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Purpose This paper aims to determine the role governance plays in the voluntary adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Disclosure Standards by Islamic insurance (takaful) operators in the Southeast Asia (SEA) and the Gulf Cooperation Council (GCC) regions. Design/methodology/approach This study uses a sample of 44 takaful operators in the SEA and the GCC regions. While corporate governance (CG) strength is measured by the use of the frequently examined variables of the board of directors and audit committee, Shari’ah governance strength is measured by the characteristics of the Shari’ah Supervisory Board (SSB). Content analysis is used to extract disclosure items from the 2014 annual reports. Agency theory, stakeholder theory and political economy theory are argued to support the hypotheses. Findings The results show that CG strength has a positive and significant effect on the voluntary adoption of AAOIFI Disclosure Standards by takaful operators, indicating that CG plays an important role in the disclosure of information in the annual reports of takaful operators. However, the results show a lack of association between SSB strength and voluntary adoption of AAOIFI Disclosure Standards. Our results suggest that the SSBs may not be as involved as the other CG mechanisms (such as a board of directors and audit committees) in reviewing financial reports. On another note, the level of the political right and civil liberties has a negative and significant effect on the voluntary adoption of AAOIFI Disclosure Standards, providing an indication that stakeholders in a community with greater freedom tend to be more active in pressuring takaful operators to provide more information to justify their existence in the community. Similar to SSB strength, the legal system is also found to have no significant association with the voluntary adoption of the AAOIFI disclosure standards. Practical implications This study provides stakeholders with a tool to evaluate the effectiveness of the governance role in increasing the transparency of takaful operators by examining the governance factors using a self-constructed disclosure index. Originality/value Our study is among the first to provide an in-depth analysis of voluntary adoption of AAOIFI Disclosure Standards for takaful operators in these two regions; therefore, this study has implications for regulators and standard setters. The findings of this study are expected to provide information to regulators and standard setters on the role of governance in improving the transparency of takaful operators.

This paper investigates how the features of CEO equity-based compensation are associated with the agency costs of monitoring (measured by external audit fees) in an Australia setting. We find that audit fees significantly increase when firms award large equity grants to CEOs, which is consistent with the notion that auditors perceive higher risk associated with large equity incentives. However, by empirically testing auditors’ responses to the adoption of performance-vesting provisions, we document evidence that it is the use of accounting-based hurdles that potentially encourages unethical reporting issues. We report that audit fees are negatively associated with the use of market-based hurdles, while accounting-based hurdles lead to significantly higher audit fees but combination hurdles lower audit fees. To reduce the possible undesirable properties of accounting-based hurdles, firms adopt longer vesting periods to provide more balanced future-oriented incentives. Practical implications include the remuneration committee being aware of the hidden costs of poorly designed CEO compensation packages and avoiding undesirable ethical implications, particularly, where the CEO has significant power over the corporation.

Using hand-collected data from a sample of 210 international banks during the period 2009 to 2013, we investigate whether fair value exposure, the proportion of financial assets measured at fair values, is associated with earnings persistence and whether the reliability of fair value measurements influences earnings persistence. We also examine whether the association between fair value measurements and earnings persistence is a function of institutional factors such as legal enforcement, the audit environment, and country-level auditor industry expertise. Results suggest that the use of fair values for balance sheet financial instruments enhances earnings persistence. Also, we find that the nondiscretionary fair value Level 1 assets (measured with observable inputs) are positively associated with earnings persistence, whereas the Level 2 assets (measured with indirectly observable inputs) and Level 3 assets (measured using unobservable inputs) are not associated with earnings persistence. We provide further evidence that there is a strong association between factors reflecting countrywide institutional structures and the predictive power of fair values based on discretionary measurement inputs (Level 2 and Level 3 assets) and we find that the moderating effect from these institutional factors is greater for Level 3 assets than for Level 2 assets. Additional tests suggest that the association between fair value estimates and earnings persistence is moderated by the classification of fair value assets (that is, through profit and loss versus other comprehensive income) and the reliability of fair value estimates.

The objective of our research was to respond to the call of Barth and Taylor (2010) for more research to examine the role of discretion in fair value estimates. Specifically, we investigate factors that explain banks’ accounting choices to use Level 3 valuation inputs from the fair value measurement hierarchy. Using hand-collected data from a sample of international banks during 2009–2013, we find that incentives to use discretionary Level 3 valuation inputs, which can provide an opportunity to manage earnings, are associated with both firm-level and country-level determinants. Additional tests provide evidence that Level 3 ‘transfer-in’ behaviour is related to changes in bank characteristics.

