The Economic Consequences of Financial Misreporting: Evidence from Employee Perspective

2021 ◽  
Author(s):  
Xinghua Gao ◽  
Yonghong Jia
Keyword(s):  
Firm Performance ◽  
Internal Control ◽  
Stock Prices ◽  
Employee Turnover ◽  
Labor Demand ◽  
Economic Consequences ◽  
Executive Turnover ◽  
Employee Perspective ◽  
Financial Misreporting ◽  
Employee Tenure

This study investigates the economic consequences of financial misreporting from the employee perspective. Specifically, we examine two employee reactions: (1) exiting from misreporting firms and (2) reducing holding of employer stock, in both the misreporting period and the post-restatement period. We find an increase in employee turnover and a decrease in employee holding of employer stock in the post-restatement period (restatement effect) and some evidence that employees start to react in the period of misreporting (misreporting effect). We also find some evidence that the misreporting effect varies with employee tenure in the misreporting period and the restatement effect varies with the severity of misreporting in the post-restatement period. We further show that our results are not driven by labor demand, increased likelihood of executive turnover, declining stock prices, internal control weakness disclosure, and poor firm performance.

METHODS ASSESSMENT QUALITY OF ACCOUNTING REPORTING AND MODELS OF THEIR MEASUREMENT

2020 ◽  
Vol 3 (3) ◽  
pp. 95-99
Author(s):  
E. H. ABU ◽  
Keyword(s):  
Internal Control ◽  
Stock Prices ◽  
Control Method ◽  
Financial Statements ◽  
Accounting Conservatism ◽  
Standardized Assessment ◽  
Accrual Quality ◽  
Indirect Measures

The article explores individual approaches used to measure and evaluate the quality of financial state-ments: standardized assessment, accrual-based models (accrual quality), Beneise models (M-Score), in-dexes - the internal control method and the degree of accounting conservatism. The reason for the great dependence on the use of indirect measures (proxies for the quality of financial statements or stock prices) is that some of the qualities of financial statements are unobservable.

Instructional Case: General Host: Accounting for a Bond Refunding

1999 ◽  
Vol 14 (3) ◽  
pp. 451-464 ◽  
Author(s):  
Mary Beth Mohrman
Keyword(s):  
Earnings Management ◽  
Stock Prices ◽  
Cash Flows ◽  
Economic Consequences ◽  
Financial Accounting ◽  
Business Press ◽  
Paper Money ◽  
Book Values ◽  
The Relationship ◽  
Interest Expense

This assignment, which involves accounting for a simple bond refunding, achieves several objectives. First, it reinforces basic concepts in bond accounting, such as cash flows, book values, interest expense and gains/losses from early extinguishment. Second, it leads students to critically analyze an article from the popular business press. Third, it illustrates many important issues in financial accounting, such as earnings management, the relationship between earnings and stock prices, and economic consequences. Students are asked to read “Paper Money” from Forbes' “Numbers Game” column. The article describes General Host's bond exchange offer and questions the recognition of a gain in such circumstances. The case assignment requires students to carefully analyze the bond exchange and to question many of the authors' assumptions about the economic impacts of the exchange offer. I have used this case successfully in undergraduate intermediate accounting classes and in an introductory financial accounting course for M.B.A. students.

scholarly journals Corporate Governance and Firm Performance: The Role of the Board and Audit Committee

2018 ◽  
Vol 10 (1) ◽  
pp. 210
Author(s):  
Netai Kumar Saha ◽  
Rehnuma Hoque Moutushi ◽  
Mohammad Salauddin
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Group Dynamics ◽  
Internal Control ◽  
Audit Committee ◽  
Performance Indicator ◽  
Positive Impact ◽  
Board Independence ◽  
Board Size

Corporate Governance (CG) has become a paramount issue due to its greater significance of practicing accuracy, maintaining accountability, establishing effective internal control and regulating organizations for achieving organizational goals. The study is conducted to explore the relationship between corporate governance and firm performance with considering the role of board and audit committee. The multiple liner regression analysis is used as the underlying statistical test on the dependent variables, ROA, ROE and TQ to test the association between the independent variables (board size, board independence, size of audit committee and audit committee composition) with firm performance. Homogeneous purposive sampling has been used. The sample size of the study is 81 listed companies in DSE. The results of the study signify that board independence ratio and audit committee is statistically significant and has positive impact on ROA and TQ. But it is not statistically significant in the case of firm performance indicator ROE in this study. In addition to, Board size is not statistically significant and has negative correlation with firm performance due to group dynamics, communication gaps and indecisiveness of larger groups.

