The Public Company Whistleblowing Environment: Perceptions of a Wrongful Act and Monetary Attitude

2017 ◽  
Vol 17 (1) ◽  
pp. 1-30 ◽  
Author(s):  
Alisa G. Brink ◽  
D. Jordan Lowe ◽  
Lisa M. Victoravich
Keyword(s):  
Financial Reporting ◽  
Insider Trading ◽  
Data Availability ◽  
Monetary Incentives ◽  
Fraudulent Financial Reporting ◽  
Public Companies ◽  
Securities Law ◽  
Anonymous Reporting ◽  
Sarbanes Oxley ◽  
External Reporting

ABSTRACT The passage of the Sarbanes-Oxley (SOX) and Dodd-Frank Acts created a unique environment for whistleblowing at public companies. SOX requires public companies to establish anonymous reporting channels, and Dodd-Frank outlines substantial monetary incentives for reporting securities law violations directly to the SEC. In response to these provisions, this study examines whether the type of securities law violation (fraudulent financial reporting versus insider trading), individuals' psychological assessments of the wrongdoing, and individuals' monetary attitude influence intentions to report to an internal hotline and to the SEC. We find internal reporting is driven by increased perceptions of responsibility to report a wrongful act, whereas external reporting to the SEC is driven by increased perceptions of seriousness regarding the wrongful act. Finally, we find that individuals' attitude toward money explains reporting intentions; however, we do not find any evidence that monetary attitude leads to increased reporting to the SEC. Data Availability: Data used in this study are available from the authors upon request.

Under Which Conditions are Whistleblowing “Best Practices” Best?

2013 ◽  
Vol 32 (3) ◽  
pp. 171-181 ◽  
Author(s):  
Jian Zhang ◽  
Kurt Pany ◽  
Philip M. J. Reckers
Keyword(s):  
Best Practices ◽  
Audit Committees ◽  
Behavioral Experiment ◽  
Public Companies ◽  
Anonymous Reporting ◽  
Sarbanes Oxley ◽  
Main Effect ◽  
History Of ◽  
Reporting Channel ◽  
Reporting Intentions

SUMMARY: Public companies are required by the Sarbanes-Oxley Act of 2002 to establish an anonymous reporting (whistleblowing) channel for employee reporting of questionable accounting practices. Corporate audit committees are provided flexibility in implementing this requirement and a controversial choice is the type of reporting channel. Most commentators argue that “best practices” call for an externally administered “hotline.” To examine the efficacy of externally administered versus internally administered channels we conducted a behavioral experiment. Our results reveal a significant main effect with reporting intentions being greater if the hotline is administered externally. We then examine whether this finding is robust across selected environmental and employee-specific conditions and find that it is not. Our results suggest that the primary reporting benefits of an externally administered hotline are for organizations with a history of poor responsiveness to whistleblowing and for employees registering relatively low on the proactivity scale. Specifically, we find that an externally administered hotline obtains higher reporting intentions under conditions wherein a previous incidence of whistleblowing notably failed to achieve a good outcome. Also, this effect is only statistically significant for participants registering as relatively low on a “proactivity” scale.

The Impact of Client and Misstatement Characteristics on the Disposition of Proposed Audit Adjustments

2011 ◽  
Vol 30 (2) ◽  
pp. 103-124 ◽  
Author(s):  
Jennifer Joe ◽  
Arnold Wright, and ◽  
Sally Wright
Keyword(s):  
Financial Reporting ◽  
Internal Controls ◽  
Data Availability ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Time Period ◽  
Confidentiality Agreement ◽  
Financial Scandals ◽  
The Impact

SUMMARY We present evidence on the resolution of proposed audit adjustments during a unique time period, immediately following several U.S. financial scandals and surrounding calls for reforms in auditing and financial reporting, which culminated in the passage of the Sarbanes-Oxley Act (SOX). During this period, auditors and their clients faced increased scrutiny from investors and regulators. In addition, auditors had to contend with changed incentives, a new external regulator (i.e., the PCAOB), and upcoming annual PCAOB inspections. We extend prior studies by considering a broader range of factors potentially impacting the resolution of proposed adjustments, including the effect of client tenure, strength of internal controls, and repeat adjustments. Data on 458 proposed adjustments are obtained from the working papers of a sample of 163 audit engagements conducted during 2002 by a Big 4 firm. We find that 24.2 percent of proposed adjustments were subsequently waived. The results indicate audit adjustments are more likely to be waived for clients with whom the audit firm has had a longer relationship, although the pattern does not reflect favoring such clients. We also find that adjustments are more likely to be waived for repeat adjustments. Data Availability: Due to a confidentiality agreement with the participating audit firm the data are proprietary.

