Monitoring by Auditors: The Case of Public Housing Authorities

2011 ◽  
Vol 86 (4) ◽  
pp. 1289-1319 ◽  
Author(s):  
Barbara Murray Grein ◽  
Stefanie L. Tate
Keyword(s):  
At Risk ◽  
Public Housing ◽  
Financial Statements ◽  
Financial Information ◽  
Financial Data ◽  
Financial Statement ◽  
Litigation Risk ◽  
Management Incentives ◽  
Reporting Requirements ◽  
Big 4

ABSTRACT We take advantage of the unique reporting requirements of nonprofit public housing authorities (PHAs) to study the effect of audits on financial information both generally and when there are management incentives to misreport financial data. There is little prior research on the effect of audit adjustments in nonprofit settings and conflicting research on how auditors react to management's incentives to misreport. We identify potential financial statement areas at risk of manipulation based on incentives specific to public housing authorities. Using pre- and post-audit financial data for almost 3,600 PHAs across seven years, we find that auditors make economically and statistically significant adjustments to PHA financial statements. In addition, we find evidence that audits appear to reduce potential management bias, particularly to reduce risks of overstatement. Overall, audits appear to matter in this nonprofit, low-litigation risk setting where there is a large concentration of non-Big 4 auditors.

Market Reactions to XBRL-Formatted Financial Information: Empirical Evidence from China

2014 ◽  
Vol 10 (3) ◽  
pp. 1-17 ◽  
Author(s):  
Emma Y. Peng ◽  
John Shon ◽  
Christine Tan
Keyword(s):  
Financial Statements ◽  
Financial Information ◽  
Financial Statement ◽  
Decision Making Process ◽  
Average Volume ◽  
Market Reactions ◽  
Event Window ◽  
Business Reporting ◽  
Before And After ◽  
Efficient Processing

XBRL (eXtensible Business Reporting Language) facilitates the efficient processing/interpreting of corporate financial information by investors. This paper examines market reactions to financial statement filings in China in the period before and after the XBRL mandate in China to assess the extent to which XBRL may impact the processing of financial information. It finds that absolute price reactions of financial statement filings are larger (smaller) in the post-XBRL (pre-XBRL) period. This result holds for the cumulative 3-day window surrounding filings, as well as for each individual day during the event window. This paper also finds similar results for the average volume of trading around these event windows. Consistent with its expectations, its findings suggest XBRL financial statements play a significant role in investors' decision making process.

Income Conservatism in the U.S. Technology Sector

2011 ◽  
Vol 25 (2) ◽  
pp. 285-314 ◽  
Author(s):  
Uday Chandra
Keyword(s):  
Financial Statements ◽  
Cash Flows ◽  
Data Availability ◽  
Financial Statement ◽  
Litigation Risk ◽  
Technology Sector ◽  
Technology Firms ◽  
Conservative Accounting ◽  
Accounting Accruals ◽  
The U.S

SYNOPSIS I investigate the extent and nature of income conservatism in the financial statement numbers of firms in the U.S. technology sector. Technology firms are predicted to have greater income conservatism than other U.S. firms because they are subject to both higher shareholder litigation risk and conservative accounting standards such as SFAS 2. In the absence of a generally accepted measure of conservatism, I examine several proxies, including loss incidence and accounting rates of return, operating cash flow and nonoperating accrual levels, and regression coefficients from the earnings-return model in Basu (1997). Relative to other companies, technology firms' earnings are characterized by higher (and intertemporally increasing) levels of both conditional and unconditional conservatism. These differences are both statistically and economically significant. Further analysis suggests that technology firms' higher conservatism results primarily from lower operating cash flows due to R&D expensing and more income-decreasing accounting accruals linked to litigation risk. The results of this study are potentially useful to financial analysts, researchers, regulators, managers, and other users of financial statements. Data Availability: Data are available from public sources.

The Improvement of Governance Decision Making Using XBRL

2011 ◽  
Vol 7 (2) ◽  
pp. 11-18 ◽  
Author(s):  
Ahmad Ahmadpour
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Relevant Information ◽  
Simultaneous Presentation ◽  
Stock Option ◽  
Financial Information ◽  
Financial Statement ◽  
Extensible Markup ◽  
Technology Users ◽  
Option Compensation

eXtensible Business Reporting Language (XBRL) has the potential to influence users’ processing of financial information and their judgments and decisions. XBRL is an eXtensible Markup Language (XML)-based language, developed specifically for financial reporting. XBRL, as a search-facilitating technology, contributes to direct searches and simultaneous presentation of related financial statement, and facilitates processing footnote information which could help financial statements’ users. XBRL is more than a distribution mechanism for data or facilitating technology. XBRL has the potential to significantly improve corporate governance. Putting that potential into practice requires an XBRL taxonomy model that is data based instead of document based. This paper hypothesizes that in the presence of search-facilitating technology, users’ judgments of financial statement reliability will be influenced by the choice of recognition versus disclosure of stock option compensation than in the absence of search-facilitating technology. When the stock option accounting varies between two firms, the search technology helps in both acquiring and integrating relevant information. The paper suggests the implementation of XBRL improves transparency of financial information and managers’ choices for reporting that information.

