Compliance and Controversy: The AAS 25 Reporting Paradox

The adoption of AAS 25, which specifies uniform reporting requirements for superannuation funds, has been particularly controversial. While the Australian Accounting Research Foundation (AARF) has maintained that uniform reporting practices for superannuation funds are necessary to provide performance information to investors, the superannuation industry has argued that AAS 25 will cause "confusion, misunderstanding and unnecessary concern among fund members". Although the controversy has been widely reported, little information has emerged about the extent to which funds were already complying, or substantially complying, with the standard. This paper reports the results of a survey which indicates, contrary to expectations, that in the two years before the introduction of AAS 25 most funds were reporting in a way which would effectively comply with provisions of the standard.     

Applying Conceptual Framework Principles to Superannuation1 Fund Accounting

The Australian accounting standard AAS 25, Financial Reporting by Superannuation Plans, was the first pension accounting standard internationally to apply established conceptual framework (CF) principles. In Australia those principles have guided standard setting for more than a decade. However, AAS 25 has been criticized for failing to provide useful financial information. The analysis provided in this article addresses this paradox. The findings reveal major anomalies in AAS 25 associated with the treatment of accrued benefits that distort financial position and performance measures. The conceptual flaws in the standard are attributed to the misapplication of CF principles and an absence of adequate guidance in the CF for non‐corporate entities such as superannuation funds. Distorted financial information produced by superannuation plans has potential undesirable taxation and social outcomes. Consequently, there is an urgent need to update the Australian and international conceptual frameworks to provide guidance for revising accounting standards that better reflect current fiduciary and ownership relationships in non‐corporate entities such as superannuation funds.     

The Relevance of AAS 29 to the Australian Public Sector: A Cause for Doubt?

In December 1993, the AARF issued Australian Accounting Standard AAS 29, Financial Reporting by Government Departments . The Standard requires all Australian government departments (GDs) to adopt comprehensive accrual financial reporting no later than 30 December 1996. Given the magnitude and potential financial cost of these reforms, the claimed benefits of AAS 29 justify empirical investigation and scrutiny. The purpose of the present study was to test underlying rationales of AAS 29 by reference to ratings and opinions of 172 federal and state GDs in Australia. The key rationale of AAS 29 is that accrual-based financial reports will be relevant to the economic decision making of GDs and their external users. While the empirical results presented in this paper are confined to the internal viewpoints of senior GD officials and representatives, they cast into doubt the relevance of AAS 29 in the Australian public sector.     

Disclosure of liquidity and cash flow statements by Australian superannuation funds before Covid-19

The Commonwealth's stimulus package required the unexpected distribution of cash by superannuation funds to members during the Covid-19 pandemic. We focus on disclosure and maintenance of an operational risk financial reserve and reporting of the statement of cash flows in annual reports by Australian superannuation funds. These disclosures represent mandated sources of information providing evidence of liquidity levels for meeting cash payouts and disclosure adherence. Many funds did not meet their statutory reporting requirements. More members and higher union board membership as measures of stakeholder power explain higher disclosure in support of managerial stakeholder theory.     

The Role of the Auditor in Modern Society: An Exploratory Essay

This paper examines competing proprietary and political cost arguments for incentives facing managers of different types of Australian and UK pension fund, to voluntarily disclose pension liability information in annual reports sent to their participants. For Australian defined benefit pension funds, the disclosure reveals the fund's actuarial surplus or deficit, which conveys information to participants about the pension fund's ability to generate future cash flows. Tests are conducted on the voluntary reporting practices of a sample of 119 Australian and 100 UK pension funds, using variables which prior research suggests affects their financial valuation and performance. The empirical results support predictions that managerial discretionary disclosure carries proprietary cost implications for Australian defined benefit pension funds, as proxied by their investment risk and funding ratio, and political cost implications for Australian defined contribution and UK defined benefit pension funds, as proxied by their size.     

