Jean Bédard

Corporate Governance and Earnings Management

This study investigates whether a firms corporate governance practices have an effect on the quality of its publicly released financial information. In particular, we examine the relationship between audit committee and board of directors characteristics and the extent of corporate earnings management as measured by the level of positive and negative discretionary accruals. Using two groups of US firms, one with relatively high and one with relatively low levels of discretionary accruals in the year 1996, we find that earnings management is significantly associated with some of the governance practices by audit committees and boards of directors. For audit committees, income increasing earnings management is negatively associated with a larger proportion of outside members who are not managers in other firms, a clear mandate for overseeing both the financial statements and the external audit, and a committee composed only of independent directors that meets more than twice a year. We also find that short-term stocks options held by non-executive committee members are associated with income increasing earnings management. Income decreasing earnings management is negatively associated with the presence of at least a member with financial expertise and a clear mandate for overseeing both the financial statements and the external audit. For the board of directors, we find less income increasing earnings management in firms whose outside board members have experience as board members with the firm and with other firms. We also find that larger board, the importance of the ownership stakes in the firm held by non-executive directors, and experience as board members seems to reduce income decreasing earnings management. Our results provide evidence that effective boards and audit committees constrain earnings management activities. These findings have implications for regulators, such as the Securities and Exchange Commission (SEC), as they attempt to supervise firms whose financial reporting is in the gray area between legitimacy and outright fraud and where earnings statements reflect the desires of management rather than the underlying financial performance of the company, as pointed out by the Blue Ribbon Committee (1999).

Expertise in auditing: Myth or reality?

Abstract This article presents a critical review of the existing research literature on expertise in auditing and explores useful avenues for future research. The review is organized around the two main approaches that have been used to study expertise in auditing—the behavioral and the cognitive approaches. The concept of expertise within these two approaches is examined. Results from studies using the behavioral approach indicate that expert auditors do not behave differently from novice auditors. Possible reasons for this lack of significant difference are discussed in the article. Results from studies using the cognitive approach are more encouraging. They indicate that there may be knowledge differences between expert and novice auditors and that these differences might lead expert auditors to use decision processes that differ from those used by novice auditors. Our knowledge about expertise in auditing is, however, still embryonic and there is a need for more research.

Formation of chromitites by assimilation of crustal pyroxenites and gabbros into peridotitic intrusions: North Arm Mountain massif, Bay of Islands ophiolite, Newfoundland, Canada

The lowermost crust of the North Arm Mountain massif, Bay of Islands ophiolite, is dominated by peridotitic intrusions that assimilated and reacted with host gabbros, pyroxenites and peridotites. Cr-spinel is a common accessory and locally forms chromitite layers, schlieren, or rims. Thermobarometric calculations and fractionation models suggest that the Cr-spinels formed at oxidation states between QFM and QFM+1.5. Postcumulus and subsolidus diffusional exchanges with silicate minerals increased the Fe/Mg ratio of Cr-spinels at North Arm but cannot explain the diversity of Cr-spinel Cr/Al. Nor can closed or open-system fractional crystallization of a single parental magma in cotectic proportions generate the required range of Cr/Al in Cr-spinel. Either a variety of primary magmas was present or the Cr/Al ratio of the melt was perturbed by assimilation of host rocks, with assimilation inducing crystallization of spinel in greater than cotectic proportions. Outcrop-scale structures and phase relationships suggest that high-Cr/Al chromitites that are associated with contacts between intrusive peridotites and host pyroxenites are by-products of the incongruent dissolution of pyroxenes into a Cr-spinel-saturated magma. Aluminous chromitites occur higher in the section, in association with hybrid feldspathic peridotites and gabbros that formed by disaggregation of feldspathic cumulates into peridotitic intrusions. These rocks commonly have disseminated anhedral Cr-spinels and may also contain thin chromitite schlieren, both with low Cr/Al spinels. The disseminated Cr-spinels fill dissolution pits in feldspar xenocrysts, implying that they formed by incongruent dissolution of feldspar. The H2O needed to stabilize the amphibole included in the low-Cr/Al Cr-spinels was probably derived from the reactant gabbros, many of which were previously affected by subseafloor alteration. Locally, chromitites and disseminated Cr-spinels have higher concentrations of Ti, V, Fe2+, and Fe3+, which we attribute to assimilation of gabbros rich in Fe-Ti oxides. The composition of Cr-spinels in chromitites at North Arm depends more on the nature of the minerals being assimilated than on the composition of the magma.