Financial Statement Disaggregation and Auditor Effort

2021 ◽  
Author(s):  
Matthew Beck ◽  
Matthew Glendening ◽  
Chris E. Hogan
Keyword(s):  
Positive Association ◽  
Financial Statements ◽  
Audit Fees ◽  
Financial Statement ◽  
Litigation Risk ◽  
Significant Positive Association ◽  
Material Line

We examine the consequences of firms' disaggregation choices for auditor effort and audited financial statements. We document a significant positive association between disaggregation and audit fees, our proxy for auditor effort. Using separate measures of disaggregation of smaller line items versus larger, obviously material, line items, we provide evidence that one of the avenues through which disaggregation may increase auditor effort is through changes in auditors' assessments of materiality for smaller line items, especially when financial statement scrutiny is high. We also find disaggregation (and the audit fees associated with disaggregation) constrain the ability of managers to manipulate earnings in the audited financial statements compared to the unaudited financial statements, suggesting the fee response to disaggregation is due to auditor effort. Lastly, we provide evidence that our results are not fully explained by client litigation risk or other client attributes driving disaggregation choices.

scholarly journals Unpacking the IFRS Implications of COVID-19 for Travel and Leisure Companies Listed on the JSE

2021 ◽  
Vol 13 (14) ◽  
pp. 7942
Author(s):  
Diana da Silva ◽  
Danie Schutte ◽  
Jhalukpreya Surujlal
Keyword(s):  
Design Methodology ◽  
Financial Statements ◽  
Information Design ◽  
Financial Information ◽  
Financial Statement ◽  
Foreseeable Future ◽  
Financial Decisions ◽  
Going Concern ◽  
Utmost Care ◽  
The Impact

Purpose: The main purpose of this article is to study the IFRS implications of COVID-19 for selected travel and leisure companies listed on the JSE. The article investigates how these selected companies disclose financial information regarding the going concern, or in other words; the sustainability of the company, revenue of the company, how the companies made estimations, and more, to account for the impact of the coronavirus pandemic on their financial information. Design/methodology/approach: content analysis was used to analyse the financial statements of ten travel and leisure companies listed on the JSE. This analysis indicated what additional disclosures these companies have in the light of COVID-19. Findings: even though there is no specific IFRS standard providing guidance on the impact of COVID-19, the findings reveal that the companies took utmost care in disclosing information and the impact of COVID-19 in the financial statements. Companies cautiously considered the impact of the coronavirus on their financial results and provided the users of these financial statements with transparent financial information, regarding going concern and sustainability of the company, revenue, estimations, and more. Originality/value: a new economic crisis, different from any other economic crises, emerged as a result of COVID-19 and the IFRS implications such as, the effect on sustainability and going concern, impact on revenue of companies, financial estimations during the coronavirus pandemic, the effect of COVID-19 on the financial subsequent events and other financial statement disclosures is still unclear. This study is deemed of vital importance as the users of financial statements require all the necessary information about how COVID-19 has affected these companies, and whether or not these companies will be sustainable in the foreseeable future, as to enable the financial statement users to make informed financial decisions.

scholarly journals Auditor Style Dan Komparabilitas Laporan Keuangan

2019 ◽  
Vol 1 (1) ◽  
pp. 109-122
Author(s):  
Riski Wulandari ◽  
Henri Agustin ◽  
Mayar Afriyenti
Keyword(s):  
Stock Exchange ◽  
Financial Statements ◽  
Financial Statement ◽  
Accounting Standard ◽  
Audit Firm ◽  
Internal Working ◽  
Big 4 ◽  
Audit Firms ◽  
Reported Earnings ◽  
Working Rules

Auditor style defined as a unique set of internal working rules for the interpretation and enforcement of accounting standard within the auditor’s clienteles belongs to particular audit firm, especially Big 4 audit firms. As a consequence, financial statements of two companies audited by the same Big 4 auditor, subjected to the same audit style, tend to have comparable earnings which have a more similar accrual, than two companies audited by two different Big 4 auditors with different styles. This research attempts to examine the effect of this auditor style issue on manufacturing financial statement comparability listed in Indonesian Stock Exchange. For five years’ observations, through 2012-2016 this research demonstrated a result with auditor style affects the comparability of reported earnings within a Big 4 auditor’s clientele and found no effect of auditor style on financial statement comparability within a non-Big 4 auditor’s clientele

scholarly journals Using the Beneish M-score model: Evidence from non-financial companies listed on the Warsaw Stock Exchange

2020 ◽  
Vol 17 (4) ◽  
pp. 389-401
Author(s):  
Artur Hołda
Keyword(s):  
Factor Model ◽  
Stock Exchange ◽  
Financial Statements ◽  
Small Sample ◽  
Financial Information ◽  
Financial Statement ◽  
Control Group ◽  
Warsaw Stock Exchange ◽  
History Of ◽  
Score Model