We investigate the association between executive stock option (ESO) vesting conditions, corporate governance and CEO attributes. Using observations from the 250 largest Australian firms, we find that stronger corporate governance is positively associated with the length of the vesting period and the use of performance hurdles. We also find that when CEOs approach retirement, firms are more likely to grant longer time‐vesting options but are less likely to impose performance hurdles. Further, more powerful CEOs appear to influence the granting of ESOs with less restrictive vesting conditions. Our findings suggest that both corporate governance and CEO attributes significantly shape the design of ESOs.

We investigate the determinants of voluntary corporate governance disclosure practices of 67 Islamic banks in the Southeast Asian and Gulf Cooperation Council regions. We expect that the risks inherent in Islamic banking will lead to a demand for greater corporate governance disclosures. However, we find that the mean level of voluntary governance disclosure is less than 40 per cent. We provide evidence that stronger corporate governance is associated with a higher level of voluntary corporate governance disclosure. Other factors that influence voluntary governance disclosures are the size of Islamic banks, the level of political and civil repression and the legal system. Our results inform the global debate on the need for corporate governance reform by Islamic banks by providing insights on the part played by corporate governance mechanisms in encouraging enhanced disclosure in the annual reports of Islamic banks.

We investigate the association between asset revaluations of non-current assets and audit fees, using a sample of ASX 300 companies from the years 2003–2007.We report that there is a significant increase in the audit fees paid when non-financial assets (PPEs, investment properties and intangible assets) are measured at fair values. Moreover, we provide evidence that an independent valuer or appraiser significantly weakens the positive association between asset revaluations and audit fees. Furthermore, companies whose noncurrent assets are revalued upwards and those that revalue their non-current assets upwards every year have significantly higher audit fees. Additional tests provide empirical evidence that the strength of corporate governance has a moderating effect on the level of audit fees. This study contributes to the ongoing debate on the role of fair value accounting. The findings suggest agency costs associated with fair value estimates may offset the benefits from the use of fair value accounting.

The disclosure of non-GAAP earnings in Australian annual reports has risen steadily in recent years. These non-statutory earnings measures are generally disclosed in the unaudited section of the annual report and are not consistent with statutory profit as defined under generally accepted Australian accounting standards (GAAP). Recent research conducted in the United States (US) has provided evidence that non-sophisticated investor decisions are influenced by the presence and prominence of non-GAAP earnings information. Further evidence suggests that investor perception changed after non-GAAP earnings disclosures became subject to regulation in that jurisdiction. Australia has high investor participation rates by international standards, including investors operating self-managed superannuation funds, resulting in a significant number of active individual investors. This study employs an experimental design to investigate the impact on non-sophisticated investors of the reporting of non-GAAP earnings information in addition to GAAP earnings information in Australian annual reports. The results of this study show a positive association between the prominent disclosure of non-GAAP earnings information and non-sophisticated investor reliance on this information. These results provide important evidence to Australian regulators as these narrative disclosures are not subject to regulation, in contrast to the US where mandatory regulation has been in place since 2003.

This paper extends research on the corporate governance practices of transitional economies by examining whether the ability of the audit committee to constrain earnings management in Chinese firms is associated with the listing environment and the presence of government officials on the audit committee. Despite considerable regulatory reforms by the Chinese Securities Regulatory Commission, there remain incentives for Chinese firms to manage earnings. However, government initiatives to encourage domestic firms to cross-list on the Hong Kong Stock Exchange are accompanied by improved governance. We find that the expertise and independence of the audit committee for cross-listed (CL) Chinese firms are associated with lower abnormal accruals, our measure of earnings management. Both domestic only listed firms and CL Chinese firms appoint government officials as independent members on the audit committee. However, due to the political connection between government officials and the controlling shareholder (the State), these appointments can severely mitigate audit committee independence. Subsequently, we find a significant and positive association between audit committee independence and experience and earnings management when there are government officials on the audit committee.

Purpose – The paper aims to contribute to the discussion on Shari'ah governance systems by examining the extent of disclosure on the Shari'ah Supervisory Board (SSB) as well as the content of the Board's report in the annual reports of 23 Islamic banks in Malaysia and Indonesia. The paper also investigates the disclosures about zakat (Islamic levy). Design/methodology/approach – The study is a cross-sectional analysis of annual report disclosures in the year 2009. The paper uses both disclosure indices and content analysis to measure the extent of disclosures about SSB and zakat. The paper also tests hypotheses examining the relationship between SSB characteristics and the extent of the SSB-related and zakat disclosures. Findings – The results indicate that SSB-related and zakat disclosures are still limited, with only four banks disclosing more than half of the SSB Index. What is noticeable is the low level of disclosure on sensitive matters. Among the factors associated with SSB-related disclosures are cross-membership with other SSBs and the expertise of SSB members in accounting, banking, economics or finance . Originality/value Originality/value – The study is the first to provide an in-depth analysis of Shari'ah disclosures in Malaysian and Indonesian Islamic banks. As such, this study makes an important contribution to the debate on Shari'ah governance systems and has implications for regulators and standard setters. The Malaysian and Indonesian standard setters could play an important role in ascertaining appropriate disclosure requirements relating to the SSB as the study suggests that the level of disclosure is less than expected. The evidence also suggests the need for mandatory enforcement of standards on these types of disclosures.

