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Li Yu (Colly) He

First Name: Liyu (Colly)
Surname: He
Department Dept of Accounting and Corporate Governance
Supervisor(s): Sue Wright , Elaine Evans

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Paper Title

Opportunistic Use of Fair Value Accounting and Corporate Governance


The study examines whether managers use the discretion and flexibility available under fair value accounting provided in AASB 141 – Agriculture, to report higher profits. Is executive pay sensitive to fair value agriculture gains? What is the role of corporate governance in monitoring the size of reported fair value gains or executive pay-sensitivity to the gains?

Key literature/theoretical perspective

Research suggests that firms are rewarded for reporting positive earnings while managers provide earnings comparisons which emphasize improvement. Further, managers exercise the discretion in accounting standards when their compensation is linked to the reported number. Firm size, board independence, executive tenure and ownership concentration and other corporate governance mechanisms are found in the literature to have an impact on executive compensation and earnings management behaviour.


Regression analyses are undertaken to examine data for 277 company/years which applied AASB 141 for the period 2001-2011.


Management reports higher gains from biological assets when non-fair value earnings is (1) below target earnings; (2) lower than the prior year. Analyses for compensation incentives and corporate governance are under development.

Practical and Social implications

The findings may inform future legislation and regulation of reporting and corporate governance in Australia, in terms of how much flexibility should be provided in accounting standards requiring the use of FVA.


Fair value, Earnings management, Executive compensation, Corporate governance