Shareholder Proposals on the Auditor–Client Relationship: The Case of Nonaudit Service Purchases

This article provides empirical evidence on shareholder proposals seeking to restrict nonaudit service (NAS) purchases by public companies from their independent auditors. Our analysis is based on 104 instances of shareholder proposals seeking to restrict NAS provided by independent auditors, received by 94 firms during a unique period from 2001 to 2004 (when the Securities and Exchange Commission [SEC] allowed such proposals to proceed to shareholder votes), and a control sample that did not receive such proposals. We find that firms targeted by shareholders had higher nonaudit fee ratios. We also find that firms receiving such shareholder proposals are likely to have steeper subsequent declines in the nonaudit fee ratio than firms not receiving such proposals. Finally, considering only the subset of firms that have a shareholder vote on proposals seeking to restrict NAS purchases, the subsequent reduction in the nonaudit fee ratio is positively related to the magnitude of the proportion of votes in favor of the shareholder proposal. Our findings suggest that permitting shareholder participation in issues related to the auditor–client relationship can lead to significant changes in the nature of the auditor’s relationship with the client, and they call into question recent SEC actions permitting companies to restrict shareholder participation in issues related to auditor selection.

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Shareholder Dissatisfaction and Subsequent Audit Outcomes

Accounting Horizons ◽

10.2308/horizons-18-167 ◽

2020 ◽

Vol 34 (4) ◽

pp. 181-200

Author(s):

Paul N. Tanyi ◽

Dasaratha V. Rama ◽

K. Raghunandan ◽

Gregory W. Martin

Keyword(s):

Empirical Evidence ◽

Audit Quality ◽

Audit Fees ◽

Securities And Exchange Commission ◽

Financial Statement ◽

Audit Report ◽

Subsequent Period ◽

Abnormal Accruals ◽

Auditor Selection

SYNOPSIS This study examines the association between shareholder dissatisfaction, as proxied using auditor ratification voting, and subsequent auditor effort and audit quality. We document that increases in shareholder dissatisfaction are associated with (1) higher audit fees and longer audit report lags, and (2) lower abnormal accruals and reduced likelihood of financial statement misstatements, in the subsequent period. These findings inform the debate about auditor ratification voting, as governance activists and some regulators argue to increase the role of shareholders in auditor selection despite opposition from some firms and the staff of the Securities and Exchange Commission. We provide empirical evidence that increases in shareholder dissatisfaction with the auditor are associated with increases in subsequent auditor effort and audit quality. This suggests that shareholder action (even nonbinding) may potentially influence subsequent audit outcomes.

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COVID-19 considerations for SEC cybersecurity guidance, disclosure, enforcement, and parallel proceedings: navigating the new normal

Journal of Investment Compliance ◽

10.1108/joic-08-2020-0018 ◽

2020 ◽

Vol 21 (2/3) ◽

pp. 111-126

Author(s):

Aldo M. Leiva ◽

Michel E. Clark

Keyword(s):

Securities And Exchange Commission ◽

Effective Vaccine ◽

Resource Reallocation ◽

Securities Litigation ◽

Public Companies ◽

Content Type ◽

Business Operations ◽

Expert Analysis ◽

Securities Industry ◽

Remote Operations

Purpose To examine the COVID-19 pandemic’s effects on regulated entities within the context of cybersecurity, US Securities and Exchange Commission (SEC) compliance, and parallel proceedings. Design/methodology/approach Describes the SEC’s ability to conduct its operations within the telework environment, its commitment and ability to monitor the securities market, its enhanced monitoring of the adverse effects of SEC-regulated companies from COVID-19, its guidance to public companies of disclosure obligations related to cybersecurity risks and incidents, the SEC Office of Compliance and Examinations’s (OCIE’s) focus on broker-dealers’ and investment advisories’ cybersecurity preparedness, the role and activities of the SEC Division of Enforcement’s Cyber Unit, and parallel proceedings on cyberbreaches and incidents by different agencies, branches of government or private litigants. Findings SEC-regulated entities face many challenges in trying to maintain their ongoing business operations and infrastructure due to severe financial pressures, the threat of infection to employees and customers, and cybersecurity risks posed by remote operations from hackers and fraudsters. The SEC has reemphasized that its long-standing focus on cybersecurity and resiliency within the securities industry will continue, including ongoing vigilance over companies’ efforts to identify, assess, and address the inherent, heightened cybersecurity risks of teleworking and the resource reallocation that business need to sustain their operations until a safe and effective vaccine is developed for COVID-19. Originality/value Expert analysis and guidance from experienced lawyers with expertise in securities, litigation, government enforcement, information technology, data protection, privacy and cybersecurity.

