A Proposal to Replace 'True and Fair View' With 'Acceptable Risk of Material Misstatement'

This article examines argumentation factors which affect the truth of an audit opinion. We propose that the auditor's report be revised to replace the words 'true and fair view' with 'acceptable risk of material misstatement'. This would better align the communication of auditors with the characteristics of accounting information upon which they report. Adoption of the wording 'acceptable risk of material misstatement' will facilitate a better appreciation by users of financial statements of the accounting estimates in financial statements.     

Exchangeability, Correlation, and Bayes' Effect

We examine the difference between Bayesian and frequentist statistics in making statements about the relationship between observable values. We show how standard models under both paradigms can be based on an assumption of exchangeability and we derive useful covariance and correlation results for values from an exchangeable sequence. We find that such values are never negatively correlated, and are generally positively correlated under the models used in Bayesian statistics. We discuss the significance of this result as well as a phenomenon which often follows from the differing methodologies and practical applications of these paradigms – a phenomenon we call Bayes' effect.     

Social Capital: The World Bank's Fungible Friend

Book reviewed in this article:
Christian Grootaert and Thierry van Bastelaer (eds), The Role of Social Capital in Development: An Empirical Assessment     

Democracy and environmental quality

We develop and estimate an econometric model of the relationship between several local and global air pollutants and economic development while allowing for critical aspects of the socio-political-economic regime of a State. We obtain empirical support for our hypothesis that democracy and its associated freedoms provide the conduit through which agents can exercise their preferences for environmental quality more effectively than under an autocratic regime, thus leading to decreased concentrations or emissions of pollution. However, additional factors such as income inequality, age distribution, education, and urbanization may mitigate or exacerbate the net effect of the type of political regime on pollution, depending on the underlying societal preferences and the weights assigned to those preferences by the State.     

Stock markets, banks, and economic growth: Empirical evidence from the MENA region

Over the last four decades, a wide theoretical debate is concerned with the fundamental relationship between financial development and economic growth. Recent studies shed some light on the simultaneous effect of banks and financial system development on growth rather than a separate impact. The empirical study is conducted using an unbalanced panel data from 11 MENA region countries. Econometric issues will be based on estimation of a dynamic panel model with GMM estimators. Thus, peculiarities of MENA region countries will be detected. The empirical results reinforce the idea of no significant relationship between banking and stock market development, and growth. The association between bank development and economic growth is even negative after controlling for stock market development. This lack of relationship must be linked to underdeveloped financial systems in the MENA region that hamper economic growth. Then, more needs to be done to reinforce the institutional environment and improve the functioning of the banking sector in the MENA region. Based on these results, other regions at the same stage of financial development such as Africa, Eastern Europe or Latin America should improve the functioning of their financial system in order to prevent their economies from the negative impact of a shaky financial market.     

Decentralization via Federal and Unitary Referenda

This paper studies a model where the power to set policy (a choice of project) may be assigned to central or regional government via either a federal or unitary referendum. The benefit of central provision is an economy of scale, while the cost is political inefficiency. The relationship between federal and unitary referenda is characterized in the asymptotic case as the number of regions becomes large, under the assumption that the median project benefit in any region is a random draw from a fixed distribution, G. Under some symmetry assumptions, the relationship depends only on the shape of G, not on how willingness to pay is distributed within regions. The relationship to Cremer and Palfrey's “principle of aggregation” is established. Asymptotic results on the efficiency of the two referenda are also proved.     

Networks,Infrastructure and the New Task for Regulation. Werner Sichel and Donald L. Alexander,editors.

Review of Industrial Organization -     

Towards A New Approach to Development Management1

Abstract: Since attaining political independence African countries have achieved significant improvements in a number of social welfare indicators. However, the record of socio-economic development in Africa is generally poor both in absolute terms and in comparison with other regions of the world. Various reasons have been given for Africa's poor development record. This paper suggests that approaches to development management so far adopted in Africa are inadequete, and it propose the conceptual elements for a new approach to development management. Résumé: Depuis leur accès à I'indépendance, un certain nombre d'indicateurs de bien-être social des pays africains se sont très nettement améliorés. Toutefois, les résultats concernant le développement socio-économique de l'Afrique est, en règle générale, médiocre en chiffres absolus et si on le compare avec d'autres régions du monde. Pour expliquer ces résultats, divers raisons ont été avancées. Ce document donne à penser que les approches adoptées jusqu'ici en Afrique, touchant la gestion du développement, sont inadaptées à la situation. L'auteur propose donc des éléments conceptuels pour une nouvelle approche de la gestion du développement     

THE VOLUNTARY PRESENTATION OF VALUE ADDED STATEMENTS IN AUSTRALIA: A POLITICAL COST PERSPECTIVE

This paper explores corporate management's incentive to voluntarily disclose Value Added Statements in their yearly financial reports. Adopting a political cost perspective, hypotheses relating Value Added Statement disclosure to labour intensity, corporate tax payments, rate of return, size and industry volatility are developed. Using a sample of Australian publicly listed companies, the results of our empirical testing support the hypotheses that the decision to voluntarily disclose Value Added Statements is related to a company's size (in terms of both market concentration and profitability), a proportional measure of tax payments and the industry to which it belongs. Labour intensity and rate of return were found to be unrelated to the voluntarily disclosure of Value Added Statements.