The association between qualitative management earnings forecasts and discretionary accounting in the Netherlands

This paper examines whether there is an association between discretionary accounting and the accuracy of long-run forecasts of annual earnings disclosed voluntarily by Dutch companies in the directors’ report. In particular, investigations were made of the consistency in the sign and direction of discretionary accounting techniques and qualitative earnings forecasts. Long-run forecasts are defined, for the purposes of this paper, as forecasts made at least seven months before the year-end. Although not mandatory, qualitative forecasts are released by well over 60% of the listed companies in the Netherlands. Empirical results indicate that there is consistency in the sign and direction of qualitative earnings forecasts and discretionary accounting. After adopting discretionary accounting, the forecast errors are reduced if the company can reach the management earnings forecast (target). In the event that reserves are insufficient to accomplish this goal, managers choose their next best option and take an earnings bath in order to maximize reserves available for future use. By partitioning the sample in various sub-sets it is shown that earnings management and forecast errors occur most in the extreme ranges of financial performance. Overall, the study shows that management engages in discretionary accounting to present results in line with the disclosed qualitative earnings forecasts in their directors’ reports. Whilst discretionary accounting may clearly improve the consistency of companies’ earnings forecasts released via the directors’ reports and the actual earnings, managers’ earnings forecasts are sometimes disclosed in anticipation of planned discretionary accounting actions.     

Profitability analysis in UK organizations: An exploratory study

Recent research into management accounting practices suggests that companies are now placing considerable emphasis on profitability analysis and consider it to be one of the most important management accounting practices. There is however little recent empirical research relating to the content and role of profitability analysis in companies. This paper will address this omission and report the findings derived from a survey of UK companies relating to information that is contained in profitability reporting, generated for managing the existing mix of a firm's activities. In particular, it focuses on the nature, content and role of profitability analysis carrying out some exploratory analysis and testing various propositions to explain the divergence in observed practices.A distinctive feature of the research is that, unlike some previous research, rather than focusing on the information that is accumulated within the costing system it focuses primarily on the information that is extracted from it for different purposes. Not surprisingly we find that different information is extracted for profitability analysis than for pricing purposes. The research findings also indicate that firms use a hierarchy of profit measures within the periodic profitability analysis statements and that profitability analysis is used mainly for attention-directing purposes for signalling the need for more detailed studies. For profitability analysis, the findings suggest that, in terms of what is considered the most important attention-directing measure, the use of some form of full costs based on arbitrary allocations is not as widespread as that suggested by previous studies. Evidence is also presented to suggest that the level of cost system complexity influences the observed practices.     

Forecasts in IPO Prospectuses: The Effect of Corporate Governance on Earnings Management

Prior research suggests that managers may use earnings management to meet voluntary earnings forecasts. We document the extent of earnings management undertaken within Canadian Initial Public Offerings (IPOs) and study the extent to which companies with better corporate governance systems are less likely to use earnings management to achieve their earnings forecasts. In addition, we test other factors that differentiate forecasting from non‐forecasting firms, and assess the impact of forecasting and corporate governance on future cash flow prediction. We find that firms with better corporate governance are less likely to include a voluntary earnings forecast in their IPO prospectus. In addition, we find that while IPO firms use accruals management to meet forecasts; the informativeness of the discretionary accruals depends on whether or not the firm would have missed its forecast without the use of discretionary accruals.     

积极回应内部控制法案与管理层利润预测精度——基于日本数据的实证研究

以日本上市公司为研究对象,在考虑盈余管理行为的基础上分析并检验积极回应内部控制法案的上市公司是否具有较高的管理层利润预测精度。结果表明,那些委托会计师事务所构建和完善其内部控制系统以应对内部控制法案的上市公司具有较高的管理层利润预测精度。因此,有效的内部控制有助于企业实施全面预算管理。     

分析师为什么选择性的发布现金流预测?——基于信息需求理论的实证研究

分析师在对公司发布盈余预测的同时,还对一些公司发布了现金流预测。分析师为什么仅针对某些公司发布现金流预测?其动因何在?本文基于信息需求理论对上述问题进行了研究,研究发现,分析师针对现金流信息需求高的公司发布现金流预测的可能性更大。进一步发现,分析师更可能对非国有控股的公司发布现金流预测。本文首次基于我国独特的制度背景,研究分析师选择性发布现金流预测的动因问题。本文的结论有助于加深对分析师行为的理解,并对投资者决策具有一定的参考价值。     