Human Resources Information Systems Role in Sarbanes Oxley (SOX) Compliance

2009 ◽  
pp. 471-476
Author(s):  
Kathryn J. Ready ◽  
Milorad Novicevic ◽  
Monica Evans
Keyword(s):  
Human Resource ◽  
Financial Reporting ◽  
Standard Operating Procedure ◽  
Public Companies ◽  
Business World ◽  
Resource Information ◽  
Business Operations ◽  
Sarbanes Oxley ◽  
Human Resources Information Systems ◽  
It Departments

Compliance with the Sarbanes-Oxley Act (SOX) has become a new indispensable standard operating procedure for public companies competing in the business world of the 21st century. The SOX compliance is crucial for capital market stakeholders that want to ensure transparent insights into the companies’ business operations and financials following the revelation of significant fraud in financial reporting by Enron, HealthSouth, WorldCom, and Global Crossing. From the onset the demands of SOX compliance have resulted in increased responsibilities from companies’ finance and accounting departments. For more effective compliance and monitoring, the human resource (HR) and information technology (IT) departments need to be more strategically involved (Deloitte & Touche, 2003). One tool that may ease the companies’ burden of SOX compliance is the human resource information system (HRIS), provided its role is expanded beyond the traditional scope of ensuring Equal Employment Opportunity (EEO)m compliance and supporting payroll systems (Fletcher, 2005).

Audit Partner Tenure and Audit Planning and Pricing

2010 ◽  
Vol 29 (2) ◽  
pp. 45-70 ◽  
Author(s):  
Jean C. Bedard ◽  
Karla M. Johnstone
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Internal Controls ◽  
First Year ◽  
Public Companies ◽  
Audit Opinion ◽  
Audit Firm ◽  
Audit Planning ◽  
Sarbanes Oxley ◽  
Client Knowledge

SUMMARY: This paper investigates the association between audit engagement partner tenure and audit planning and pricing. Prior archival research from countries requiring partner signature on the audit opinion provides mixed results on the implications of partner tenure for audit quality. While variation in audit quality based on partner tenure implies some difference in the conduct of the engagement, prior research has not yet addressed whether engagement processes differ based on partner tenure. Using proprietary data from a large audit firm, we find that planned engagement effort increases following partner rotation, suggesting that new partners invest effort to gain client knowledge in the first year on the engagement. We also examine planned realization rates, finding them to be lower following partner rotation. This implies that new partners’ investments in client knowledge are not compensated by clients. We also find higher planned realization rates on audits having the same engagement partner for more than five years, a longer tenure than is now allowed for public companies following the Sarbanes-Oxley Act. We obtain these results while controlling for client risks that affect audit planning and pricing, including those related to financial reporting, management integrity, and internal controls.

Audit Firm Tenure and Fraudulent Financial Reporting

2004 ◽  
Vol 23 (2) ◽  
pp. 55-69 ◽  
Author(s):  
Joseph V. Carcello ◽  
Albert L. Nagy
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Auditor Independence ◽  
Fraudulent Financial Reporting ◽  
Audit Firm ◽  
Auditor Tenure ◽  
Sarbanes Oxley ◽  
Client Relationship ◽  
Mandatory Audit Firm Rotation ◽  
The U.S

The Sarbanes-Oxley Act (2002) required the U.S. Comptroller General to study the potential effects of requiring mandatory audit firm rotation. The General Accounting Office (GAO) concludes in its recently released study of mandatory audit firm rotation that “mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence” (GAO 2003, Highlights). However, the GAO also suggests that mandatory audit firm rotation could be necessary if the Sarbanes-Oxley Act's requirements do not lead to improved audit quality (GAO 2003, 5). We examine the relation between audit firm tenure and fraudulent financial reporting. Comparing firms cited for fraudulent reporting from 1990 through 2001 with both a matched set of non-fraud firms and with the available population of non-fraud firms, we find that fraudulent financial reporting is more likely to occur in the first three years of the auditor-client relationship. We fail to find any evidence that fraudulent financial reporting is more likely given long auditor tenure. Our results are consistent with the argument that mandatory audit firm rotation could have adverse effects on audit quality.

