Winter 2006





The Valuation and Reporting of Reputation Risk Management Capability

By Janek Ratnatunga


This paper advances some issues related to an accountor’s evaluation of the worth of a corporation. By ‘accountor’ it  is meant a body of persons who the future worth of the corporation. It is therefore argued that several more dimensions of the firm have to be audited or evaluated by accountors, not just the accuracy of the worth of the firm based on the past transactions. Such an evaluation should also include the governance quality of the management.

The paper proposes that the firm should be evaluated in terms of its‘ capability’  to protect and enhance its reputation and hence its  future earning power; and that Risk Management is a strategic accounting approach in which a firm’s reputation risk is not only both managed and enhanced, but also reported and attested.

Finally, the paper suggests an approach that auditors can take to determine a firm’s strategic capability of sustaining and generating value via reputation enhancement.


Brand Value; IFRS; Reputation risk Management; Reliability & Relevance; Corporate Reporting Frameworks; Triple Bottom Line; Corporate Governance; Strategic Audits


A Dynamic Ratio-Based Model for Signaling Corporate Collapse

By Ghassan Hossari


The recognition of behavioural elements in finance has caused major shifts in the analytic framework pertaining to ratio-based modeling of corporate collapse. The modeling approach so far has been based on the classical rational theory in behavioural economics, which assumes that the financial ratios (i.e., the predictors of collapse) are static over time. The paper argues that, in the absence of rational economic theory, a static model is flawed, and that a suitable model instead is one that reflects the heuristic behavioural framework, which is what characterises behavioural attributes of company directors and in turn influences the accounting numbers used in calculating the financial ratios. This calls for a dynamic model: dynamic in the sense that it does not rely on a coherent assortment of financial ratios for signaling corporate collapse over multiple time periods.

This paper provides empirical evidence, using a data set of Australian publicly listed companies, to demonstrate that a dynamic model consistently outperforms its static counterpart in signaling the event of collapse. On average, the overall predictive power of the dynamic model is 86.83% compared to an average overall predictive power of 69.35% for the static model.


Corporate Collapse; Bankruptcy Prediction; Behavioural Finance; Classical Rational Theory; Heuristic Behavioural Theory; Financial Ratios; Multiple Discriminant Analysis

The Effect of Management Style and Management Accounting System Design on Performance

By David Naranjo-Gil and Marcel van Rinsum


This study focuses on the relationship between the design of the management accounting system, management style and the effects on organisational performance. This paper analyses the links between these variables based on a contingency approach. It contributes to the existing literature by providing additional evidence on the relationships between these variables within the public healthcare sector. The study distinguishes between innovative vs. traditional management accounting system designs and proactive vs. reactive management style. Data is collected from CEOs in public hospitals. A two-fold analysis involving interviews and a questionnaire was adopted thus enabling a systematic and comprehensive analysis.


Management Accounting System; Performance Measurement; Management Style; Contingency fit

The Consequences of Culture on Shareholder Activism in Malaysia

By Elsa Satkunasingam and Bala Shanmugam


The purpose of this paper is to reflect on the role played by minority shareholders in upholding good corporate governance within a Malaysian environment. Unlike many developed countries, the major investors in the Malaysian capital market comprise government agencies or family-owned corporations. These institutional shareholders are not always in the best position to uphold good corporate governance practices as there is a conflict of interest where the role of the owners and managers are not separate.

Recent corporate scandals in Malaysia have shown that minority shareholders are reactive when they should be proactive. They are not as interested in good corporate practices as in the dividends and profits that the corporation pays out. There no sense of ownership of the company or a sense of responsibility to speak up when things go wrong.  The main reason for this lies in Malaysian culture, which cultivates high power distance and low individualism. It does not encourage shareholders to take action against errant managers. This paper will also discuss alternatives to the current method of challenging managers of corporations that have poor corporate governance practices.


Corporate Governance; Minority Shareholders; Malaysian Corporate Scandals; Family Owned Corporations

Advanced Cost Management Systems in Australia: A Study of Their Use and Usefulness

By Robert Reeve and David Warwick


This is a study of the extent of use, and the usefulness, of eight advanced cost management systems in a wide range of Australian organisations.  Data on the characteristics of these systems are also presented, as well as their association with extent of use and usefulness.  In addition, the organisations are classified into groups according to the extent of their use of advanced cost management systems, and by their industry classification, and insights obtained from these classifications are presented.


Advanced Cost Management Systems; ACMS; Use; Usefulness

Book Reviews

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

Spreadsheet Modelling for Finance (2nd Edition): By Martin Hovey

Reviewed By: Greg Van Mourik


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