ACCOUNTING FOR INSECURITY

This paper argues that modern systems of budgetary control are implicated in the exploitation and production of insecure forms of employment. The flexibility of direct labour is assumed at a very basic level in some of the core techniques of costing and budgetary control. Previous historical studies of the development of these forms of control, moreover, have shown that they were used to shift the costs of economic fluctuation from capital to labour as well as to encourage the efficient utilisation of human effort. In the light of these observations, it is to be expected that the use of budgetary targets which incorporate direct labour costs will: (1) be more prevalent where the workers are least able to resist the various forms of “flexibility”; and (2) encourage recourse to redundancies where the performance of business units within a company falls below expectation. The paper then tests these hypotheses against data from a recent survey of industrial relations practice in large UK companies. The results show, firstly, that there is a strong and positive association between the proportions of females and part-timers within the workforce and the use of unit labour costs and the direct labour cost/sales ratio as performance targets. Secondly, the use of return-on-investment (R.O.I.) targets is associated with the declaration of redundancies in business units which have failed to perform satisfactorily. For those to whom insecurity of employment constitutes a social problem rather than a managerial convenience to be celebrated as “flexibility”, these findings indicate that the accounting control systems typical of the modern company constitute part of the problem. The achievement of the long-standing trade union aim of security of income and employment will depend, in part, on changing these systems of control.     

The Rationale for Cost Allocation: a Study of UK Divisionalised Companies

This paper reports the results of an empirical study designed to examine how top management in divisionalised companies perceive central costs allocation for the purposes of performance evaluation. Data for the study were collected from senior management using a questionnaire survey. The empirical evidence shows that top management allocate costs to influence the behaviour of managers to take action in the best interests of the company as a whole. Following from this, top management perceive allocations as being likely to encourage the optimal utilisation of resources. However, top management perceive allocations as being unlikely to reduce both divisional managers' expenditure on perquisites and budgetary slack.     

A commentary on the applications of activity-based costing

Activity-based costing (ABC) has, within the last decade, generated a voluminous literature which has paralleled its increase in popularity with practitioners. This paper reviews ABC's potential by examining applications of it which extend throughout the core areas of management accounting. Consideration is given not only to how it has positively contributed to practice in these areas but also to its rationale and limitations to particular applications. Assessment is also made of how it interacts with longer established management accounting issues such as the variable versus fixed costing debate for income measurement and decision-making, the use of contribution margin analysis, organizational slack in the budgetary control process and conventional variance analysis. Some conclusions are drawn on its value to practitioners and researchers.     

Risk-based forecasting and planning and management earnings forecasts

This study examines the association between a firm’s internal information environment and the accuracy of its externally disclosed management earnings forecasts. Internally, firms use forecasts to plan for uncertain futures. The risk management literature argues that integrating risk-related information into forecasts and plans can improve a firm’s ability to forecast financial outcomes. We investigate whether this internal information manifests itself in the accuracy of external earnings guidance. Using detailed survey data and publicly disclosed management earnings forecasts from a sample of publicly traded U.S. companies, we find that more sophisticated risk-based forecasting and planning processes are associated with smaller earnings forecast errors and narrower forecast widths. These associations hold across a variety of different planning horizons (ranging from annual budgeting to long-term strategic planning), providing empirical support for the theoretical link between internal information quality and the quality of external disclosures.     

Fiscal Forecasting: Lessons from the Literature and Challenges*

While fiscal forecasting and monitoring has its roots in the accountability of governments for the use of public funds in democracies, the Stability and Growth Pact has significantly increased interest in budgetary forecasts in Europe, where they play a key role in EU multilateral budgetary surveillance. In view of the increased prominence and sensitivity of budgetary forecasts, which may lead to them being influenced by strategic and political factors, this paper discusses the main issues and challenges in the field of fiscal forecasting from a practitioner's perspective and places them in the context of the related literature.     

