Restoring Trust after Fraud: Does Corporate Governance Matter?

2005 ◽  
Vol 80 (2) ◽  
pp. 539-561 ◽  
Author(s):  
David B. Farber
Keyword(s):  
Financial Reporting ◽  
Stock Price ◽  
Audit Committee ◽  
Control Sample ◽  
Fraud Detection ◽  
Market Participants ◽  
Institutional Holdings ◽  
Price Performance ◽  
Big 4 ◽  
The Board Of Directors

In this study, I examine the association between the credibility of the financial reporting system and the quality of governance mechanisms. I use a sample of 87 firms identified by the SEC as fraudulently manipulating their financial statements. Consistent with prior research, results indicate that fraud firms have poor governance relative to a control sample in the year prior to fraud detection. Specifically, fraud firms have fewer numbers and percentages of outside board members, fewer audit committee meetings, fewer financial experts on the audit committee, a smaller percentage of Big 4 auditing firms, and a higher percentage of CEOs who are also chairmen of the board of directors. However, the results indicate that fraud firms take actions to improve their governance, and three years after fraud detection these firms have governance characteristics similar to the control firms in terms of the numbers and percentages of outside members on the board, but exceed the control firms in the number of audit committee meetings. I also investigate whether the improved governance influences informed capital market participants. The results indicate that analyst following and institutional holdings do not increase in fraud firms, suggesting that credibility was still a problem for these firms. However, the results also indicate that firms that take actions to improve governance have superior stock price performance, even after controlling for earnings performance. This suggests that investors appear to value governance improvements.

Does Audit Firm Tenure Matter to Audit Committee Members? Evidence from an Accounting Dispute

2018 ◽  
Vol 33 (2) ◽  
pp. 25-41 ◽  
Author(s):  
Janice E. Rummell ◽  
F. Todd DeZoort ◽  
Dana R. Hermanson
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Committee Member ◽  
Audit Firm ◽  
Big 4 ◽  
Analyst Expectations ◽  
Public Company ◽  
Management Experience ◽  
Support Relation

SYNOPSIS This study examines the effects of Big 4 audit firm tenure on audit committee member support for the auditor in an auditor/management dispute over a subjective accounting issue. One hundred eighteen U.S. public company audit committee members participated in an experiment with audit firm tenure (short/long) manipulated randomly between subjects. The results indicate that participants in the long audit firm tenure group provide more support for the auditor in the dispute than participants in the short tenure group. Audit committee support for the auditor is positively related to audit committee member experience and CPA status, as well as perceived management pressure to meet analyst expectations, but negatively related to perceived management experience in financial reporting. Finally, audit committee members' perceptions of audit firm reliability (i.e., credibility and dependability) mediate the audit firm tenure-auditor support relation. Overall, our results suggest enhanced audit committee support for longer-tenured auditors.

The association between corporate governance mechanisms and compliance with IFRS mandatory disclosure requirements: evidence from 12 African countries

2020 ◽  
Vol 20 (7) ◽  
pp. 1371-1392
Author(s):  
Yosra Mnif ◽  
Hela Borgi
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Mandatory Disclosure ◽  
African Region ◽  
African Countries ◽  
Content Type ◽  
Disclosure Requirements ◽  
The Board Of Directors ◽  
Expected Benefits

Purpose The purpose of this study is to examine the association between two corporate governance (CG) mechanisms, namely, the board of directors and the audit committee (AC) and the compliance level with International Financial Reporting Standards (IFRS) mandatory disclosure requirements across 12 African countries. Design/methodology/approach This paper uses a self-constructed checklist of 140 items to measure the compliance with IFRS mandatory disclosure requirements (here after, COMP) of 202 non-financial listed firms during the 2012–2016 period. This paper applies panel regressions. Findings The findings reveal that CG mechanisms play an important role in enhancing compliance with IFRS in the African context. The results show that board independence, AC independence and the number of meetings held by the AC are positively associated with COMP. Regarding expertize, this paper find that AC industry expertise along with accounting financial expertise is associated with a higher level of COMP than accounting financial expertize alone. These results show the importance of the CG mechanisms to enforce African companies to fully comply with IFRS required disclosures. Practical implications The findings should give a signal to supervisory authorities that more effort is necessary to enforce IFRS across African countries if the introduction of IFRS is to bring the expected benefits to investors and other users. Hence, the lack of full compliance should remain a concern for regulators, professional accounting bodies and policymakers. Originality/value This study contributes to the literature by providing further insights that, within the African region an understudied context, extend current understanding of the association between CG mechanisms and COMP.