Is conservative reporting attractive to foreign institutional investors? Evidence from an emerging market

This study investigates the relation between conservative reporting and foreign institutional ownership using a unique dataset of firms in Turkey. In doing so, we distinguish between foreign funds and corporations. Contrary to prior findings, our analysis shows that conservative reporting is not necessarily a desirable accounting feature for foreign institutional investors. We also find that the interplay between conservative reporting and ownership is significantly different between foreign funds and corporations. The estimated negative relation holds only for foreign funds. Further analysis reveals that foreign funds do not find conservative reporting desirable in low-asymmetric information firms and reduce ownership with greater accounting conservatism in such firms. The analysis sheds significant lights on the relevance of conservative reporting in alleviating the negative consequences of asymmetric information.     

Are Superannuation Disclosures in Company Financial Reports Useful?

An analysis of superannuation disclosures in the financial reports of 120 public companies shows surprisingly frequent instances of non-compliance with AASB 1028. This is attributed to inherent weaknesses in the mandatory disclosure requirements. Significant problems include inconsistencies in the reporting of information about hybrid superannuation funds sponsored by companies, absence of timeliness, and non-disclosure of contribution holidays. These findings suggest that present superannuation disclosure requirements do not meet the objective of providing useful information for decision-making.     

Are Superannuation Disclosures in Company Financial Reports Useful?

An analysis of superannuation disclosures in the financial reports of 120 public companies shows surprisingly frequent instances of non-compliance with AASB 1028. This is attributed to inherent weaknesses in the mandatory disclosure requirements. Significant problems include inconsistencies in the reporting of information about hybrid superannuation funds sponsored by companies, absence of timeliness, and non-disclosure of contribution holidays. These findings suggest that present superannuation disclosure requirements do not meet the objective of providing useful information for decision-making.     

Exploring the information content of cyber breach reports and the relationship to internal controls

A number of institutions make reports available regarding the types, impacts, or origins of cybersecurity breaches. The information content of cyber breach reports is examined in light of Principle 15 of the 2017 Committee on Sponsoring Organizations Enterprise Risk Management (COSO ERM) information security control framework to understand the degree to which cyber breach reports reflect the established COSO internal control framework. This study utilizes the COSO ERM internal control framework to examine whether current cyber breach reports contain information that may influence a firm’s ability to assess substantial change within its industry due to external forces (COSO ERM Principle 15). As such, this study focuses on data breaches, a special type of cyber incident, which may result in the loss of confidential information. Cyber decision makers rely on this type of information to calibrate information security programs to ensure coverage of relevant threats and the efficient use of available funds. These reports may be used for the purposes of cybersecurity risk assessment and strategic planning. We compare, contrast, and analyzie the reports to identify their utility in such contexts. We also provide an overview of the current cybersecurity reporting environment and suggest revisions to US national cyber policy with the intent of increasing the benefit to reporters and consumers of the data.This study is focused on education as to the current structure of breach reporting based upon our review and synthesis of publicly-available breach reports.In this study, we review nine (9) reports that meet four (4) criteria. We relate these criteria to the framework provided by COSO ERM Principle 15 by analyzing and placing the criteria into a taxonomy developed for this purpose. We analyze the degree to which the reports are complementary, reflect potential improvements of internal controls, and provide recommendations for ways in which these types of reports might be used by practitioners, while highlighting potential limitations. Our findings indicate that the sample reports contain little information that may be incorporated to improve the risk profile of an entity. We provide recommendations to improve the information content and timeliness of breach reports.     

Application Of The Reporting Entity Concept To Universities

The Australian Accounting Research Foundation's Statement of Accounting Concept 1 "Definition of the Reporting Entity" refers to dependent users and outlines three factors to be considered in determining whether dependent users exist. This study applies these factors to the tertiary education sector and concludes that public-sector universities can legitimately be deemed reporting entities and should produce financial reports that fully comply with Australian accounting standards and concepts. In the light of this conclusion, the universities' annual reports are examined to determine whether there has generally been compliance. The study finds that 90% of the sampled university reports deviate from Australian accounting standards.     