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The Impact of Audit Committees on US Nonprofit Organizations’ Governance

JABM JOURNAL of ACCOUNTING - BUSINESS & MANAGEMENT ◽

10.31966/jabminternational.v27i1.560 ◽

2020 ◽

Vol 27 (1) ◽

pp. 30

Author(s):

Husam Abu-Khadra

Keyword(s):

Nonprofit Organizations ◽

Audit Committee ◽

Nonprofit Sector ◽

The United States ◽

Preliminary Evidence ◽

Securities And Exchange Commission ◽

Audit Committees ◽

Public Companies ◽

Policy Makers ◽

The Impact

All public companies in the United States are required by the securities and exchange commission (SEC) to have an audit committee. Such enforcement can be attributed to high-profile corporate failures and their connections to nonexistence, ineffective or weak audit committees and governance. Despite the efforts to establish a similar argument and enforcement structure for the nonprofit sector, the internal revenue service (IRS) has not pursued legislation, and no empirical evidence has been established to support any public policy changes. This paper contributes to the literature in this field by being the first study to examine 124,980 nonprofit organizations during the period of 2010 to 2015 to test the association between governance in nonprofit organizations and audit committees. We included fifteen measures from these organizations’ IRS Form 990 filings to formulate the study variables. We found significant evidence that the existence of audit committees improves the governance scores of nonprofit organizations. Our study findings have significant implications for nonprofit executives, policy makers and any other interested parties; these findings act as preliminary evidence to support more proactive policies regarding mandatory audit committees for nonprofit organizations.

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Corporate Social Responsibility Proposals and Firm Valuation

International Journal of Financial Studies ◽

10.3390/ijfs9030045 ◽

2021 ◽

Vol 9 (3) ◽

pp. 45

Author(s):

Pyung Kun Chu

Keyword(s):

Corporate Governance ◽

Corporate Social Responsibility ◽

Social Responsibility ◽

Firm Value ◽

Causal Effect ◽

Firm Valuation ◽

Public Companies ◽

Shareholder Proposals ◽

The Board Of Directors ◽

Corporate Social

Corporate social responsibility (CSR) is a topic which has recently been attracting an increasing amount of attention with respect to corporate operations, and shareholder proposals on CSR are also one of the main types of proposals at firms’ annual shareholder meetings. However, even though the frequency of CSR proposals at annual meetings is comparable to other types of shareholder proposals, the approval rate of CSR proposals is significantly lower than that of other types of proposals, meaning that most CSR proposals are not recommended by the annual meeting to the board of directors for further approval. Motivated by this stylized fact, this study investigates the value of the submission of CSR shareholder proposals. Using a regression discontinuity design with shareholder proposal data of US public companies between 2006 and 2019, this study examines the importance of shareholders’ interest in CSR for firm valuation. Interestingly, while the CSR proposals themselves are typically not approved, the submission of CSR proposals by shareholders at annual meetings matters for the value impact of other types of shareholder proposals. More specifically, the causal effect of approving a corporate governance proposal on shareholder value is significantly positive only if the corporate governance proposal is voted together with a CSR proposal at the same meeting, i.e., the presence of CSR proposals is important for firm value through its interrelations with corporate governance proposals. This shows that the submission of CSR shareholder proposals has significant value implications, even if the CSR proposals themselves are not approved at annual meetings.

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Interoperability of XBRL Financial Statements in the U.S.

Mobile Applications and Knowledge Advancements in E-Business ◽

10.4018/978-1-4666-1960-9.ch009 ◽

2012 ◽

pp. 129-144

Author(s):

Hongwei Zhu ◽

Harris Wu

Keyword(s):

Global Financial Crisis ◽

Financial Statements ◽

Securities And Exchange Commission ◽

Public Companies ◽

Generally Accepted Accounting Principles ◽

Data Elements ◽

The Global Financial Crisis ◽

Practical Implications ◽

The U.S

In the wake of the global financial crisis, a pressing need exists for improving investor friendliness, especially the transparency and interoperability of the financial statements of public companies. eXtensible Business Reporting Language (XBRL) and XBRL taxonomies can accomplish this objective. In the U.S., the Securities and Exchange Commission (SEC) has mandated that all public companies must file their financial statements using XBRL and the U.S. Generally Accepted Accounting Principles (GAAP) taxonomy according to a phased-in schedule. Are the XBRL-based financial statements interoperable? This question is addressed by analyzing all of the annual XBRL financial statements filed to the SEC as of February 26, 2010. On average, 63% of data elements are not comparable between a pair of statements. The incomparability is partly caused by issues related to the GAAP taxonomy and misuse of the taxonomy by companies. The results have practical implications that will help improve the quality of financial data.