The impact of audit committee financial expertise on de facto use of IFRS: does external auditor’s size matter?

2020 ◽  
Vol 20 (7) ◽  
pp. 1243-1263
Author(s):  
Ahmed Atef Oussii ◽  
Mohamed Faker Klibi
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
International Standards ◽  
Moderator Variable ◽  
Content Type ◽  
Big 4 ◽  
Important Message ◽  
Financial Expertise ◽  
Size Matter ◽  
The Impact

Purpose De facto use of International Financial Reporting Standards (IFRS) is a particular form of voluntary compliance with International Accounting Standards (IAS). It is practiced when an enterprise uses a number (and not all) of international standards as a complement to overcome the unachieved nature of local generally accepted accounting principles. The purpose of this paper is to analyze, at first, whether the financial expertise of Tunisian audit committee’s members is associated with de facto use of IFRS. Second, it explores to what extent and in what direction this association evolves when the factor auditor’s size is introduced as a moderator variable. Design/methodology/approach Data spanning a seven-year period (2012–2018) was hand-collected for a sample of 497 firm-year observations. Further, regression analysis was used to test the study’s hypothesis. Findings Findings show that the proportion of financial experts who sit on the audit committee is positively associated with the de facto use of IFRS. Besides, the association between audit committee members’ financial expertise and the voluntary use of IFRS is more pronounced when the company is audited by at least one BIG 4 audit firm. Practical implications The paper’s findings have implications for regulatory bodies and standards setters who are concerned with the functioning of the audit committee, especially when it comes to enhancing the quality of the financial statements. The results also shed light on the role of financial experts on the audit committee and Big 4 auditors to enforce the de facto use of IFRS. Originality/value The findings of this study contain an important message for the drift toward national de jure convergence with IAS.

scholarly journals Board Committees, CEO Compensation, and Earnings Management

2009 ◽  
Vol 84 (3) ◽  
pp. 869-891 ◽  
Author(s):  
Christian Laux ◽  
Volker Laux
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Ceo Compensation ◽  
Incentive Pay ◽  
Compensation Committee ◽  
Board Committees ◽  
Ceo Incentives ◽  
Ceo Pay ◽  
The Board Of Directors

ABSTRACT:We analyze the board of directors' equilibrium strategies for setting CEO incentive pay and overseeing financial reporting and their effects on the level of earnings management. We show that an increase in CEO equity incentives does not necessarily increase earnings management because directors adjust their oversight effort in response to a change in CEO incentives. If the board's responsibilities for setting CEO pay and monitoring are separated through the formation of committees, then the compensation committee will increase the use of stock-based CEO pay, as the increased cost of oversight is borne by the audit committee. Our model generates predictions relating the board committee structure to the pay-performance sensitivity of CEO compensation, the quality of board oversight, and the level of earnings management.