MANAGEMENT ACCOUNTING IN LOCAL GOVERNMENT

Most of the management accounting activity in local government has traditionally been thought of as being confined primarily to the requirements of budget preparation and budgetary control. The budget is generally recognised as being at the heart of planning, decision-making and control and yet there have been many examples of the limitations in conventional budgeting and budgetary control practices being pointed out. It might have been expected that the period of consistent financial stringency faced by local government from 1979 onwards would have quickly exposed any limitations and brought about changes. In reality it seems that the management accounting and budgeting practices in local government responded surprisingly slowly to the financial pressures and it is only with the relatively recent introduction of the 'private sector' philosophies of devolved management and market testing that widespread developments in management accounting have begun to occur. Many of these developments are still evolving and because of this it seemed inappropriate at this stage to attempt a cross-sectional survey of current practices. This paper therefore concentrates on the position in two specific local authorities and examines the current DSO accounting practices. In addition, the analysis undertaken by one of the authorities of the steps needed to implement internal trading accounts for financial support services is discussed and the interesting experimental attempt by one of the authorities to introduce zero base budgeting for a major service is also examined.     

Ritual legitimation, de-coupling and the budgetary process: managing organizational hypocrisies in a multinational company

The study of participation in the budgetary cycle has formed a prominent part of the research literature concerned with the budgetary process. More recently there has emerged a body of literature concerned with exploring the political and symbolic nature of the budgetary process. The paper reports upon the outcomes of an empirical study of the introduction of `budgetary participation' in a division of a European subsidiary of a large North American car manufacturer. We detail the long process of consultation and negotiation within the subsidiary, and between it and the European Headquarters. The study provides a revealing instance of the roles of formal budget participation as a ritual of control and legitimation without the substantive involvement of middle managers and suggested to us the introduction of de-coupling and organizational hypocrisy alongside the introduction of budget participation. The study pays close attention to the contingent effects of the wider political context of the division and the relationships between the division, its organizational context and organizational environment, and how this context played upon the budgetary process in the division. The outcomes that we analyse at `Delta' reflect the de-coupling strategies and organizational hypocrisies commonly found in public sector organizations. In this wider setting the corporation persists with the ritual of `tight' budget negotiation and target setting and apparent underachievement in performance. Yet we conclude that the complex technological and political context to the formation and siting of Delta continued and may continue to support its existence.$g0     

DEVOLVED BUDGETARY MANAGEMENT IN LOCAL GOVERNMENT: LESSONS FROM A SHIRE COUNTY

The changing environment of public sector organisations has, in recent years, focused attention on the management processes employed to achieve effective service delivery as economically and efficiently as possible. One approach has been the importation into the public sector ofa number ofprivate sector management strategies and practices, most notably those based on devolved bud- getary management principles. This paper analyses the approach of a large local authority to the implementation of devolved budgetary management, based, in large part, on interviews with line managers to whom budgets were devolved. It examines the process of devolution within the authority and the reactions of line managers to that process. It concludes that while the implementation of truly devolved budgetary management is an important, and perhaps essential, managerial technique in the 'new' local government environment, it should not be implemented in ways which ignore the differ- ences between public and private sector organisations and between different local authority departments.     

财产保险公司资产负债管理多维量化评估体系研究

良好的资产负债管理是保险业可持续发展的基石,也是支持保险业在日益复杂的风险环境中保持稳健发展、防范系统性风险的重要保障。近年来,随着我国金融市场发展,业务产品创新加快,保险业在资产端与负债端的业务结构和风险特征出现了新情况、新变化。特别是部分保险公司缺乏有效的治理结构,采取激进经营、激进投资的策略,导致业务快进快出、风险敞口过大以及流动性问题,对保险公司资产负债匹配管理、风险控制提出了挑战。本文介绍了财产保险公司资产负债多维度量化评估规则设计原理、主要评估模型和评估方法,针对财产保险公司的负债特性提出的沉淀资金匹配,在成本收益匹配中有机地将资产投资收益与承保业务综合成本进行匹配,在现金流匹配模式中打破了僵化的匹配模式,解决了长期困扰财产保险公司的资产负债期限不匹配的问题,对财产保险公司资产负债管理具有重要意义。     