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Emotional Acumen on the Propensity of Graduating Technology Students to Whistle-Blow About Organizational Cyber Security Breaches

International Journal of Smart Education and Urban Society ◽

10.4018/ijseus.2018100101 ◽

2018 ◽

Vol 9 (4) ◽

pp. 1-14 ◽

Cited By ~ 1

Author(s):

Nimisha Bhargava ◽

Mani Kumari Madala ◽

Darrell Norman Burrell

Keyword(s):

Decision Making ◽

Cyber Security ◽

Ethical Decision Making ◽

Moral Dilemma ◽

Securities And Exchange Commission ◽

Complex Nature ◽

Public Companies ◽

Security Breaches ◽

Technology Students ◽

Corporate Insiders

Emotional acumen is relatively a new concept compared to the other decision-making variables in the existing literature. Comprehending the procedure in which the individuals captivate themselves in ethical decision-making and the factors stimulating this procedure may be imperative for burgeoning more efficient education for ethics. The U.S. Securities and Exchange Commission issued new guidance calling on public companies to be more forthcoming when disclosing nature and scope of cybersecurity breaches. The statement also warns that corporate insiders must not trade shares when they have information about cybersecurity issues that is not public yet. Understanding the emotional underpinnings is critical to guiding how individuals deal with the complex nature of morally infused predicaments, their awareness of the moral dilemma, judgments about the potential consequences and their intention to act or propensity to whistle-blow related to cybersecurity breaches are significantly affected by the emotional acumen.

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Why Companies Are So Different?: Empirical Evidence on Corporate Governance and Financial Design of US Public Companies

SSRN Electronic Journal ◽

10.2139/ssrn.3301829 ◽

2018 ◽

Author(s):

Anastasia N. Stepanova ◽

Maria Kokoreva

Keyword(s):

Corporate Governance ◽

Empirical Evidence ◽

Public Companies

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IDA

International Journal of Software Innovation ◽

10.4018/ijsi.2015040105 ◽

2015 ◽

Vol 3 (2) ◽

pp. 39-51

Author(s):

Ying Zheng ◽

Harry Zhou

Keyword(s):

Corporate Governance ◽

Semantic Networks ◽

Knowledge Bases ◽

Securities And Exchange Commission ◽

Public Companies ◽

Governance Analysis ◽

Governance Practices ◽

Governance Process ◽

Analogical Learning ◽

Single Number

This article presents an intelligent corporate governance analysis and rating system, called IDA System, capable of retrieving SEC required documents of public companies and performing analysis and rating in terms of recommended corporate governance practices. With the techniques of analogical learning, local knowledge bases, databases, and question-dependent semantic networks, the IDA system is able to automatically evaluate the strengths, deficiencies, and risks of a company's corporate governance practices based on the documents stored in the “SEC EDGAR database by (U.S. Securities and Exchange Commission 2013)”. A produced score reduces a complex corporate governance process and related policies into a single number which enables concerned government agencies, investors and legislators to assess the governance characteristics of individual companies.

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Market Reaction to Auditor Ratification Vote Tally

Accounting Horizons ◽

10.2308/acch-51656 ◽

2017 ◽

Vol 31 (1) ◽

pp. 141-157 ◽

Cited By ~ 6

Author(s):

Paul N. Tanyi ◽

Kristin C. Roland

Keyword(s):

Empirical Evidence ◽

Audit Quality ◽

Market Reaction ◽

Client Relationship ◽

High Level ◽

Auditor Characteristics ◽

Jel Classifications

SYNOPSIS This paper provides empirical evidence that the proportion of shareholder votes against the ratification of the auditor is informative to investors' perception of the auditor-client relationship. We find that lower shareholder approval of the auditor is associated with a negative market reaction to the 8-K announcement of the auditor ratification vote. Additionally, we find that the market reaction is more negative when a high level of auditor dissatisfaction is likely a surprise to investors, such as when audit and auditor characteristics suggest that the auditor provides high audit quality. We provide confirming evidence that withheld votes are associated with a higher likelihood of a future auditor dismissal and that the market reaction to the dismissal is more positive for firms with lower shareholder approval of the auditor. JEL Classifications: G34; G30; M40.

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