Summer 2005




The Need for a 5-Star Reporting Index™ for the Ranking of Publicly Listed Companies: A Conceptual Framework

By Janek Ratnatunga, Michael Vincent and Leon Duval


It is recognised in today’s business environment, that enhancing economic values must be subject to the constraints imposed by environmental, social and governance issues. The paper first argues that the scope of an organisations reporting (and resultant audit certification) must be extended to cover such multiple bottom-line issues. The paper also considers the importance of a motivated workforce in implementing value-enhancing initiatives, and how an empowered open-book approach to financial reporting can provide significant motivational benefits that ultimately result in increased value.

The final recommendation of the paper is to prescribe a process and metrics for a holistic approach to value-based reporting, combining the reporting issues raised by the economic, environmental, social, governance and empowerment frameworks within a 5-STAR Reporting IndexTM  for the ranking of all publicly listed companies.


Corporate Reporting Frameworks; Triple Bottom Line; Corporate Governance ; Empowerment Accounting; Strategic Audits


Advanced Probability Modelling and the Prediction of Corporate Bankruptcy

By Stewart Jones and David A. Hensher


Over the past three decades a sizeable international literature on financial distress prediction has developed (Altman, 2001). However, most empirical studies to date have relied on fairly simplistic modelling techniques, such as multiple discriminant analysis, binary logistic or rudimentary multinomial logit models (MNL).  Recent research in discrete choice modelling has highlighted the limitations of these models, particularly in relation to their restrictive statistical assumptions and their failure to incorporate firm-specific observed and unobserved heterogeneity (both within and between firms) of any kind. Advanced probability models, such as mixed logit, not only have more appealing statistical properties but also allow for a high level of behavioural richness and definition to be specified in model estimation.  This added flexibility and sophistication can improve the explanatory and predictive performance of financial distress models.   We discuss the theoretical underpinnings of mixed logit and demonstrate its empirical usefulness in the context of a three-state failure model.  Comparisons of model-fit statistics and out-of-sample forecasting accuracy indicate that the mixed logit model outperforms standard logit by significant margins.


Bankruptcy Prediction Models; Mixed Logit; Financial Distress

Development of a Decision Support System Based on ABC for Costing and Pricing Decisions, and its Conversion to a Web-based DSS

By Charles H. Cho and Emilio Boulianne


In the rapidly growing industry of semiconductor, management is constantly faced with difficult decisions.  Activities such as sawing, cleaning, stocking and inspecting die (also called chips) involve complex processes.  The costing and pricing of die affect the bidding strategies and company profitability.  This paper presents theoretical frameworks to discuss how the decision-making process has evolved from heuristics (i.e., decisions made manually based on biased estimates) to computer-based information systems.  It offers a case study of the design and implementation of a decision support system (DSS) integrating activity-based costing (ABC) in a large U.S. supplier of semiconductor die.  The advantages of this system are explored when a solid accounting model is used to store, retrieve and analyze data, especially with the implementation of a Web-based component.  The system is user-friendly and provides powerful features that help top management make more effective costing and pricing decisions.  Users are satisfied with the DSS as it contributes to an increase in firm profitability.


Decision Support System (DSS); Information Systems Design and Implementation; Activity-Based Costing (ABC); Web-Based Model; IS Success; Semiconductor Industry

Surviving Financial Distress: The Case of Too Many Herbs and Spices.

By Julie Margret


Over 120 years ago Sir James Burns founded an organisation that is today, the international business group of Burns Philp and Company Ltd. The Group is widely known as a leading producer of yeast products and manufacturer of other bakery ingredients. Its ability to adapt to the ever-changing demands of business is widely recognised. During the late 1980’s however, after the group expanded into the herbs and spices industry its financial state deteriorated. Yet, arguably the Group had entered a market that complimented its then existing core-activities. This paper examines circumstances surrounding that venture into herbs and spices. It argues that the Group’s financial predicament, at that time, was exacerbated by the use of conventional accounting procedures. It illustrates that up-to-date market related financial details, in lieu of accounting book constructs, more aptly assist directors, managers, all stakeholders to conduct business and make informed economic decisions. This paper suggests that it is an entity’s current financial state of affairs, with regard to tangible market referents, that enables a firm’s strategic progress and facilitates proactive management; and in turn, assists in the sustainable development of business throughout the world.


Conventional Accounting; Accounting Misinformation; Financial Distress; Burns Philp; Free Cash Flow; Financial Statement Analysis

Perceptions of U.S. CPAs and CMAs Concerning AccountingStandards, Regulation, and Ethical Financial Reporting.

By Mary Jane Lenard, Pervaiz Alam, Norman Meonske and Michael A. Pearson


Ever since the scandals of Enron and WorldCom, accountants, legislators and investors have struggled with questions of how best to regulate the accounting profession and the implications of unethical financial reporting.  This study surveys practicing accountants to determine their perceptions of the role of the SEC, FASB, and the U.S. Congress regarding the regulation of the accounting profession.

Our results show that IMA members who responded to the survey are concerned about earnings manipulation and the duties of auditors, including whether audit firms should be allowed to provide outside consulting services.  The extent of earnings manipulation is influenced by the ethical values of the managers.

According to our study, the IMA members believe that the SEC should take a more active role in standard-setting when there is earnings manipulation influenced by ethical irresponsibility and when FASB’s standards are not adequate or timely.  They also believe that the independence of the audit firm should be stressed in standard-setting by FASB, and they believe that Congress should only get involved if external auditors are not independent and are the only ones who bear responsibility for the financial statements.


CPA vs. CMA Perceptions; Accounting Standards; Corporate Governance; Ethical Financial Reporting

Book Reviews

Accounting Information Systems: Understanding Business Processes, by Brett Considine, Abdul Razeed, Michael Lee and Philip Collier

Reviewed By: Ken Crofts

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