scholarly journals Fraudulent financial reporting in public companies in Indonesia: An analysis of fraud triangle and responsibilities of auditors

2015 ◽  
Vol 18 (2) ◽  
pp. 283
Author(s):  
Sri Astuti ◽  
Zuhrohtun Zuhrohtun ◽  
Kusharyanti Kusharyanti
Keyword(s):  
Logistic Regression ◽  
Financial Reporting ◽  
Stock Exchange ◽  
Fraud Triangle ◽  
Fraudulent Financial Reporting ◽  
Public Companies ◽  
Positive Correlation

This study investigates the determinants of fraudulent financial reporting in Indonesia and the responsibility of auditor for fraudulent financial reporting. This study posits that fraud triangle affects the fraudulent financial reporting, and auditors do not give unqualified opinion for fraud firms. The sample consists of 380 firms listed on Indonesia Stock Exchange. The 39 of 380 firms have received punishment from BAPEPAM during 2007-2010 periods. This study uses logistic regression to test the first hypothesis and correlation to test the second hypothesis. The finding suggests that: 1) fraud triangle (opportunity, pressure, and rationalization) does not affect the fraudulent financial reporting; 2) auditor opinion has a positive correlation towards fraudulent financial reporting.

scholarly journals From Phishing To Advanced Persistent Threats: The Application Of Cybercrime Risk To The Enterprise Risk Management Model

2010 ◽  
Vol 14 (4) ◽  
Author(s):  
John W. Moore
Keyword(s):  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Enterprise Risk Management ◽  
Management Model ◽  
Material Weakness ◽  
Public Companies ◽  
Advanced Persistent Threats ◽  
Sarbanes Oxley ◽  
Enterprise Risk

This paper examines the issues of cybercrime in the context of risk to organizations.  In particular, it considers the control frameworks most commonly used by U.S. public companies to benchmark their internal controls over financial reporting.  It discusses the market for stolen identities, looking at the sources from which many of those identities are stolen.  It reviews the available internal control frameworks and explains how a firm’s risk of cybercrime might be classified as a material weakness under Sarbanes-Oxley Section 404.  It models how the use of COSO’s Enterprise Risk Management model could improve an organization’s chances of avoiding a serious incident.

scholarly journals Analisis Komparasi Metode Altman Z-Score – Financial Ratio dan Metode Beneish M-Score Model – Data Mining dalam Mendeteksi Fraudulent Financial Reporting

2018 ◽  
Vol 2 (1) ◽  
pp. 14
Author(s):  
Fanny Magdalena ◽  
Hendang Tanusdjaja
Keyword(s):  
Data Mining ◽  
Financial Reporting ◽  
Z Score ◽  
Model Data ◽  
Fraudulent Financial Reporting ◽  
Public Companies ◽  
Financial Ratio ◽  
Score Model ◽  
Using Data ◽  
The Relationship