The risk of distortion of financial statements has been growing. Following the 2008 crisis, recipients of financial information are increasingly focusing on the likelihood of financial statements being distorted through fraudulent presentation of financial information. Therefore, scientific research pays more attention to models capable of detecting financial statement manipulation.The paper aims to present the principles of functioning and the possibility of using the Beneish M-score model in Polish realities. It analyzes the history of more than 30 companies listed on the Warsaw Stock Exchange to select those whose history indicates that they can be classified as manipulators, and to select the same number of companies from the control group that are considered as non-manipulators.The research method involves the analysis of empirical data on companies listed on the Warsaw Stock Exchange. The analysis showed the 8-factor Beneish model identified manipulators with 100% accuracy and succeeded in identifying non-manipulators. The effectiveness of the 5-factor model was much lower. To serve the purpose of the study, the effectiveness of the Beneish model was tested on a small sample of Polish listed companies as an introduction to a planned larger scale research. The results obtained are consistent with the results of numerous studies by authors from various countries and confirm the effectiveness of the Beneish model in detecting financial statement manipulation. AcknowledgmentThe publication is sponsored by funds from the Cracow University of Economics for the maintenance and development of research potential.

scholarly journals The Quality of Local Government Financial Statements and The Use of Financial Information in Decision Making

2020 ◽  
Vol 3 (1) ◽  
pp. 73
Author(s):  
Raden Muhammad Rachmansyah Shadiqiawan ◽  
Sri Mulyani
Keyword(s):  
Decision Making ◽  
Local Government ◽  
Hypothesis Testing ◽  
Local Governments ◽  
Financial Statements ◽  
Financial Information ◽  
Financial Statement ◽  
Government Decision ◽  
Testing Data

Financial statements contain information that is very helpful for users in making decisions. This study examines whether there are differences in the use of financial statement information decision making between the local government that obtain unqualified and qualified opinion for their financial statements. This study used the Mann Whitney test for hypothesis testing. Data was collected through a survey using a questionnaire on five local governments in West Java.The results of this study indicate that there are no significant differences in the use of financial statement information for local government decision-making, both in local governments that obtain unqualified and qualified opinions for their financial statements. This study also found that the financial statements most often used as a basis for decision making in the two groups of local governments are budget realization statement. 

scholarly journals DETECTING OF BOND DEFAULTS INDICATIONS USING FINANCIAL STATEMENT AND SHENANIGANS INDICATORS

2021 ◽  
Vol 5 (02) ◽  
pp. 69
Author(s):  
Arya Wedha Rieantiari ◽  
Ancella Anitawati Hermawan
Keyword(s):  
Financial Statements ◽  
Financial Statement ◽  
Annual Reports ◽  
Financial Indicators ◽  
Financial Report ◽  
Creative Accounting ◽  
Big 4 ◽  
Report Data ◽  
Investment Grade

<em>This study aims to detect indications of bond defaults by conducting a thorough analysis of PT Trikomsel Oke, Tbk (TRIO)'s financial statements. TRIO's financial statements show that the company's revenue and profits increased during 2009-2014. However, the Indonesia rating agency (PEFINDO) declared default on the two bonds issued by TRIO in November 2015, even though the signal TRIO gave to its financial statements was an unqualified opinion from one of the big 4 Public Accountants for six consecutive years and PEFINDO's investment grade. This study uses a case study method.. Financial report data are analyzed by financial ratios and financial indicators of shenanigans. Evidence shows that there are indications of creative accounting and shenanigans before bonds were declared defaulted in 2015. With these results, this study suggests investors and creditors be more vigilant in analyzing published annual reports</em>

scholarly journals Auditors’ perceptions of their roles and responsibilities: The impact of exposure to litigation risk

Accounting ◽  
2021 ◽  
Vol 7 (6) ◽  
pp. 1435-1444 ◽  
Author(s):  
Ahmed Abdullah Saad Al-Dhubaibi
Keyword(s):  
Financial Statements ◽  
Third Parties ◽  
Litigation Risk ◽  
Certified Public Accountants ◽  
Audit Firm ◽  
Roles And Responsibilities ◽  
Big 4 ◽  
Audit Firms ◽  
Public Accountants ◽  
The Impact

The purpose of this study is to investigate the perception of auditors regarding their responsibilities and potential liabilities to third parties in the case of failure to detect fraud/material misstatements and report the findings to the appropriate party. The study proposes that auditors’ perception of their own responsibilities will depend on the level of litigation threat expected by the auditor based on his or her position in the audit firm. The questionnaire was sent to the big 4 audit firms, the global audit firms other than the big 4, and to 189 different sized local audit firms registered with the Saudi Organization of Certified Public Accountants (SOCPA). The findings of this study revealed significant variations among auditors with regards to their perceptions of their own responsibilities and liabilities to financial statements’ users affected by their expected level of exposure to litigation risk.

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