Welfare Effects of Timely Reporting

A principal-agent model is examined in which a manager acquires private cost information sequentially. All possible communication schemes are equivalent to one of two: (1) timely reporting, where the manager reports as soon as possible, and (2) delayed reporting, where the manager delays the report of the first of two signals. In the primary case identified, timely reporting is shown to be owner valuable. However, the manager is better off under delayed reporting. Finally, total expected surplus is shown greater under delayed reporting. The owner's benefit from timely reporting is less than the manager's loss.     

HEDGE FUNDS: WHAT DO WE KNOW?

Hedge funds are attracting increased attention because of their reputation for earning superior (risk-adjusted) returns. Hedge Fund Research Inc. estimates that in 2001 there were about 7,000 hedge funds with investor capital of about $600 billion. And yet the diversity of hedge funds, combined with a general lack of transparency, makes the hedge fund industry something of a "black box."
This article provides an overview of the legal structure of hedge funds, the various fund investment strategies, and the existing research on overall hedge fund performance. Without uniform and comprehensive reporting requirements, it is difficult to ascertain the size and scope of hedge fund investments. Nonetheless, current research provides persuasive evidence that hedge funds earn positive risk-adjusted returns, on average, in contrast to their counterparts in the mutual fund industry. In an attempt to explain these higher returns, the authors begin by noting that hedge funds are subject to considerably less regulation than other investment institutions because their client base is limited to wealthy individuals and institutions. Hedge funds can thus employ investment strategies that mutual funds and pension funds are prohibited from pursuing, such as short selling, high leverage, derivatives, concentrated holdings, and limited redemptions. As a result, the funds may be able to earn excess returns by operating in illiquid and specialized markets where there is a shortage of arbitrage capital. At the same time, and perhaps even more important, hedge funds are in a better position than conventional mutual funds to attract skilled managers because of their use of performance-based incentive fee structures.     

Should hedge funds be cautious reporting high returns?

In a recent article, Schuster and Auer (2012) show that fund managers with a certain positive performance need to be aware of the fact that too high prospective excess returns can lower the empirical Sharpe ratio of their funds. In this note, we investigate the empirical relevance of this effect. We analyse whether hedge funds being evaluated on the basis of the Sharpe ratio negatively influence their performance by reporting too high returns. Our results show that a economically significant number of hedge funds listed in the CISDM hedge fund database has at least once reported a high return causing this effect.     

Regulation of accountancy and the power of capital: some observations

In response to Briloff’s study of the regulation of fraudulent financial reporting in the USA, this paper examines the regulation of financial reporting and auditing in the UK. In common with Briloff, it reports that little effective regulatory action is taken against auditing firms implicated in audit failures and/or the publication of “defective" financial statements. Seemingly, as major fraction of international capital, auditing firms have colonised and captured the state to shield themselves from regulatory action.     

The investment behavior of buyout funds: Theory and evidence

We analyze the determinants of buyout funds’ investment decisions. We argue that when there is imperfect competition for private equity funds, the timing of funds’ investment decisions, their risk-taking behavior, and their subsequent returns depend on changes in the demand for private equity, conditions in the credit market, and fund managers’ ability to influence perceptions of their talent. We investigate these hypotheses using a proprietary dataset of 207 U.S. buyout funds that invested in 1,957 buyout targets over a 30-year period. Our dataset contains precisely dated cash inflows and outflows in every portfolio company, links every buyout target to an identifiable buyout fund, and is free from reporting and survivor biases. Thus, we are able to characterize every buyout fund's precise investment choices. Our findings are as follows. First, established funds accelerate their investment flows and earn higher returns when investment opportunities improve, competition for deal flow eases, and credit market conditions loosen. Second, the investment behavior of first-time funds is less sensitive to market conditions. Third, younger funds invest in riskier buyouts, in an effort to establish a track record. Finally, following periods of good performance, funds become more conservative, and this effect is stronger for first-time funds.     

Pension Accounting: How Large Australian Companies are 'Paying Up' for Superannuation

In Australia accounting requirements for companies to report on superannuation fund costs substantially lag those overseas and are unsettled. Superannuation commitments for defined-benefit funds are required to be disclosed by sponsoring employers, although corporations are not required to disclose interests in defined-contribution funds. This paper documents the extent of companies' annual report disclosures of interests in defined-benefit superannuation funds. The paper also reviews the debate on pension accounting overseas and examines the impact of AASB 1028 on the reporting practices of sponsoring firms.     