Stock option modification under SFAS 123(R)

2014 ◽  
Vol 12 (2) ◽  
pp. 177-195
Author(s):  
Steven Balsam ◽  
Il-woon Kim ◽  
David Ryan ◽  
Hakjoon Song
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Stock Price ◽  
Stock Option ◽  
Policy Makers ◽  
Content Type ◽  
Economic Determinants ◽  
Political Costs ◽  
Price Performance ◽  
Political Cost

Purpose – The purpose of this paper is to examine the motivations for and variations in terms of stock option modifications under Statement of Financial Accounting Standards (SFAS) 123(R). Stock options are used to motivate and retain employees. Unfortunately, when stock prices decline, existing options lose their incentive value. In response, firms look for ways to re-incentivize their employees. Their choices include issuing additional options and/or modifying existing grants. Design/methodology/approach – We investigate the economic determinants of stock option modification post SFAS 123(R), such as financial reporting cost, shareholder/political cost and employee incentive and retention. Our analysis is based on 67 sample firms that modify their stock option plans from 2005 to 2008 and 67 control firms constructed based on size, industry, year and stock price performance for the prior five years. Findings – The results show that loss firms are more likely to modify their options, which supports the argument that financial reporting costs influence the decision to modify. We find support for the shareholder/political costs hypothesis, as the overhang ratio is positively associated with the decision to modify. However, we find no evidence that modifications substitute for additional option grants. We find that politically sensitive larger firms are more likely to incorporate more shareholder friendly measures such as excluding executives from modification or providing shareholders the opportunity to vote on modification. Originality/value – This is the first paper examining the economic determinants of stock option modification under SFAS 123(R). Our findings provide some insights regarding economic determinants of SFAS 123(R) for accounting policy-makers and investors.

scholarly journals The Impact of Audit Committee Characteristics on Environmental and Social Disclosures

2019 ◽  
Vol 8 (3) ◽  
pp. 111-121 ◽  
Author(s):  
Ali Altuğ Biçer ◽  
Imad Mohamed Feneir
Keyword(s):  
Board Of Directors ◽  
Financial Reporting ◽  
Audit Committee ◽  
Good Image ◽  
The Board Of Directors ◽  
Important Means ◽  
Societal Impacts ◽  
The Impact

The main reasons for corporate participation in environmental and social disclosure are stability, development, and continuity through participation in protecting the environment and optimizing the use of available resources. As well as the company practices and participation in society of the most important means to create a good image of the company in the community. There is a rise demand for companies to take accountability for their environmental and societal impacts. A core role of the Audit Committee (AC) is to help the board of directors in overseeing the company's reporting policy and oversees the quality of financial reporting in the company. This study examined the impact of audit committee characteristics on the level of environmental and social disclosures in listed banks in Borsa Istanbul. The results of the study showed that there is no statistically significant relationship between the characteristics of the audit committee and the environmental and social disclosures. Consequently, these characteristics have no effect on the volume or type of disclosure and their inability to predict them.

scholarly journals Determinants of financial reporting quality and its implications on the financial performance of state-owned enterprises (SOEs)

2016 ◽  
Vol 6 (4) ◽  
pp. 521-530
Author(s):  
Evada Dewata ◽  
Hamdy Hadi ◽  
Hadi Jauhari
Keyword(s):  
Financial Performance ◽  
Board Of Directors ◽  
Financial Reporting ◽  
Audit Committee ◽  
Stock Exchange ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Government Ownership ◽  
Board Of Director ◽  
The Board Of Directors

This research aimed at analyzing the influence of the size of the board of directors, the composition of the independent commissioners, the effectiveness of audit committee and government ownership of the financial reporting quality and its implications on the financial performance of state-owned enterprises. Research population is state-owned enterprises listed on the Indonesia Stock Exchange from 2010-2014. There were 50 companies assigned as the sample of this research by using purposive sampling method. The results showed that partially, the size of the board of director, the composition of the independent commissioners and government ownership did not have the significant influence on financial reporting quality. The effectiveness of audit committee positively and significantly influenced financial reporting quality. The size of the board of directors, the effectiveness of the audit committee and financial reporting quality positively and significantly influenced financial performance. The composition of an independent commissioner and government ownership negatively and significantly influenced financial performance

scholarly journals Sustaining competitive advantage through good governance and fiscal controls: Risk determinants in internal controls