We investigate the association between a number of dimensions of corporate governance and the earnings quality of financial statements for Australian companies in 2000 and 2002, before and after a number of large corporate collapses. We create four dimensions of corporate governance, board, committee, ownership and audit quality, using fifteen individual corporate governance attributes. The results indicate that only the corporate governance dimension, audit quality, consisting of the presence and independence of the audit committee, its meeting frequency, the use of a big 6 auditor and the auditor's independence, appears to improve the quality of financial reports and only in 2002. Higher quality firms are more prominent in 2002, than in 2000, indicating an improvement in the reporting quality of firms across time. However the control variables persist in returning statistically significant results across 2000 and 2002. In particular, a positive relationship is found between earnings quality and firm size in 2000 and 2002. A positive association also exists between a company's earnings quality and its information environment for both years. A persistent negative relationship between earnings quality and firm leverage is also identified for 2000 and 2002, indicating that more highly leveraged firms have a significant association with lower quality accruals. This is an interesting result when you consider the recent debt problems with Centro.

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.

PurposeThe purpose of this study is to examine the impact of recent corporate governance reforms on the association between governance practices and earnings management.Design/methodology/approachThis study examines the impact of corporate governance reforms by using a firm fixed‐effect, cross‐sectional analysis of 200 firms listed on the Australian Stock Exchange (ASX) for the financial years ending in 2000 and 2005. This paper examines the association between firms' corporate governance practices and the quality of financial reports as measured by the magnitude of earnings management pre‐ and post‐the governance reforms (CLERP 9 and ASX Corporate Governance Council (CGC)).FindingsThe results of this study indicate that certain governance practices are important in limiting earnings management. In particular, board independence and audit committee (AC) independence, are associated with lower performance‐adjusted discretionary accruals, one commonly used measure of earnings management. However, increasing executive shareholdings provides incentives to manage earnings.Practical implicationsThis study is important to investors, academics and policy makers as it demonstrates that governance reforms that encourage firms to adopt better governance practices reduces the likelihood of earnings management.Originality/valueThere is limited research on the association between corporate governance practices or the recent corporate governance reforms (ASX CGC Recommendations and CLERP 9) on earnings management in Australia. This study extends the literature by demonstrating the impact of recent corporate governance reforms on board independence, AC effectiveness and executive directors' shareholding and the association with earnings management.

PurposeThe paper's aim is to investigate the stock option disclosures of directors and the five most highly remunerated officers in the directors' report of Australian companies for the years 2000 and 2002 and the choice to position these disclosures in the notes to the financial statements as opposed to the directors' report.Design/methodology/approachThe study examines the compliance with mandatory disclosures for stock options for companies in the top 400 and also ascertains if there is consistent compliance across all required categories, including sensitive disclosures.FindingsAlthough compliance is high for most of the required stock option disclosures, 43 of the 153 firms in the sample did not disclose the amount (value) of the options issued. Another 27 of the companies disclosed a “Nil” value for the value of options issued. Most of the companies disclosed the information in the directors' report, with larger companies and companies in the finance industry more likely to disclose in the notes to the financial statements, where the information is less visible.Originality/valueThe results indicate that companies were secretive about the most sensitive of the required disclosures, the amount (value) of the options issued. Regulators and researchers need to be cautious in conducting compliance studies as although companies appear to be transparent in their disclosures about stock options for directors, closer examination reveals secrecy about sensitive components of the required disclosures.

We investigate the role played by a firm’s corporate governance framework in the decision to voluntarily disclose forward-looking information in the published financial reports of Australian companies in 2000 and 2002. With respect to the year 2000, the corporate governance category, audit quality, consisting of the presence and independence of the audit committee, its meeting frequency, the use of a big 6 auditor and the auditor’s independence, is positively associated with the disclosure of forward-looking information. The corporate governance category, board committees, consisting of the appointment and independence of a compensation committee and the creation of a nomination committee, and the overall efficacy of the corporate governance system are also positively associated with the disclosure of forward-looking information. However, corporate disclosure does not seem to be driven by the same factors in 2002 since in that year none of the governance categories is significantly associated with the firm’s decision to publish forward-looking information in financial reports.