Interactions between melt and upper-mantle peridotites in the North Arm Mountain massif, Bay of Islands ophiolite, Newfoundland, Canada: Implications for the genesis of boninitic and related magmas☆

Abstract Upper-mantle tectonites forming the basal part of the North Arm Mountain (NAM) massif ophiolitic sequence are dominantly refractory harzburgites, grading upward to Iherzolites near the contact with the overlying crust, and downward to coarse-grained lherzolite close to the metamorphic sole. The tectonites are cut by numerous pyroxenitic dykes ranging from orthopyroxenite, to websterite, to clinopyroxenite, and containing variable amounts of olivine, spinel and disseminated FeNi-sulphides. Microprobe traverses were executed from the core to the rim of several pyroxenite dykes, through the wallrock peridotites and into distal host peridotites. Wallrock peridotites recorded complex mineral modal and chemical variations suggesting that major dissolution-precipitation reactions occurred between minerals of the wallrock peridotites and intrusive melts, involving CrAl and MgFe solid solution exchanges between olivines, pyroxenes, spinels and migrating melts, and selective dissolution of clinopyroxene from wallrock peridotites into migrating melts. There is a general trend of modal clinopyroxene increase and FeAl enrichment among minerals of the pyroxenites along the mantle section, from deeper orthopyroxenites toward websterites and clinopyroxenites located near the crust-mantle interface. This suggests that clinopyroxene-bearing intrusions crystallized from the most evolved members of magmas related to the pyroxenites. Fractionation and interaction processes could both have led NAM migrating melts to Al2O3 and FeO enrichment, and CaO enrichment leading towards saturation in clinopyroxene. Magma compositions that would be in equilibrium with intro-mantle intrusive pyroxenites show similarities in composition and evolutionary trends with western Pacific boninites and high-Mg# andesites. If this interpretation is correct then the NAM ophiolitic massif would bear an intraoceanic fore-arc component. We suggest that modern boninites may partly have inherited their unusual magma chemistry by similar interactions and continuous re-equilibration with upper-mantle rocks during their ascent through the mantle wedge above a subduction zone.

The lower crust of the Bay of Islands ophiolite, Canada: Petrology, mineralogy, and the importance of syntexis in magmatic differentiation in ophiolites and at ocean ridges

The lower crust of the North Arm Mountain massif (Bay of Islands ophiolite) is composed of interfolded, porphyroclastic-textured peridotite, pyroxenite, and gabbro, belonging to several differentiation series. Low-Ti pyroxenes, high An/Fo, abundant orthopyroxene, and high spinel Cr/Al suggest arc affinities. Discordant contacts and inclusion relationships show that many peridotites are synkinematic sills. Some host rocks were altered to sulphide-bearing, greenschist-grade assemblages prior to intrusion. Most feldspathic peridotites and melagabbros are hybrids formed by disaggregation of host gabbros into primitive intrusions. Many pyroxenites and chromitites are by-products of incongruent dissolution reactions. Much of the pyroxene component of peridotites and olivine pyroxenites is xenolithic. Synmagmatic shear augmented the efficiency and extent of hydridization and assimilation reactions. Syntexis (the melting and dissolution of xenocrysts) was as important as fractional crystallization in generating petrological diversity and controlling melt evolution. Synmagmatic extension at spreading ridges could produce similar results, and so account for many enigmatic features of mid-ocean ridge basalts (xenocrysts of anorthite and aluminous spinel, excess chlorine in basalts, and the pyroxene paradox). If syntexis is an important ridge-axis process, then assuming that fractional crystallization alone controls melt evolution may generate incorrect calculated parental melt compositions, and so lead to erroneous conclusions about mantle sources and processes.

Audit Committee, Underpricing of IPOs, and Accuracy of Management Earnings Forecasts

Our results support the worldwide movement in legislations requiring AC independence and expertise. They stress the importance of the presence of qualified members on the AC with sufficient knowledge of accounting and finance. Our results suggest that the AC is a credible signal that could be used in the firms signaling strategy and the results provide support for the monitoring role of the board of directors, as proposed by the agency theory.Our empirical analysis is performed on a sample of 246 IPOs issued in the Canadian province of Quebec. We find that the creation of an AC at the time of the IPO has no effect on underpricing unless its members are independent and have expertise in financial matters, in which case it decreases significantly the level of underpricing of the IPO. However, we find no significant association between these two governance attributes and the accuracy of forecasts included in prospectuses. This paper examines the role of audit committees (AC) in the initial public offering (IPO) process in a governance environment where AC best practices are well established but their adoption is voluntary. We consider the creation and characteristics of the committee as signals that issuing firms can use to reduce the underpricing often associated with IPOs. We also examine the effect of the committee on the quality of management earnings forecasts included in the prospectus. This paper examines the role of audit committees (AC) in the initial public offering (IPO) process in a governance environment where AC best practices are well established but their adoption is voluntary. We consider the creation and characteristics of the committee as signals that issuing firms can use to reduce the underpricing often associated with IPOs. We also examine the effect of the committee on the quality of management earnings forecasts included in the prospectus. Our empirical analysis is performed on a sample of 246 IPOs issued in the Canadian province of Quebec. We find that the creation of an AC at the time of the IPO has no effect on underpricing unless its members are independent and have expertise in financial matters, in which case it decreases significantly the level of underpricing of the IPO. However, we find no significant association between these two governance attributes and the accuracy of forecasts included in prospectuses. Our results suggest that the AC is a credible signal that could be used in the firms signaling strategy and the results provide support for the monitoring role of the board of directors, as proposed by the agency theory. Our results support the worldwide movement in legislations requiring AC independence and expertise. They stress the importance of the presence of qualified members on the AC with sufficient knowledge of accounting and finance.