2020 ◽  
Vol 18 (1) ◽  
pp. 34-46
Author(s):  
Md. Jahidur Rahman ◽  
Rob Kim Marjerison
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Rapid Growth ◽  
Audit Committee ◽  
Good Governance ◽  
Geographic Distance ◽  
Negative Relationship ◽  
Internal Controls ◽  
Future Research ◽  
The Board Of Directors

This study conducts a comprehensive review of the literature published during 1989-2020 to identify the factors that can cause internal control weakness. This review is organized around five main groups, namely: 1) rapid growth and restructuring, 2) financial reporting complexity, 3) auditor tenure, 4) cultural differences, and 5) corporate governance. We perform an integrated literature review approach. Among the several factors found, some factors (the proportion of managerial ownership, Individualism, power distance, financial reporting complexity, rapid growth, and auditor-customer geographic distance) have a positive relationship with internal control weakness while others (the quality of the board of directors and auditing committees, directors’ compensation, and uncertainty avoidance) have a negative relationship. The findings contribute to future research by examining the factors that can cause internal control weakness from different perspectives, which will prove to be useful for investors, auditors, audit committee members, managers, and other stakeholders regarding the prevention of internal controls weaknesses through the application of solid internal controls as well as a path towards the improvement of existing problems of internal control weakness.

scholarly journals Gender in Audit Committee and Financial Reporting Timeliness: the Case of Unique Continental European Model

2018 ◽  
Vol 7 (2.29) ◽  
pp. 436
Author(s):  
Zaitul . ◽  
Desi Ilona
Keyword(s):  
Data Analysis ◽  
Panel Data ◽  
Board Of Directors ◽  
Financial Reporting ◽  
Audit Committee ◽  
Panel Data Analysis ◽  
Listed Companies ◽  
European Model ◽  
European System ◽  
The Board Of Directors

The goal of the current research is to identify whether or not the gender of Audit Committee members affects the timeliness of financial reporting. Unlike several studies which have focused on gender in the Board of Directors, the current study more specifically discusses gender in the Audit Committee in a country which adopts a Continental European System. This study employs panel data analysis for 370 observations of 185 Indonesian listed companies in the 2014-2015 period. This research reports that gender of the Audit Committee members is still debatable with regards to their role in improving the timeliness of financial reporting. Further, size, independence, expertise, and Audit Committee activities have an insignificant impact on the timeliness of financial reporting.  

scholarly journals The Effects of Interaction between Internal Auditor and Audit Committee on Fraud Detection in Malaysia

2018 ◽  
Vol 7 (4.38) ◽  
pp. 1338
Author(s):  
Sunita Lylia Hamdan ◽  
Nahariah Jaffar ◽  
Ruzanna Ab Razak
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Specific Interaction ◽  
Fraud Detection ◽  
Internal Audit ◽  
Internal Auditing ◽  
Internal Auditor ◽  
Internal Auditors ◽  
External Auditors

This study aims to examine the effect of interaction between internal auditor and audit committee on fraud detection in Malaysia.  Specific interaction is firstly; audit committee approving the appointment of chief audit executive, the evaluation of chief audit executive, the dismissal of chief audit executive, the internal audit budget and the internal audit plan or program.  Secondly, audit committee’s involvement in reviewing internal auditor’s work specifically; providing input for the internal audit plan, reviewing the results of internal auditing related to financial reporting, reviewing the results of internal auditing related to internal control, reviewing the results of internal auditing related to compliance with laws and regulation, reviewing the internal audit involvement in management responses to internal audit suggestions, reviewing the difficulties or scope restrictions encountered by internal auditors and reviewing the coordination between internal auditors and external auditors.  Survey questionnaires were mailed to internal auditors attached to 782 companies listed on Bursa Malaysia’s main market. The results of this study suggest that involvement of audit committee in approving chief audit executives’ matters is insignificant on internal auditors’ contribution to fraud detection.  However, audit committee’s involvement in reviewing internal auditors’ work significantly influence the internal auditors’ contribution in fraud detection.       

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