This paper investigates the transparency of derivative disclosures of Australian firms in the extractive industries using 1998 to 2001 financial reports. The quality of financial reporting has become a major corporate governance issue since the collapse of prominent companies such as Enron in the United States, HIH Insurance in Australia, and, of particular relevance here, Barings PLC in the United Kingdom, where the losses were caused by derivative instruments. Disclosure transparency is an important component of the quality of financial reporting. We measure transparency based on a disclosure index developed from AASB 1033 Presentation and Disclosure of Financial Instruments. We examine the relationship between transparency and firm characteristics represented by size, performance, growth opportunities, auditor and type of extractive firm. The results indicate that the transparency of derivative disclosures among firms in the extractive industries has increased over the period. However, there is still evidence of non-compliance with the disclosure requirements, especially in relation to net fair value. We find that firm size, price-earnings ratio and debt-to-equity ratio, and to a lesser extent, market-to-book ratio and profitability are associated with disclosure transparency.

We investigate whether the use of a high-quality auditor and increased regulatory monitoring of R&D reporting influence both the level of R&D expenditure capitalized by Australian companies from 1992 to 2002 and the market's perception of the reliability of these figures. The results indicate that firms with a higher quality auditor capitalize lower levels of R&D costs, and that in the period following increased regulatory monitoring, firms capitalize fewer R&D costs. Analysis of the value relevance of R&D expenditure indicates that the market positively values R&D costs when expensed as incurred. These results are consistent using both price and returns models. Results are less persistent for capitalized R&D amounts. The finding from the returns model indicates that the quality of the auditor appears to enhance the reliability of capitalized R&D costs, while the price model suggests that the cumulative R&D asset is less relevant in the period following ASC monitoring.

We investigate whether fair value information is value relevant within Australian firms in the extractive industries. The Australian accounting standard on financial instruments AASB 139 Financial Instruments: Recognition and Measurement requires measurement of financial instruments based on fair values. This study provides evidence that net fair value information is value relevant. However, the significance of net fair value is limited to the recognised financial instruments and some settings. Further analysis provides evidence that the explanatory power of net fair value and the unrealised gain or loss beyond the book value and earnings valued at historical costs is very low. Classification-JEL

This study examines the content of concise reports in Australia to ascertain whether deficiencies identified by ASIC in 1999 have been rectified. Second, the concise reports are compared with the full financial report to establish if the presence of a concise report has in any way altered the full financial report. Third, the discussion and analysis (D&A)section required in the concise reports is examined to provide descriptive evidence on its content. Although several shortcomings identified by ASIC in concise reports for 1999 have been resolved for 2000, role confusion surrounds the concise and full financial reports. It appears that, for many companies, AASB 1039 has resulted in the concise report becoming the full financial report.

This study addresses the discretionary capitalization of R&D costs in Australia and Canada. We demonstrate, for both samples, that the discretionary capitalization of development costs (hereafter capitalized D) by the manager results in balance sheet and income numbers that are more highly associated with market value, relative to the corresponding "asif" numbers generated by expensing GAAP. Moreover, we show that a dollar worth of capitalized D is worth more than a dollar worth of expensed R&D, for the same firm. This points to a corroboration role for capitalization. As a caveat, our results hold only when the samples are partitioned on the materiality of capitalized D. Our results point to a potentially useful signalling role for discretionary capitalization, in Australian and Canadian capital markets. However, while the manager’s capitalized D is associated with firm value, it has at best a modest advantage over what the analyst can do, using the researchercreated capitalized R&D. Thus, the regulatory policy debate must consider the small incremental benefits from allowing discretionary capitalization compared to the costs associated with earnings management when discretion is allowed.

The aim of this paper1 is to explain Australian RD the use of RD and the percentage of subsidiaries not wholly owned. Furthermore, research intensity, and the use of R&D financing arrangements are significant in explaining voluntary disclosure of R&D expenditure and activities. These results are robust to the inclusion of controls for other economic characteristics of the firm including share issue, size, accounting performance, leverage, proprietary costs and tax status. © City University of Hong Kong.

