Accountability and not‐for‐profit organisations: Implications for developing international financial reporting standards

This paper provides empirical evidence which informs contemporary debates on developing international financial reporting standards for not‐for‐profit organisations (NPOs). Drawing on a global survey with respondents showing experience of NPO reporting in 179 countries, we explore: practice and beliefs about NPO financial reporting internationally; perceptions of accountability between NPOs and stakeholders; and implications for developing international financial reporting standards. Interpreting our research in the context of accountability, we find considerable support for developing international financial reporting standards for NPOs, recognising broad stewardship accountability to all stakeholders as important, but prioritising accountability upwards to external funders and regulators.     

Exploring attitudes to financial reporting in the Australian not‐for‐profit sector

The current level of satisfaction among different stakeholders about the current approaches and practises of financial reporting of not‐for‐profit (NFP) entities is underexplored ( Christensen and Mohr, 2003 ; Lee, 2004 ; Gray et al., 2006 ; Parker, 2007 ). This paper uses content analysis to examine submissions to the 2008 Australian Senate Economics Standing Committee for its inquiry into the disclosure regimes of charities and NFP organisations, which aimed to explore attitudes about financial reporting in the NFP sector. Financial reporting is viewed as an important part of accountability, but the sector identifies deficiencies in the current regime in terms of consistency, efficiency and transparency. Respondents to this inquiry believed that a sector‐specific accounting standard was important. Financial reporting standards, regulations and legal structures should be uniform across the entire sector, but with some variation allowed for smaller NFPs. The cost of complying with standards was a significant issue for smaller NFPs.     

Disentangling Managers’ and Analysts’ Non‐GAAP Reporting

Researchers frequently proxy for managers’ non‐GAAP disclosures using performance metrics available through analyst forecast data providers (FDPs), such as I/B/E/S. The extent to which FDP‐provided earnings are a valid proxy for managers’ non‐GAAP reporting, however, has been debated extensively. We explore this important question by creating the first large‐sample data set of managers’ non‐GAAP earnings disclosures, which we directly compare to I/B/E/S data. Although we find a substantial overlap between the two data sets, we also find that they differ in systematic ways because I/B/E/S (1) excludes managers’ lower quality non‐GAAP numbers and (2) sometimes provides higher quality non‐GAAP measures that managers do not explicitly disclose. Our results indicate that using I/B/E/S to identify managers’ non‐GAAP disclosures significantly underestimates the aggressiveness of their reporting choices. We encourage researchers interested in managers’ non‐GAAP reporting to use our newly available data set of manager‐disclosed non‐GAAP metrics because it more accurately captures managers’ reporting choices.     

Audit Firm Tenure,Non‐Audit Services,and Internal Assessments of Audit Quality

We use data from internal assessments of audit quality in a Big 4 firm to investigate the impact of audit firm tenure and auditor‐provided non‐audit services (NAS) on audit quality. We find that first‐year audits receive lower assessments of audit quality and that quality improves shortly thereafter and then declines as tenure becomes very long. Partitioning our sample between SEC registrants and private clients, we find that the decline in audit quality in the long tenure range is attributable to audits of private clients. For audits of SEC registrants, the probability of a high quality audit reaches its maximum with very long tenure. We also find that audit fees are discounted for first‐year audits but auditor effort is higher than in subsequent years. We find no association, on average, between total NAS fees and audit quality in the full sample but observe that total NAS fees are positively associated with quality for SEC registrants and negatively associated with quality for privately held clients. Our findings are important for regulatory policies related to audit firm tenure and auditor‐provided NAS.     

Making charity effectiveness transparent: Building a stakeholder‐focussed framework of reporting

Effectiveness in achieving mission is fundamental to evaluating charity performance, and is of central concern to stakeholders who fund, regulate and otherwise engage with such organisations. Exploring the meaning of transparency in the context of stakeholder engagement, and utilising previous research and authoritative sector discussion, this paper develops a novel framework of transparent, stakeholder‐focussed effectiveness reporting. It is contended that such reporting can assist the charity sector in discharging accountability, gaining legitimacy and in sharpening mission‐centred managerial decision making. Then applying this to UK charities’ publicly available communications, it highlights significant challenges and weaknesses in current effectiveness reporting.     

