically to manage reported pre-abnormal earnings. This study extends the earnings management literature by examining the reporting of abnormal items for evidence of intra-period classificatory earnings management in the unique Australian setting. Design/methodology/approach This study investigates associations between reporting of abnormal items and incentives in the form of analyst following and the earnings benchmarks of analysts’ forecasts, earnings levels, and earnings changes, for a sample of Australian top-500 firms for the seven-year period from 1994 to 2000. Findings The findings suggest there are systematic differences between firms reporting abnormal items and those with no abnormal items. Results show evidence that, on average, firms shifted expense items from pre-abnormal earnings to bottom line net income through reclassification as abnormal losses. Originality/value These findings suggest that the standard setters were justified in removing the ‘abnormal’ classification from the accounting standard. However, it cannot be assumed that all firms acted opportunistically in the classification of items as abnormal. With the removal of the standardised classification of items outside normal operations as ‘abnormal’, firms lost the opportunity to use such disclosures as a signalling device, with the consequential effect of limiting the scope of effectively communicating information about the nature of items presented in financial reports.

Knowledge management

This paper describes the background and methodology developed and employed in undertaking research developing a Knowledge Management Strategy for a key construction focused government agency. This paper reviews this methodology and examines a likely Knowledge Management Strategy.

Management strategies to harness cultural diversity on Australian constructions sites : a social identity perspective

Construction sites around the world employ large numbers of people from diverse cultural backgrounds. The effective management of this cultural diversity has important implications for the productivity, safety, health and welfare of construction workers and for the performance and reputation of firms which employ them. The findings of a three year, multi-staged study of cultural diversity management practices on construction sites are critiqued using social identity theory. This reveals that so called "best-practice" diversity management strategies may have an opposite effect to that intended. It is concluded that the management of diversity on construction projects would benefit from being informed by social identity research.

Design of flight avoidance manoeuvre alphabets for mixed centralised-decentralised separation management

This paper investigates a mixed centralised-decentralised air traffic separation management system, which combines the best features of the centralised and decentralised systems whilst ensuring the reliability of the air traffic management system during degraded conditions. To overcome communication band limits, we propose a mixed separation manager on the basis of a robust decision (or min-max) problem that is posed on a reduced set of admissible flight avoidance manoeuvres (or a FAM alphabet). We also present a design method for selecting an appropriate FAM alphabet for use in the mixed separation management system. Simulation studies are presented to illustrate the benefits of our proposed FAM alphabet based mixed separation manager.