This article is motivated by the international controversy surrounding the regulation of accounting for goodwill. Recent moves for regulatory change in the United Kingdom by the Accounting Standards Committee, and in the international arena through the International Accounting Standards Committee (IASC), have focused attention on the long-running goodwill debate. The British and international accounting regulators have made proposals consistent with the more conservative goodwill accounting rules in the United States and in Australia. The history of accounting for goodwill in Australia provides an opportunity to examine the impact of accounting regulation in promoting uniformity of practice. This paper documents and compares pre- and post-professional regulation (AAS 18) practice and includes an examination of poststatutory regulation (ASRB 1013) practice. The results of this study may be of interest to the accounting profession and to international regulators of accounting, as it provides information regarding the effectiveness of standard setting for goodwill accounting in the Australian context. Regulators in the United Kingdom, in particular, may be able to use such information as input into the decision making process with respect to the proposals for accounting for goodwill. Accounting standards for the corporate sector in Australia emanate from two sources: the professional bodies and the Accounting Standards Review Board (ASRB). Historically, it has been the two professional bodies (the Australian Society of Accountants, now the Australian Society of Certified Practising Accountants, and the Institute of Chartered Accountants), through their joint standard-setting body, the Australian Accounting Research Foundation (AARF), which have issued accounting standards. At time of writing, 28 of these Australian Accounting Standards (AASs) have been issued. Members of the Australian accountancy profession are required to conform with Australian Accounting Standards by Professional Statement (APS) IConformity with Accounting Standards, which states that: The Australian accountancy profession requires members who assume responsibilities in respect of the preparation, presentation or audit of financial statements to support the Statements of Accounting Standards approved by the profession.

Recently in Australia, regulations have been proclaimed requiring companies to make cashflow disclosures in addition to earnings disclosures from 30 June 1992. This paper provides evidence on relationships between earnings and cash flow measures and in so doing examines the external validity of a U.S.A. study of these relationships by Bowen, Burgstahler and Daley [1986]. We also extend their study through an industry analysis of the relationships. Evidence is presented first that shows low correlations between traditional cash flow measures (i.e., net income plus depreciation and amortisation; and working capital from operations) and a more refined cash flow measure (with additional adjustments for changes in non-cash current assets and current liabilities). Second, traditional cash flow measures exhibit high correlations with earnings, while the more refined cash flow measure has a lower correlation with earnings. Finally, traditional cash flow measures better predict future cash flows than models based on earnings or a more refined cash flow measure. The industry evidence, albeit on small sample sizes, shows that the results on the first two issues, but not the latter issue, are generalisable across industry categories.

We investigate the relationship between 'poor' environmental performance and voluntary environmental disclosures in annual reports of Australian listed companies. 'Poor' environmental performance is defined as those instances where companies have been subject to a successful Environmental Protection Agency (EPA) prosecution at any time between 1994 and 1998. This area of research is important as the Parliamentary Joint Statutory Committee for Corporations and Securities (PJSC) recently concluded that a voluntary system of environmental disclosure would encourage 'better' companies to achieve 'best practice' in this area. Consequently this study investigates what disclosure is in fact made in the period leading up to the mandatory requirements. Results reveal that violating firms' annual reports are limited to copious amounts of positive environmental disclosures of a general nature, with virtually no disclosure about the actual EPA violations. We conclude there has been no improvement in environmental disclosures since the previous study of Deegan and Rankin (1996). Accordingly, it is unlikely that voluntary environmental reporting creates a situation of adequate and appropriate disclosure for poor environmental performers let alone encouraging 'better' firms to achieve 'best practice'.

This study investigates the link between audit quality and the market's perception of the value of discretion in accounting for R&D costs (Australian GAAP permits R&D costs to be capitalized) and the impact of changes in that discretion. The study examines companies reporting of capitalized R&D costs over the period 1992 to 1998. When management discretion is unencumbered (1992 to 1995), the use of a higher quality auditor appears to significantly enhance the value of the R&D asset. However, when management discretion is reduced, due to enhanced monitoring by the Australian Securities Commission (1996 to 1998), the use of a higher quality auditor does not increase the value relevance of the R&D asset. These results are consistent with the notion that in the absence of other monitoring mechanisms, audit quality signals the value relevance of the R&D asset. In addition, the R&D expensed by these "capitalizers" is not significant in the earlier sub-period but is significant in the later sub-period when management discretion is reduced.

This paper examines the association between asset revaluations and discretionary accruals (a proxy for earnings management) using a sample of the largest 300 Australian companies. The results from this study indicate that the revaluation of non-current assets is positively associated with discretionary accruals. This finding is consistent with the argument that revaluation of assets reflects higher agency problems in the form of increased earnings management. Additional findings are that discretionary accruals are higher for firms reporting their non-current assets at fair values appraised by directors, than those of firms that use external appraisers. As well, the choice of auditors and the strength of corporate governance can constrain the opportunistic behaviour of managers in the accounting choice to revalue non-current assets.