Research Techniques and Their Use in Managing Non–profit Organisations – An Illustration of DEA Analysis in NPO Environments

This article examines nonprofit organisations from the managerial viewpoint. The objective is to study the applicability of efficiency information in managing NPOs. For this purpose important conceptual and methodological aspects are addressed. An efficiency measurement technique (DEA) is then analysed as a case in point, and its main characteristics critically reviewed. DEA applications in four NPO environments are examined. The aim is to pinpoint possibilities and limitations in using DEA–based efficiency information in the management process of NPOs. The article argues in favour of a more profound comprehension of the use of efficiency information and the application of research techniques.     

When Paradigms Meet: Interacting Perspectives on Evaluation in the Non‐Profit Sector

This study examines a public debate in Australia, arising from a national government report, around how social contribution in the nonprofit sector should be assessed. Guided by several meta‐perspectives on evaluation, we identify connections between foundational assumptions and normative positions on evaluation espoused by non‐profit organizations (NPOs), and examine the ways in which the inter‐paradigmatic context of the non‐profit sector contributes to the emergence of NPOs’ different normative positions on evaluation. We conclude that particular paradigmatic orientations of NPOs (positivism, interpretivism, constructivism) lead to particular perspectives on how NPOs should engage with alternative paradigms (monism, impartial pluralism, radical pluralism).     

Management Control Systems in NPOs: An Italian Survey

This paper tries to point out the role and the characteristics of management control systems (MCS) in organisations whose main goal is not for profit (NPO). Are MCS a necessary or (at least) a useful tool to manage these organisations? How have they to fit the typical nature of NPOs? Are the traditional control processes (planning, programming, budgeting, reporting) effective in NPOs? What kind of information do they use? What is the 'state of the art' and the degree of sophistication of MCS in NPOs? To address these issues, a survey has been conducted among 76 Italian NPO top managers, and the results are reported in this paper.     

Spreadsheet usage by management accountants: An exploratory study

Spreadsheets play an important role for managerial accountants. For these practitioners, spreadsheets are necessary tools for traditional responsibilities such as planning, budgeting, forecasting as well as newer decision-making responsibilities. Responsibilities for managerial accounting practitioners have shifted from a transaction-based focus to an emphasis on decision support, planning, and control. Managerial accountants are expected to be key members of decision making and cross-functional teams outside the accounting area. Spreadsheets are major tools for meeting these new responsibilities.     

The flight‐to‐quality effect: a copula‐based analysis

We derive and estimate a copula combining the features of the Frank and Gumbel copulas to analyse the relationship between equity and long‐term bond returns. Our analysis of quarterly returns from 1952 to 2003 finds that, in general, there is a positive relationship between equity returns and bond returns. In extreme situations, however, there is approximately a one‐in‐seven chance of a flight‐to‐quality effect where large negative equity returns are associated with large positive bond returns.     

Long‐Term post‐merger announcement performance. A case study of Australian listed real estate

This study examines the long‐term postmerger performance of Australian Real Estate Investment Trusts (A‐REITs). The A‐REIT sector is used as a case study being less vulnerable to agency issues due to its regulatory structure (Eichholtz and Kok, 2008; Ratcliffe et al., 2009). Research on conventional firms has shown, on average, shareholders are worse off in the long run (Alexandridis et al., 2012). In contrast, we find that shareholders experience significantly positive abnormal returns, after accounting for the financial crisis. This outcome suggests that when managers are restricted with the use of retained earnings and the type of investment, they may be less susceptible to hubris and/or agency issues.     

Searching most influential variables to brand loyalty measurements: An exploratory study

This research attempts to detect some brand loyalty key specific antecedent variables based on three groups of measurements: consumer involvement, perceived brand value (consumer brand equity), and customer satisfaction. Questions that drove the study were: which variables from which of the three dimensions would have the major effect on loyalty measurements? Would the explicatory variables be consistent across all product categories? 649 respondents were divided into six product categories. Regression models were obtained for each product category and for each loyalty measurement. Perceived brand value variables tended to have the higher impact on loyalty measurements. Self-identification with the brand (self-congruence) and perceived brand quality tended to be the variables with the major effect on loyalty measurements across all product categories.     

Consultant‐Researchers in Public Sector Transformation: An Evolving Role

This paper analyses the changing role of consultant‐researchers in the public sector, drawing empirically on a 12‐year interventionist project. The investigation focuses on the heterogeneity of participants’ contributions, and shows the researchers’ actions to be closely entangled with participants’ attitudes. Furthermore, the longitudinal study highlights the relevance of the changing reform and organisational setting in shaping these roles, such that the actors’ actions can be regarded as institutionally embedded. From this perspective, the roles are analysed across three dimensions – purposes, participation and learning – representing polar types on a broad spectrum.     