Abstract: The research tries to investigate which methods i.e. Altman Z Score – Financial Ratio or the method of Beneish M-Score Model – Data Mining, detect significantly to the Fraudulent Financial Reporting by comparing analysis on those methodologies. We argue those methods could detect the Fraudulent Financial Reporting significantly on the basis of the financial reporting in the go public companies. It is assumed that the financial reporting is formulated as good as possible before publish to the outsiders for taking another purpose of it. Thus, the research formulizes the comparison analysis on the methods for detecting the fraudulent financial reporting. Following this logic, we hypothesize that the higher the relationship to the indicator of ratios may affect to which method could more significantly in detecting positive relationship to the fraudulent financial reporting. Moreover, we test this hypothesis for the industry in consumer sector using data from IDX Database and run by PLS – SEM. Evidence strongly supports our hypothesis for detecting the fraudulent financial reporting by those methods, but the method of Altman Z Score – Financial Ratio is more influence in detecting the fraudulent financial reporting than the other.Keywords: fraud, financial, Altman Z Score, financial ratio, Beneish M-Score, Data Mining. Abstrak: Riset ini mencoba untuk menginvestigasi metode manakah diantara, Altman Z Score – Financial Ratio and metode Beneish M-Score Model – Data Mining, yang mendeteksi secara signifikan terhadap Fraudulent Financial Reporting dengan menggunakan analisis komparasi diantara metodologi yang diatas. Kami berargumentasi bahwa kedua metode tersebut dapat digunakan untuk mendekteksi Fraudulent Financial Reporting pada perusahan terbuka. Hal tersebut diasumsikan bahwa laporan keuangan dibuat sedemikian rupa sebelum dipublikasikan kepada pihak luar dalam rangka penggunaan untuk tujuan tertentu. Oleh karena itu, riset ini memformulasikan sebuah analisis komparasi metode untuk mendeteksi fraudulent financial reporting. Secara logika, penelitian ini menunjukkan suatu hipotesis dimana semakin tinggi hubungan antara metode dengan indikator rasio, maka metode tersebut semakin signifikan dalam mendektesi secara positif terhadap fraudulent financial reporting. Oleh karena itu, kami melakukan uji hipotesis ini pada industri sektor barang konsumsi dengan menggunakan data dari IDX dan dijalankan dengan PLS – SEM. Hasil uji telah membuktikan bahwa hipotesis di atas dapat mendeteksi fraudulent financial reporting, akan tetapi metode Altman Z Score – Financial Ratio  lebih berpengaruh dalam mendeteksi fraudulent financial reporting daripada metode Beneish M-Score Model.Kata kunci: kecurangan, keuangan, Altman Z Score, rasio keuangan, Beneish M-Score, data mining

Auditor-Provided Tax Nonaudit Services and the Implied Cost of Equity Capital

2017 ◽  
Vol 37 (3) ◽  
pp. 1-24 ◽  
Author(s):  
Nasser Alsadoun ◽  
Vic Naiker ◽  
Farshid Navissi ◽  
Divesh S. Sharma
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Equity Capital ◽  
Data Availability ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Sarbanes Oxley ◽  
Sensitivity Tests ◽  
Nonaudit Services ◽  
Implied Cost Of Equity

SUMMARY Although the Sarbanes-Oxley Act of 2002 (SOX) banned most nonaudit services (NAS), it did not restrict auditors from providing tax NAS to their audit clients. In the post-SOX period, regulators and investors are highly concerned about the increase in tax NAS and consequently calling for restrictions. The profession contends that tax NAS are beneficial to the audit and opposes limitations. We contribute to this ongoing debate and fill a void in the literature by examining investors' perception of auditor-provided tax NAS, as reflected in the implied cost of equity capital. Our results suggest that investors require higher cost of equity capital for clients that generate more tax NAS revenue for their auditor's office. Further tests reveal that our main finding is driven by audit clients that report more uncertain tax reserves (higher tax risk), rather than clients that exhibit poor financial reporting quality. The effects we document are economically significant and robust to a large battery of sensitivity tests. Our findings suggest that investors seem to negatively perceive tax NAS because of punitive and cash flow risks associated with tax NAS. Data Availability: All data are publicly available from sources identified in the text.

Computone Corporation: An Instructional Case in Earnings Management and Revenue Recognition

2007 ◽  
Vol 22 (2) ◽  
pp. 319-332 ◽  
Author(s):  
H. Lynn Stallworth ◽  
Robert L. Braun
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Potential Effect ◽  
High Tech ◽  
Fraudulent Financial Reporting ◽  
Revenue Recognition ◽  
Software Products ◽  
Competitive Industry ◽  
Sarbanes Oxley ◽  
The Impact

During the boom of the 1990s, Computone Corporation was a high-tech company with viable hardware and software products. The company struggled financially, however, in this very competitive industry. This case demonstrates how the company employed earnings manipulation techniques that resulted in violations of GAAP through improper revenue recognition. Developed from SEC Enforcement Releases, the case demonstrates the SEC's willingness to prosecute corporations and individuals involved in fraudulent financial reporting. The case requires you to analyze the impact of improper revenue recognition on financial statements and to identify risk factors that may have provided incentive and opportunity to engage in fraudulent financial reporting. In addition, the case asks you to consider the potential effect of the Sarbanes-Oxley Act of 2002 and discuss corporate governance issues.

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