scholarly journals PENGARUH SATUAN PENGAWASAN INTERN (SPI) TERHADAP UPAYA PENINGKATAN KINERJA PD. PERKEBUNAN PROPINSI SUMATERA UTARA

2006 ◽  
Vol 6 (3) ◽  
pp. 339
Author(s):  
Muhammad Zilal Hamzah ◽  
Musa Ritonga
Keyword(s):  
Firm Performance ◽  
Natural Rubber ◽  
Internal Control ◽  
Oil Palm ◽  
Return On Investment ◽  
Control Unit ◽  
Positive Influence ◽  
Financial Data ◽  
Palm Tree ◽  
Unit Productivity

<p class="Style1">The purpose of this research is to find the influence of internal control unit toward the effort on increasing of finn performance and to know some factors which cause the lack of recommendation. The analisys done by using financial data in the last 5 years (2000-2004) including: productivity report, effectivity report, efficiency report and Return on Investment (R01) report. The results show that production of oil palm tree and natural rubber, effectivity of oil palm tree and natural rubber, efficiency of oil palm tree and ROI have significance influence toward firm performance simultaneously. Otherwise, production of natural rubber gives positive influence but insignificance toward firm performance, if tested partially. Generally, internal control unit has done its job in Perusahaan Daerah (PD) Propinsi Sumatera Utara.</p><p class="Style1">Keywords : internal control unit, productivity efficiency, Return on Investment (ROI).</p>

scholarly journals The Effect Of Abnormal Pay Dispersion On Earnings Management

2016 ◽  
Vol 32 (2) ◽  
pp. 687
Author(s):  
Sanghyuk Byun ◽  
Youngjoo Lee ◽  
Ohjin Kwon
Keyword(s):  
Firm Performance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Positive Association ◽  
Financial Statement ◽  
Executive Turnover ◽  
Relative Level ◽  
Top Executives ◽  
Pay Dispersion ◽  
Future Outcomes

This study examines the effect of the abnormal pay dispersion on earnings management. Prior studies find that pay dispersion among top executives affect firm performance and executive turnover. We expect that abnormal pay dispersion among top executives affects financial reporting practice as well as firm performance and turnover and provide evidence of positive association between abnormal pay dispersion and earnings management. This result suggests that executives are more likely to be engaged in earnings management to increase their compensation when they feel unfairness from the relative level of compensation. This finding helps financial statement users interpret firm performance and anticipate future outcomes by implying that additional managerial incentives for financial reporting are derived from internal pay dispersion. Our finding that abnormal pay dispersion leads to higher agency costs should also be of interest to shareholders.

scholarly journals The Reliance of External Auditors on Internal Audit's Use of Continuous Audit

2014 ◽  
Vol 29 (1) ◽  
pp. 95-114 ◽  
Author(s):  
Irina Malaescu ◽  
Steve G. Sutton
Keyword(s):  
Internal Control ◽  
Internal Audit ◽  
Economic Consequences ◽  
Automated Control ◽  
Material Weakness ◽  
Internal Auditor ◽  
External Auditors ◽  
Prior Literature ◽  
External Auditor ◽  
The Impact

ABSTRACT As a response to the increased demand for timely and ongoing assurance over the effectiveness of risk management and control systems, companies are moving toward a more automated control environment through the implementation of continuous audit modules. The purpose of this study is to evaluate external auditors' reliance on internal audit's work when advanced audit techniques are introduced by the internal auditor and the impact this reliance has on budgeted audit hours. Prior literature suggests that internal control deficiencies also have an impact on external auditor reliance and the audit budget. The reliance decision of an external auditor has important economic consequences and implications for efficiency and effectiveness of the overall audit. In recent years, the PCAOB has encouraged greater such reliance to improve audit efficiency. An experiment is conducted with 87 experienced external auditors to investigate the theorized effects. Using a 2 × 2 between-subjects factorial design, the frequency of the internal audit (traditional versus continuous audit) and prior year material weakness (absent versus present) are manipulated. Consistent with predictions, we find that auditors are willing to rely more on internal audit work in a continuous audit environment than in a traditional environment, and this effect is magnified when the prior year audit report on the effectiveness of internal controls indicates that controls are working properly. The presence of a material weakness, however, negatively impacts judgments on the budget for the valuation of a complex account. In addition, both material weakness and continuous audit have an impact on the overall audit budget, which is reduced only when the company has no prior year material weakness and a functioning continuous audit module is put in place. The results show that auditors increase budgeted hours for the engagement at a higher rate when the client uses traditional internal audit procedures.

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