Regulatory Capital Charges for Too‐Connected‐to‐Fail Institutions: A Practical Proposal

The recent financial crisis has highlighted once more that interconnectedness in the financial system is a major source of systemic risk. I suggest a practical way to levy regulatory capital charges based on the degree of interconnectedness among financial institutions. Namely, the charges are based on the institution's incremental contribution to systemic risk based on a risk budgeting approach. The imposition of such capital charges could go a long way towards internalizing the negative externalities associated with too‐connected‐to‐fail institutions and providing managerial incentives to strengthen an institution's solvency position, and avoid too much homogeneity and excessive reliance on the same counterparties in the financial industry.     

An analysis of majority owner‐managed companies in the UK

This paper investigates the characteristics of 73 UK companies in which managers have an ownership stake of greater than 50 per cent. We find that majority owner‐managed companies make less use of alternative corporate control systems and are less likely to remove their chief executive officer or other board members following poor performance. However, our sample firms actually outperform diffusely held companies of similar size in the same industry. The determinants of majority control appear more closely related to the characteristics of the controlling shareholders rather than the firm's operating environment. Changes in the ownership structure of our sample companies owe more to changes in owner‐specific characteristics and security issuance than they are related to changes in the company's operating environment or company performance. We conclude that despite the obvious agency costs of managerial entrenchment for closely held companies, for the present sample at least the incentive alignment benefits of large director shareholdings are beneficial to outside shareholders.     

Cream‐Filled Cookies: An Assurance In‐Class Case

This case presents students with a case situation that they can visualize, resulting in some unique learning opportunities. The case is an assurance simulation centered on cookies that can be purchased in the grocery store that have a cream filling, and the same type of cookie but with twice as much cream filling. These cookies are manufactured by various companies including long‐standing brands and generic brands from national supermarkets. Given the popularity of these cookies, and the ease of access to them, they make for a perfect introductory simulation to students during their first assurance class. Mr. Cookie becomes a fictional character in the case to represent the client that the auditors are working for. The case is easy enough for students to work independently, and has been tested in both small and large classes; working equally as well. It does require the instructor to invest in some cookies and measurement tools such as rulers, plastic knives and weigh scales. The group discussion at the end consistently results in students gaining a greater understanding of the scope and limitations of assurance services, setting the foundation for the balance of the introductory assurance course.     

Interactive data and retail investor decision‐making: an experimental study

The results of an experimental study of retail investors' use of eXtensible Business Reporting Language tagged (interactive) data and PDF format for making investment decisions are reported. The main finding is that data format made no difference to participants' ability to locate and integrate information from statement footnotes to improve investment decisions. Interactive data were perceived by participants as quick and ‘accurate’, but it failed to facilitate the identification of the adjustment needed to make the ratios accurate for comparison. An important implication is that regulators and software designers should work to reduce user reliance on the comparability of ratios generated automatically using interactive data.     

Perceived costs and benefits of IFRS adoption in Saudi Arabia: An exploratory study

In response to a current lack of research in the Middle East, this study aims to critically evaluate the perceived costs and benefits associated with the adoption of International Financial Reporting Standards (IFRS) in Saudi Arabia, the world's leading oil and natural gas exporter. Using documentary analysis and interviews with stakeholders (account preparers from listed companies in Saudi Arabia, auditors from Big 4 and local accountancy firms, and university academics), the study contributes to the literature by concluding that the benefits of IFRS adoption in Saudi Arabia outweigh the costs. Importantly, a lack of qualified accountants, significant dependence on Big 4 accounting firms, inadequate coverage of IFRS in university education, and a lack of research are identified as major obstacles to the effective implementation of IFRS. The findings offer a possible policy agenda for local and international policy makers.     

Attribute differences between U.S. GAAP and IFRS earnings: An exploratory study

In this study we explore attribute differences between U.S. GAAP and IFRS earnings. Our study is motivated by the ongoing harmonization process in accounting standard setting as well as by recent convergence projects by the FASB and the IASB. We test two market-based earnings attributes, i.e., value relevance and timeliness, as well as two accounting-based earnings attributes, i.e., predictability and accrual quality. These attributes are tested for German New Market firms as they are allowed to choose between IFRS and U.S. GAAP for financial reporting purposes. Overall, we find that U.S. GAAP and IFRS only differ with regard to predictive ability. The fact that U.S. GAAP accounting information outperforms IFRS also holds after controlling for differences in firm characteristics, such as size, leverage and the audit firm. However, our results also seem to suggest that these differences are not fully valued by investors, as we do not observe significant and consistent differences for the value-relevance attribute.