Greg Whittred

Contracting cost determinants of GAAP for joint ventures in an unregulated environment

Abstract As in other countries, Australian accounting for unincorporated joint ventures varies systematically between firms in different phases in the extractive industries (explorer vs. producer). We argue that these differences in accounting method can be explained by differences in the type of assets and the manner in which they are owned and financed. We hypothesize that when unincorporated joint ventures are financed on a with-recourse basis they will be proportionately consolidated; when they are financed on a non-recourse basis one-line reporting is expected. Empirical results are consistent with this hypothesis and appear to generalize to the real estate industry.

The Time Series Behaviour of Corporate Earnings

Existing evidence indicates that the time-series behaviour of corporate annual earnings is well approximated by a random-walk, or some similar process. There is, however, little Australian evidence on this issue. This note presents the results of an investigation into the time-series behaviour of the annual earnings of a sample of relatively large Australian corporations. The conclusion, that successive changes in such earnings are well approximated by a random-walk, is consistent with the existing evidence.

The Diffusion of Tax Effect Accounting in Australia

Abstract This paper examines the impact of regulation and earnings management incentives on the evolution of tax effect accounting in Australia. Following the release of the first accounting standard on the issue the method spread roughly equally throughout the mining and industrial sectors. Amendments to the standard, which loosened the recognition criteria for tax loss carry forwards, led to a significant increase in the proportion of companies (particularly industrials) adopting income tax allocation. Subsequent amendments restricting such carry forwards were associated with a significant decline in the proportion of companies allocating tax (particularly miners). We also observe differential financial statement effects between mining and industrial companies and, within both sectors, differential financial statement effects across time. Consistent with the arguments of Leppinus (1977) and Gibson (1984) the adoption of tax effect accounting is, on average, earnings enhancing in the post-DS4 period. How...

Audit Qualifications and Share Prices: Further Evidence:

Employing a portfolio approach which controls directly for the sign (indirectly for the magnitude) of unexpected earnings, this study examines the stock markets reaction to qualified audit reports. There is no substantive evidence that qualifications affect equity prices in the month of their announcement. However, there is evidence that firms that receive certain types of qualification experience negative abnormal returns in the twelve months preceding this event.

The Trading Stock Valuation Adjustment and Economic Rents to Shareholders

In August 1976 the then Federal Treasurer foreshadowed the incorporation in the Income Tax Assessment Act, 1936 of a severely modified form of the Mathews Committees (1975) recommendations on trading stock. This paper documents the existence of substantial “tax-free” capital gains to those invested in the equity of affected companies, in particular retailer-merchants, at the time of this announcement. The observed price response was immediate and consistent with subsequent realizations of the “trading stock valuation adjustment” – both of which would be expected if capital markets are efficient.