Audit Committee Incentives and the Resolution of Detected Misstatements

2015 ◽  
Vol 34 (4) ◽  
pp. 109-137 ◽  
Author(s):  
Marsha B. Keune ◽  
Karla M. Johnstone
Keyword(s):  
Audit Committee ◽  
Positive Association ◽  
Stock Option ◽  
Economic Incentives ◽  
Data Availability ◽  
Audit Committees ◽  
Analyst Forecast ◽  
Agency Conflicts ◽  
Option Compensation ◽  
Stock Option Compensation

SUMMARY We investigate the role of audit committee economic incentives in judgments involving the resolution of detected misstatements. The results reveal a positive association between audit committee short-term stock option compensation and the likelihood that managers are allowed to waive income-decreasing misstatements that, if corrected, would have caused the company to miss its analyst forecast. Complementary results reveal a positive association between the audit committee long-term stock option compensation and the likelihood that managers are allowed to waive income-increasing misstatements when the company reports just missing, meeting, or beating its analyst forecast. These findings illustrate agency conflicts that can arise when compensating audit committees with options. We obtain these results while controlling for CEO option compensation and audit committee characteristics, along with indicators of corporate governance, auditor incentives, and company characteristics. Data Availability: Data used in the study are available from public sources

scholarly journals Do Gender Diversity Recommendations in Corporate Governance Codes Matter? Evidence from Audit Committees

2020 ◽  
Vol 39 (1) ◽  
pp. 173-197 ◽  
Author(s):  
Nigar Sultana ◽  
Steven F. Cahan ◽  
Asheq Rahman
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Gender Diversity ◽  
Positive Association ◽  
Data Availability ◽  
Audit Committees ◽  
Women Directors ◽  
Corporate Governance Codes ◽  
Limited Supply ◽  
The Impact

SUMMARY Motivated by two opposing views, the limited supply view and the discrimination view, we examine the impact of gender diversity guidelines on the strength of the association between the presence of female audit committee members and audit quality. The limited supply view predicts that the effect of female audit committee members on audit quality would decrease after the guidelines were issued because they increased the demand for women directors without a commensurate increase in the supply of qualified women directors. The discrimination view predicts this relation would increase after the guidelines were issued since some firms would have abandoned their suboptimal hiring practices that favored men over better qualified women, resulting in higher quality firm-director matches as opportunities for women increase. Consistent with the limited supply view, we find that the positive association between audit committee gender diversity and audit quality weakened after gender diversity guidelines were introduced in Australia. JEL Classifications: G38; M42; M48. Data Availability: Data are available from the databases cited in the text.

The Influence of PCAOB Inspections on Audit Committee Members' Judgments

2013 ◽  
Vol 25 (2) ◽  
pp. 97-114 ◽  
Author(s):  
Julie S. Persellin
Keyword(s):  
Audit Committee ◽  
Committee Member ◽  
Stock Option ◽  
Data Availability ◽  
Short Term ◽  
External Auditors ◽  
Public Company ◽  
Governance Process ◽  
Option Compensation

ABSTRACT: This paper experimentally examines whether the likelihood of a Public Company Accounting Oversight Board (PCAOB) audit engagement inspection can moderate the negative incentives created by short-term stock option compensation on audit committee members' decisions. Prior research suggests that short-term option compensation may weaken audit committee member objectivity and oversight quality (Archambeault et al. 2008; Magilke et al. 2009; Keune and Johnstone 2010); however, holding individuals accountable for their actions has been shown to result in less self-serving decisions (Rus et al. 2012). Ninety-two Executive M.B.A.s, serving the role of audit committee members, evaluate a hypothetical audit case that involves a dispute between management and the external auditors, with likelihood of PCAOB inspection and type of compensation manipulated between participants. Results confirm prior research on option compensation, finding that participants show less support for recording a proposed income-reducing audit adjustment when compensated primarily with short-term options rather than cash. In addition, a significant interaction reveals that PCAOB inspection likelihood moderates the effect of compensation form, such that option compensation only causes audit committee members to not recommend recording the proposed adjustment when PCAOB inspection likelihood is low. These results allow stakeholders to gain valuable insights into ways in which loyalties that have been potentially misaligned may be realigned by regulatory requirements aimed at improving the corporate governance process. Data Availability: Data available upon request.

