M.Comm.

This thesis investigates whether firms use real activities manipulation for income-decreasing earnings management purposes. Managers can use different tools to manage earnings. Given that managers have the authority to apply their own judgment in the preparation of financial reports and to make decision about business activities of their incumbent companies, the opportunity to manipulate earnings is twofold: the first is to manipulate financial reports using accounting techniques and the second is to manipulate underlying transactions. After the introduction of new regulations that were meant to restrict accounting choice as a response to high-profile accounting scandals at the turn of the century, there has been growing literature on the use of real activities manipulation for earnings management. While more control over financial reporting can potentially reduce earnings management through accounting choice, as real activities manipulation concerns non-accounting decisions of management, tighter accounting standards are not able to restrict manipulation of activities. This shift toward real activities manipulation is supported by empirical evidence. Whilst prior studies indicate that managers have incentives for both income-increasing and income-decreasing earnings management, the overwhelming majority of authors have concentrated on income-increasing attempts. However, one would expect that real activities manipulation would also be used for income-decreasing purposes. This study links two lines of research in the area of earnings management; downward earnings management and earnings management through real activities manipulation. Using a large sample of US firms for the period 2002-2011, the present thesis examines whether and how real activities manipulation is used for income-decreasing earnings management. To this end, firms that substantially outperformed their last year performance, or suspect firms, which are considered as more likely to exhibit income-decreasing earnings management are compared with the rest of the sample in terms of various measures of real activities manipulation. The results indicate that firms with extra earnings by the end of third quarter of fiscal year manage earnings downward by means of real activities including sales, production and discretionary expenses. The results are generally robust to a number of sensitivity tests.

KMBT_363 / Adobe Acrobat 9.53 Paper Capture Plug-in

The objective of this research report was to determine which internal controls are perceived, by internal auditors, to be contributing to the effectiveness of an internal control structure. The Committee for Sponsoring Organisations (COSO) integrated internal control framework was used as a basis for the questionnaire construction and respondents were asked to rate the perceived control effectiveness of each of the components of internal control. Descriptive statistics were used to analyse the basic meaning of the data. The questionnaire was completed by following a Uniform Resource Locator (URL) which was sent to two internal auditors in audit firms. Thirty one responses were obtained; all the respondents have experience in the evaluation and assessment of internal control systems. This research showed that control elements as outlined in COSOs integrated internal control framework, if implemented, could contribute to the effectiveness of the internal control system.

At the end of the 20th century and beginning of the 21st century, China implemented several new asset write-down regulations. This study addresses the claim that these regulations significantly enhanced the usefulness of financial statements for investors in China. The effect of the regulations on usefulness of financial statements has implications for financial accountants, standard-setters, educators, and auditors. This study derives and tests some of the empirical implications of the claim. I operationalize usefulness of accounting information in terms of the valuerelevance framework, in which information usefulness is construed as a tradeoff between relevance and reliability. These two dimensions are the primary criteria underlying the FASB’s Conceptual Framework for choosing alternative accounting rules. Asset write-down, if correctly applied to over-stated assets, should increase the decision relevance to investors; however, measurement errors due to either unintentional mistakes involving professional judgment or intentional misrepresentations involving earnings management may decrease the reliability of reported amounts. While there is substantial value-relevance research, the role of reliability is generally absent. Reliability of regression estimates, also known as measurement error, is often implicitly assumed and not measured. Following nonnested model selection techniques and relative measurement error research, I explicitly measure the relative reliability of asset write-down accounting in various valuation models. Therefore, this study contributes to value-relevance research. First, I examine the incremental value relevance of asset write-down estimates through their associations with market values: the ability of asset write-down provisions to explain market value of equity; the ability of asset write-down gains and losses to explain annual market-adjusted return; and the ability of both the above provisions and earnings to explain market value of equity. All the models provide evidence for value relevance of asset write-down estimates, indicating an acceptable level of information usefulness with mixed effects of relevance and reliability. I apply my tests to a balanced panel sample of exchange-listed firms in China over the period 1998-2001. The sample is limited to A shares—the shares subject to the new rules. Next, the above three valuation models are applied again in a reliability analysis. Model appropriateness tests, i.e. non-nested model tests, are used to answer the question: did asset write-down practices improve reliability in the valuation models? I find that the asset write-down practices are approximately comparable in reliability to historical cost methods in the balance sheet valuation model but somewhat less reliable in the income statement valuation model. The results are ambiguous when both assets and earnings are included in a third valuation model. My relative measurement error tests yield similar results. I conclude that the asset write-down regulations in China have not improved the usefulness of financial statements to investors in terms of reliability. Because the asset write-down rules are subject to interpretation and judgment, I consider the motivation for write-downs in the final part of the study. The results support a relation between discretionary motivations and the amount of current or cumulative write down. A sub-sample analysis shows that asset write-down rules improve usefulness of financial information in the absence of discretionary motivations.

No description available.

No description available.

The goal of the diploma thesis is to performe analysis of financial statements of particular company. The theoretical part of thesis describes the process over financial statements preparation in line with Czech Accounting Law requirements. Practical Application part analyses financial statements of particular company in detail based on actual data.

The primary purpose of this dissertation is to develop the arguments for reporting directly on a company's cash flows in its published financial statements. Specifically, the Free Cash Flow (FCF) model of economist Joel Stern is analyzed and critiqued as a basis for a revised reporting scheme.

This study reports the results of experimental laboratory markets designed to test two propositions set forth by Verrecchia 1982 . The first proposition addressed the change in the level of private information acquisition given a change in the level of public information in a competitive market. The second proposition considered the amount of informedness in the market given an increase in the level of public information and the resultant change in private information. The development of these propositions was motivated by the ambiguous results produced from the market-based accounting research investigating the impact on market price of mandated accounting disclosures. A limitation of the market based research is the inability to control for changes in the level of private information acquisition given a change in the level of public information which may explain the ambiguous results. A laboratory markets method was used to test the propositions because of the control provided by this research method. The market mechanism employed was a version of the PLATO computerized double-auction mechanism described by Smith, Suchanek, and Williams 1985 . This trading mechanism allows traders to communicate bids and offers and to form contracts to buy and sell assets in a computerized market which provides a high degree of control. In addition to the market for assets, a posted offer market for private information was used to allow traders to acquire private information. The results show significant decreases in private information acquisition in markets with higher levels of public information. Thus, public and private information appear to be substitute goods in this experimental setting. The results also indicates that the variance of contract prices around the true dividend value is significantly greater in markets with lower levels of public information. This remains true when controlling for possible confounding variables including market day, the contract number, the dollar value of private information, and the number of informed traders that executed the contract.