Majella Percy

Financial reporting discretion and voluntary disclosure: Corporate research and development expenditure in Australia

Abstract The aim of this paper1 is to explain Australian R&D capitalization and voluntary disclosure. It is argued that the discretionary choices available to management in Australia with respect to the accounting for and the disclosure of R&D expenditure and activities can be explained by the reduction of information asymmetries and agency costs. The results confirm that three aspects of information asymmetry investigated are important in explaining the discretionary capitalization of R&D expenditure: research intensity; the use of R&D financing arrangements; and the percentage of subsidiaries not wholly owned. Furthermore, research intensity, and the use of R&D financing arrangements are significant in explaining voluntary disclosure of R&D expenditure and activities. These results are robust to the inclusion of controls for other economic characteristics of the firm including share issue, size, accounting performance, leverage, proprietary costs and tax status.

Role of Corporate Governance in Mitigating the Selective Disclosure of Executive Stock Option Information

We examine the nature and extent of statutory executive stock option disclosures by Australian listed companies over the 2001–2004 period, and the influence of corporate governance mechanisms on these disclosures. Our results show a progressive increase in overall compliance from 2001 to 2004. However, despite the improved compliance, the results reveal managements’ continued reluctance to disclose more sensitive executive stock option information. Factors associated with good internal governance, including board independence, audit committee independence and effectiveness, and compensation committee independence and effectiveness are found to contribute to improved compliance. Similarly, certain external governance factors are associated with improved disclosure, including external auditor quality, shareholder activism (as proxied by companies identified as poor performers by the Australian Shareholders’ Association) and regulatory intervention.

Accounting for goodwill in an Australian context

This article is motivated by the international controversy surrounding the regulation of accounting for goodwill. Recent moves for regulatory change in the United Kingdom by the Accounting Standards Committee, and in the international arena through the International Accounting Standards Committee (IASC), have focused attention on the long-running goodwill debate. The British and international accounting regulators have made proposals consistent with the more conservative goodwill accounting rules in the United States and in Australia. The history of accounting for goodwill in Australia provides an opportunity to examine the impact of accounting regulation in promoting uniformity of practice. This paper documents and compares pre- and post-professional regulation (AAS 18) practice and includes an examination of poststatutory regulation (ASRB 1013) practice. The results of this study may be of interest to the accounting profession and to international regulators of accounting, as it provides information regarding the effectiveness of standard setting for goodwill accounting in the Australian context. Regulators in the United Kingdom, in particular, may be able to use such information as input into the decision making process with respect to the proposals for accounting for goodwill. Accounting standards for the corporate sector in Australia emanate from two sources: the professional bodies and the Accounting Standards Review Board (ASRB). Historically, it has been the two professional bodies (the Australian Society of Accountants, now the Australian Society of Certified Practising Accountants, and the Institute of Chartered Accountants), through their joint standard-setting body, the Australian Accounting Research Foundation (AARF), which have issued accounting standards. At time of writing, 28 of these Australian Accounting Standards (AASs) have been issued. Members of the Australian accountancy profession are required to conform with Australian Accounting Standards by Professional Statement (APS) IConformity with Accounting Standards, which states that: The Australian accountancy profession requires members who assume responsibilities in respect of the preparation, presentation or audit of financial statements to support the Statements of Accounting Standards approved by the profession.