Are Stock Option Grants to Directors of State-Controlled Chinese Firms Listed in Hong Kong Genuine Compensation?

2013 ◽  
Vol 88 (5) ◽  
pp. 1547-1574 ◽  
Author(s):  
Zhihong Chen ◽  
Yuyan Guan ◽  
Bin Ke
Keyword(s):  
Hong Kong ◽  
Stock Options ◽  
Stock Option ◽  
Data Availability ◽  
Money Stock ◽  
Chinese Firms ◽  
Foreign Investors ◽  
Option Compensation ◽  
Jel Classifications ◽  
Stock Option Compensation

ABSTRACT: We examine the determinants and consequences of stock option compensation to directors of state-controlled Chinese firms that are incorporated outside China and listed in Hong Kong, referred to as state-controlled Red Chip firms, over the period 1990–2005. We find that state-controlled Red Chip firms granted directors a significant number of stock options in response to the demand of foreign investors. However, state-controlled Red Chip firms forced the directors to forfeit a significant percentage of their vested in-the-money stock options due to a conflict between the high-powered stock option compensation and state-controlled Red Chip firms' unique managerial labor market. We find little evidence that directors' stock option compensation changed the behavior of state-controlled Red Chip firms. Overall, our results are consistent with the media's allegation that the stock options granted to directors of many, if not all, state-controlled Red Chip firms are not genuine compensation. JEL Classifications: D21, G32, J33, M40, N25 Data Availability: Data used in this study are publicly available from the sources identified in the paper.

Auditors' Communications with Audit Committees: The Influence of the Audit Committee's Oversight Approach

2018 ◽  
Vol 38 (2) ◽  
pp. 125-150 ◽  
Author(s):  
Krista Fiolleau ◽  
Kris Hoang ◽  
Bradley Pomeroy
Keyword(s):  
Audit Committee ◽  
Level Of Detail ◽  
Data Availability ◽  
Audit Committees ◽  
Communication Style ◽  
Quality Audit ◽  
Resolution Process ◽  
Asking Questions

SUMMARY Policymakers have identified effective communications between the auditor and the audit committee (AC) as an indicator of a quality audit, but little is known about the factors auditors consider when deciding what to communicate about significant accounting issues. We propose auditors use the AC's oversight approach as a cue for the level of detail in their communications that is necessary to satisfy the AC's preferences for auditors' insights on issues that were resolved with management. In our experiment, auditors resolved an inventory obsolescence issue with a hypothetical CFO, and then wrote a communication about it for the AC. We manipulate the AC's preference for getting involved in the issue resolution process and its reputation for asking questions. Our results, supplemented by findings from audit partner interviews, suggest auditors tailor their communications to the AC's oversight approach, the AC's industry and accounting knowledge, and the AC chair's preferred communication style. Data Availability: Contact the authors.

scholarly journals DAMPAK STRUKTUR MODAL PADA SENSITIVITAS PENERAPAN KOMPENSASI OPSI SAHAM KARYAWAN TERHADAP KINERJA

2017 ◽  
Vol 14 (1) ◽  
pp. 1
Author(s):  
Nur Fadjrih Asyik
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Stock Options ◽  
Stock Option ◽  
Company Performance ◽  
Employee Stock Option ◽  
Sensitivity Level ◽  
The Impact ◽  
Option Compensation ◽  
Stock Option Compensation

This study aims to test whether the management that receive compensation in the form of stock options having an positive impact on company performance. This study considers the external performance measurement by identifying Cumulative Abnormal Return (CAR). In addition, this study aims to test whether the company's capital structure affects the sensitivity level of employee stock option compensation and firm performance. Capital structure is measured with debt to equity ratio. The result indicates that the proportion of Employee Stock Option Plan (ESOP) influence company performance in accordance with the predictions. This shows that the more stock options offered to employees then came a sense of belonging which resulted in more motivated managers to improve company performance. Furthermore, the higher the market performance of companies that can be achieved, the higher the profit (gain) will be obtained by the recipient of stock options. In addition, this study also shows that the impact of stock option grants at the company's performance declined with the greater capital structure of liability. This shows that the capital structure of liabilities will lower the sensitivity level of employee stock option compensation and firm performance. The higher the company's liabilities would reduce the rights of the owner of the dividends each period in accordance with the ownership of shares held since the company must take into account the interest costs to be paid to the creditor.

Sign in / Sign up

Export Citation Format

Share Document