高铁能提升分析师盈余预测的准确度吗?——来自上市公司的证据

本文搜集了2006-2016年中国201个地级市高铁开通的情况,并匹配了A股1,244家上市公司的面板数据,利用双重差分(DID)模型,研究了高铁开通对证券分析师盈余预测的影响。研究结果显示:高铁通车之后,分析师盈余预测的精准度显著提升,分歧度和乐观度显著下降。进一步考察高铁发挥作用的内在机制,发现高铁开通显著增加了对沿线公司进行实地调研的分析师数量及人均调研次数。高铁开通对分析师盈余预测的影响存在异质性,影响主要体现在信息处理成本较低的企业、公司治理水平较好的企业以及分析师面临买方压力较小的企业中。动态地来看,高铁开通对分析师盈余预测的影响主要体现在通车两年以后。此外,在利用工具变量法、控制飞机出行以减少内生性问题之后,上述结论仍稳健。这说明高铁的开通改善了资本市场的信息环境,使得分析师能够更好地扮演信息中介的角色。文章较早研究了高铁开通对分析师盈余预测的影响,揭示了高铁在金融市场的信息传导效应。     

Estimating the Cost of Capital Using Stock Prices and Near‐term Earnings Forecasts

Earnings‐based valuation models, although long used by finance practitioners, have become increasingly popular among finance academics as well. Among the most important reasons for academics' increased acceptance of earnings‐based valuation is the well‐documented claim that earnings over a short (three‐ to four‐year) forecast horizon tend to capture a large fraction—as much as 80%—of today's value, much more than is captured by near‐term forecasts of free cash flow, the measure long advocated by finance theorists as the basis for DCF valuation. But most important for the purposes of this article, the recognition that such a large percentage of the current values of many public companies is captured within a short forecast horizon has led to a large academic literature that uses earnings‐based valuation models together with current stock prices to “back out” estimates of the companies' implied expected rates of return and costs of equity capital. The effectiveness and precision of such reverse engineering depend on the reliability of the forecasts both within a finite forecast horizon and beyond. And although the models tested in academic work, which are based on large samples of forecasts and hard‐to‐verify assumptions about earnings beyond the forecast horizon, often do not appear to provide useful estimates, the author argues that such reverse engineering of the valuation models should become straightforward and workable once reliable forecasts of earnings are obtained—say, from the corporate (or investment) analysts who are familiar with the operations of the companies they work for (or cover).     

Budgeting, the individual and the capital market: A case of fiscal stress

Budgetary control is a major aspect of management control. It has undergone major shifts of emphasis in both the literature and practice in the later part of the 20th century. A significant influence on the changing practices of this aspect of control has been the growth of and increased influence of the capital market. This paper draws on a detailed field study focusing on the problematic nature of budgetary control in a changing operational environment that acknowledges both the importance, internally, of the organisation members and their contribution to continued growth—and externally the growing influence of shareholders on business operations. The focus of the paper is on the effects of the constant pressure of the share price on the case unit of analysis and how that changed the use of the budgetary control system. This change is illustrated both at a macro level of organisational accountability for predicted results and also as it is driven down the organisation to the level of the individual.     

Deviation-amplifying feedback and unintended consequences of management accounting systems

The concept of deviation-amplifying feedback is introduced, and its potential for providing insights into unintended consequences of management accounting systems is discussed. Specific applications of deviation-amplifying feedback to various aspects of a budgetary control system are explored. Then more general implications of deviation-amplifying feedback for management accounting systems are elaborated.     

Contingencies influencing the management accounting practices of Estonian manufacturing companies

Having regained independence in 1991, Estonia has undergone fundamental political and structural changes over the last decade, which have also affected the operation of its companies. This paper examines the management accounting practices of Estonian manufacturing companies, exploring the main impacts on them within a contingency theory framework. The methodology comprises an analysis of 62 responses to a postal questionnaire survey carried out among the largest Estonian manufacturing companies. It is comparatively infrequently that Estonian manufacturing companies have made improvements in their cost accounting methods, although the majority of respondents appear to acknowledge the importance of these practices in finding and lowering real product costs and modernizing the cost accounting systems. The effectiveness of an accounting systems’ design depends on its ability to adapt to changes both in external circumstances and internal factors. We have found some evidence that changes in cost and management accounting practices are associated with shifts in the business and accounting environment as external contingencies, and with those in technology and organizational aspects as internal contingencies. This research aims on the one hand to confirm earlier findings related to the ‘contingent factors’ that influence management accounting and on the other, to identify possible new factors, such as, for example, the legal accounting environment and shortage of properly qualified accountants.