Role of Ice Scouring and Goose Grubbing in Marsh Plant Dynamics

1 The effects of scouring by ice and of grazing by the greater snow goose (Chen caerulescens atlantica) on the substrate and vegetation of a brackish tidal marsh in the St Lawrence estuary were studied from 1985 to 1987. During spring and fall migratory stopovers, the birds fed mainly on Scirpus americanus rhizomes. 2 The presence of ice-made depressions was related mainly to the physical characteristics of Scirpus marshes. Goose grubbing has no significant effect on the annual dynamics of these depressions. 3 In exclosures, i.e. iii the absence of geese, ice drift has little influence on species abundance and net above-ground primary production of the marsh except at high levels of disturbance. 4 In ice-made depressions, goose grazing reduced net primary production by approximately 45% and facilitated colonization by competitive species such as Zizania aquatica, Sagittaria spp. & Scirpus torreyi. History or frequency of disturbance seems to play an important role in this process. 5 By exploiting ice-made depressions, snow geese contribute to an increase in the heterogeneity but a decrease in the primary production of the Scirpus marsh.

Qualitative Research on Accounting: Some Thoughts on What Occurs Behind the Scene

Publisher Summary The chapter presents some of the key activities that occur behind the scene in conducting qualitative research projects. The content is mainly based on an ongoing research project on audit committee initiated in 1998. It explores the multiplicity of ethical and institutional constraints that one has to deal with daily as a qualitative researcher. The chapter describes the process of setting the stage for qualitative research—being pressured to publish, starting the project, funding the project, getting access to field data, and obtaining ethics approval. The chapter discusses the process of conducting and analyzing interviews, and writing qualitative papers. It not only addresses the constraints to the undertaking of qualitative research but also discusses how to overcome these constraints. When a research project gets published, a lot remains unsaid. The chapter explains what all goes into making a successful qualitative research paper in accounting.

The disciplinary process of the accounting profession: protecting the public or the profession? The Quebec experience

Abstract The voluntary self-regulatory system of the accounting profession was criticized in recent years for its lack of effectiveness, of public representation, and the conflict between the professions desire to protect its industry and its “role as self-regulator and protector of the public” (Coofee, Working Paper, Columbia Law School, 2001, p. 22 (available on SSRN Electronic Library at id=270944)). This study examines the role of disciplinary activities of the profession in protecting the public interest in the Canadian province of Quebec, a jurisdiction where, although the profession is self-regulated, several rules are imposed by the government, including mandatory public participation and oversight by a regulatory agency. My results indicate that at the trial stage, which is heavily regulated and where public participation is high, public-interest violations predominate, are considered more serious than private-interest violations, and result in more severe sanctions. At the inquiry stage, which is characterized by a lower level of public involvement and a high degree of discretion, the results indicate that the decision of whether or not to prosecute a case depends on the cost of the disciplinary process, the notoriety of the case, and the risk that the case if prosecuted results in an acquittal. These findings suggest that the preponderance of the public interest over the private interest depends on the degree of regulation and public participation.

The role of phenolic compounds and nutrients in determining food preference in greater snow geese

SummaryWe tested Buchsbaums hypothesis that food palatability in geese is determined by a hierarchy of feeding cues among which deterrent secondary metabolites (mostly phenols) have a primary role (Buchsbaum et al. 1984). In preference tests, greater snow goose feeding was slightly depressed when grass was sprayed with ferulic acid but not when grass was sprayed with p-coumaric and tannic acids. Extracts of Timothy grass, red clover or alfalfa sprayed on grass also failed to depress goose feeding. In a multifactor experiment, phenol and protein content and height of grass were manipulated simultaneously. When ferulic acid was sprayed, protein and phenol content interacted in determining goose feeding preferences; protein content had no effect in the absence of phenol but did have an effect when phenol was added. When tannic acid was used in a similar experiment, results were inconclusive because of a significant and complex interaction between protein content and height of grass. Our results generally failed to support Buchsbaums hypothesis that phenol content of plants has a primary role in determining food preference in geese. Protein content of plants seemed to be a more important factor.