Timeliness of corporate and audit reports: Some empirical evidence in the French context

The issue of timeliness of financial reporting, an important qualitative characteristic of accounting information, has received much attention from regulatory and professional bodies in France in recent years. The increasing presence of international investors, particularly from the US, on the Paris Stock Exchange adds to the importance of this issue. The timeliness of corporate and audit reports in the French context is analyzed by examining the trend in reporting delay of companies, the effect that qualified reports have on the timeliness of corporate reporting, and the relationship between reporting behavior and types of audit reports over a 10-year period. The data are taken from more than 5000 annual reports of French publicly held companies for the years 1986-1995. These bear witness to an improvement in timeliness of corporate and audit reports. This improvement is greater for reports from consolidated accounts of groups than those from annual accounts of companies. There is also evidence that qualified audit opinions were released later than unqualified opinions and that, in general, the more serious the qualification, the greater the delay.     

Assessing the effectiveness of financial reporting harmonization for emerging market banks: The case of Banco Serfin

In the last decade there has been a proliferation of financial crises in emerging markets. To some extent, the suddenness and magnitude of some of these crises have been blamed on poor financial reporting standards for bank loan losses. As a result, prior to providing countries with “financial bailout” funds, international investors and international financial organizations have increasingly required that countries harmonize their bank financial reporting standards with international financial reporting standards.Given this trend, this case requires students to assess the effectiveness of efforts to harmonize loan financial reporting (with International Financial Reporting Standards) for Mexican banks during (and after) the country’s financial crisis of the late 1990s. Students are required to assess the extent to which both pre-crisis standards as well as new, post-crisis standards complied with international financial reporting standards. They are also required to assess the impact of the new standards on the reporting practices for loans of one particularly troubled financial institution. Through the examination of this institution’s accounting practices for loans, students obtain a familiarity of the shortcomings of emerging markets’ banks’ loan financial reporting as well as the factors which influence the adoption of international financial reporting standards by emerging market banks.     

新公共治理、政府绩效评价与我国政府财务报告的改进

新公共治理是近年来全球范围内政府治理模式变革的最新发展趋势,体现了契约政府的本质。政府绩效评价作为新公共治理得以实施的先进管理机制和战略工具,需要政府财务报告作为信息平台和制度基础,而现行的政府财务报告无力承担这一重任,所以探索绩效评价取向的政府财务报告改进问题具有迫切的现实意义。本文提出了绩效评价取向的政府财务报告目标、报告主体和报表编制基础的改进思路,在借鉴西方国家政府财务报告建设经验的基础上设计了包括绩效报告在内的多层次、复合型的政府财务报告体系。     

Superannuation in Society: What are the Accountability Relationships and is there a Role for (Group) Accounting?

Superannuation fund reporting is a topical issue: it is in a state of flux and currently on the Australian Accounting Standards Board (AASB) work program for 2012, with the release of ED 223 Superannuation Entities in December 2011. Issues under debate include uncertainty regarding the users of superannuation financial reports, and the application of the principle of ‘transaction neutrality’ to accounting for corporate groups by superannuation entities. Accountability reporting by superannuation funds has remained largely unchanged since the introduction of compulsory superannuation 20 years ago. This paper describes the changing nature of superannuation from a managerial gratuity to a type of deferred pay, and how accounting for superannuation is likely to increase in significance as it responds to the shifting economic nature of superannuation, especially since the global financial crisis. This paper uses basic content analysis to analyse member submissions to the Australian Government's Review into Governance, Efficiency, Structure and Operation of Australia's Superannuation System 2009, and submissions to the AASB's consultation paper on consolidation accounting for superannuation entities in 2007. Limited characterisations of members as being not interested in financial reporting are out of step with the underlying nature of superannuation, and will likely change as the economic significance of superannuation increases in the future.