The quality of financial information in the extractive industries: a value relevance analysis

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dc.contributor.advisor Cleary, Peter en
dc.contributor.advisor Donnelly, Raymond en Power, Sean 2016-09-06T11:16:12Z 2016 2016
dc.identifier.citation Power, S. 2016. The quality of financial information in the extractive industries: a value relevance analysis. PhD Thesis, University College Cork. en
dc.description.abstract The extractive industry is characterized by high levels of risk and uncertainty. These attributes create challenges when applying traditional accounting concepts (such as the revenue recognition and matching concepts) to the preparation of financial statements in the industry. The International Accounting Standards Board (2010) states that the objective of general purpose financial statements is to provide useful financial information to assist the capital allocation decisions of existing and potential providers of capital. The usefulness of information is defined as being relevant and faithfully represented so as to best aid in the investment decisions of capital providers. Value relevance research utilizes adaptations of the Ohlson (1995) to assess the attribute of value relevance which is one part of the attributes resulting in useful information. This study firstly examines the value relevance of the financial information disclosed in the financial reports of extractive firms. The findings reveal that the value relevance of information disclosed in the financial reports depends on the circumstances of the firm including sector, size and profitability. Traditional accounting concepts such as the matching concept can be ineffective when applied to small firms who are primarily engaged in nonproduction activities that involve significant levels of uncertainty such as exploration activities or the development of sites. Standard setting bodies such as the International Accounting Standards Board and the Financial Accounting Standards Board have addressed the financial reporting challenges in the extractive industry by allowing a significant amount of accounting flexibility in industryspecific accounting standards, particularly in relation to the accounting treatment of exploration and evaluation expenditure. Therefore, secondly this study examines whether the choice of exploration accounting policy has an effect on the value relevance of information disclosed in the financial reports. The findings show that, in general, the Successful Efforts method produces value relevant information in the financial reports of profitable extractive firms. However, specifically in the oil & gas sector, the Full Cost method produces value relevant asset disclosures if the firm is lossmaking. This indicates that investors in production and non-production orientated firms have different information needs and these needs cannot be simultaneously fulfilled by a single accounting policy. In the mining sector, a preference by large profitable mining companies towards a more conservative policy than either the Full Cost or Successful Efforts methods does not result in more value relevant information being disclosed in the financial reports. This finding supports the fact that the qualitative characteristic of prudence is a form of bias which has a downward effect on asset values. The third aspect of this study is an examination of the effect of corporate governance on the value relevance of disclosures made in the financial reports of extractive firms. The findings show that the key factor influencing the value relevance of financial information is the ability of the directors to select accounting policies which reflect the economic substance of the particular circumstances facing the firms in an effective way. Corporate governance is found to have an effect on value relevance, particularly in the oil & gas sector. However, there is no significant difference between the exploration accounting policy choices made by directors of firms with good systems of corporate governance and those with weak systems of corporate governance. en
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.publisher University College Cork en
dc.rights © 2016, Sean Power. en
dc.rights.uri en
dc.subject IFRS 6 en
dc.subject Value relevance en
dc.subject Extractive industry en
dc.subject Earnings management en
dc.title The quality of financial information in the extractive industries: a value relevance analysis en
dc.type Doctoral thesis en
dc.type.qualificationlevel Doctoral en
dc.type.qualificationname PhD (Commerce) en
dc.internal.availability Full text not available en Indefinite en 10000-01-01
dc.description.version Accepted Version
dc.description.status Not peer reviewed en Accounting and Finance en
dc.check.reason This thesis is due for publication or the author is actively seeking to publish this material en
dc.check.opt-out Yes en
dc.thesis.opt-out true
dc.check.entireThesis Entire Thesis Restricted
dc.check.embargoformat E-thesis on CORA only en
dc.internal.conferring Autumn 2016 en

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© 2016, Sean Power. Except where otherwise noted, this item's license is described as © 2016, Sean Power.
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