scholarly journals The relationship between key audit matters in the new auditor's report and the risks reported in the management report and the estimates and judgments in the notes to the financial statements

2016 ◽  
Vol 90 (12) ◽  
pp. 580-613 ◽  
Author(s):  
Arjan Brouwer ◽  
Peter Eimers ◽  
Henk Langendijk
Keyword(s):  
The Netherlands ◽  
Information Needs ◽  
Balance Sheet ◽  
Financial Statements ◽  
Internal Controls ◽  
Financial Statement ◽  
It Systems ◽  
Strong Focus ◽  
The Relationship ◽  
Management Report

For decades, auditors have communicated their opinion on financial statements with standard wordings in the auditor’s report. However, stakeholders expect more information from the auditor. The limited transparency regarding an auditor’s actual activities, has contributed to the dissatisfaction concerning the functioning of auditors. The new (extended) auditor’s report is an answer to the information needs of stakeholders. The key audit matters reported by the auditor provide new insights to financial statement users with respect to significant estimates and risks reported in the financial statements. It may be expected from the auditor that he pays extra attention to the most significant estimates and risks. This article contains an examination of the degree to which reported key audit matters match with the significant risks presented in the directors’ reports, and with the significant accounting policies and estimates in the notes. We have studied management reports, financial statements and auditor’s reports of 50 companies listed in the Netherlands (at the AEX and Midkap index) in 2015. Our study shows that the key audit matters in the new auditor’s report often correspond with the significant accounting policies and estimates as they are reported by management in the notes. However, only in ten percent of the cases, the risks presented in the directors’ reports are mentioned as key audit matters in the new auditor’s report. Auditors have a strong focus on balance sheet items as key audit matters. Many companies recognize the riskiness of issues like reliability and continuity of IT systems and complying with regulation, but these are hardly mentioned as key audit matters. This is also a general finding of our study for issues related to the internal controls of the audited companies.

Rating Agency Adjustments to GAAP Financial Statements and Their Effect on Ratings and Credit Spreads

2014 ◽  
Vol 90 (2) ◽  
pp. 641-674 ◽  
Author(s):  
Pepa Kraft
Keyword(s):  
Default Risk ◽  
Credit Rating ◽  
Credit Ratings ◽  
Balance Sheet ◽  
Financial Statements ◽  
Financial Statement ◽  
Credit Spread ◽  
Credit Spreads ◽  
Term Structures ◽  
Interest Expense

ABSTRACT I examine a dataset of both quantitative (hard) adjustments to firms' reported U.S. GAAP financial statement numbers and qualitative (soft) adjustments to firms' credit ratings that Moody's develops and uses in its credit rating process. I first document differences between firms' reported and Moody's adjusted numbers that are both large and frequent across firms. For example, primarily because of upward adjustments to interest expense and debt attributable to firms' off-balance sheet debt, on average, adjusted coverage (cash flow-to-debt) ratios are 27 percent (8 percent) lower and adjusted leverage ratios are 70 percent higher than the corresponding U.S. GAAP ratios. I then find that Moody's hard and soft rating adjustments are associated with significantly higher credit spreads and flatter credit spread term structures. Overall, the results indicate that Moody's quantitative adjustments to financial statement numbers and qualitative adjustments to credit ratings enable it to better capture default risk, consistent with it effectively processing both hard and soft information.

Corporate Social Responsibility and Financial Reporting Quality:Evidence from Restatements

2020 ◽  
Author(s):  
Yi-Hung Lin ◽  
Hua-Wei (Solomon) Huang ◽  
Mark E. Riley ◽  
Chih-Chen Lee
Keyword(s):  
Financial Reporting ◽  
Negative Relationship ◽  
Reporting Quality ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Reporting Quality ◽  
Csr Reporting ◽  
Corporate Social ◽  
Reporting Environment ◽  
The Relationship

We find a negative relationship between aggregate CSR scores and the probability that firms restated financial statements over the period 1991-2012. We then break that period into three sub-periods in order to determine whether the relationship holds for all three sub-periods. During the sub-periods of 1991-2001 and 2002-2005, the negative CSR score - restatement probability relationship holds. The negative relationship disappears in the 2006-2012 sub-period. Additional analyses indicate CSR scores are significantly higher in the 2006-2012 sub-period, suggesting the disappearance of the relationship between aggregate CSR scores and financial statement quality may relate to changes in CSR assessments and the CSR reporting environment. Our findings update the literature linking CSR scores and financial reporting quality and identify the need for further research as to the reasons the link between these constructs disappeared.

scholarly journals IPTEKS PENGUKURAN KINERJA KEUANGAN PADA PT. PLN (PERSERO) WILAYAH SULUTTENGGO

2018 ◽  
Vol 2 (02) ◽  
Author(s):  
Regina F. Pinontoan ◽  
Natalia Y. T. Gerungai
Keyword(s):  
Financial Performance ◽  
Balance Sheet ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Ratios ◽  
Ratio Analysis ◽  
Financial Ratio ◽  
Leverage Ratio ◽  
Financial Ratio Analysis ◽  
A Company

The measurement of financial performance based solely on balance sheet financial statements and profit and loss is able to provide information on the feasibility of a company on the obligations of external parties and also assets owned by the company. From the results of financial statement analysis using financial ratio analysis of PT. PLN (Persero)Region  Sulutttenggo can evaluate the financial performance of companies that show unfavorable conditions where the value of the liquidity ratio is less stable and even decreases. Whereas the results of the calculation of leverage ratio and profitability ratio show fairly good conditions. Thus, the writer suggest that the management always evaluate in improving the company's financial performance.Keywords : financial statement, financial performance, financial ratios

Amtek Auto debacle: financial statement analysis

2020 ◽  
Vol 10 (2) ◽  
pp. 1-24
Author(s):  
Asheesh Pandey
Keyword(s):  
Learning Outcomes ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Statement Analysis ◽  
Content Type ◽  
Academic Level ◽  
Reserve Bank ◽  
Financial Decision ◽  
The Relationship ◽  
A Company

Learning outcomes The learning outcomes are as follows: developing an understanding of financial statement analysis among students; students would be able to calculate various ratios, understand their meaning and interpret them to take a financial decision; and exploring the relationship between financial leverage and risk. Case overview/synopsis Amtek Auto is a leading auto-components manufacturer established in 1988 which entered into bankruptcy in through the order of Reserve Bank of India in 2017. The company started with a humble beginning and later on the promoter decided to expand exponentially both through organic as well as inorganic growth in past 15 years. To grow a company kept on taking debt which made it riskier and deteriorated its financial position over a period. The case covers a 10-year timeline from 2008 to 2017. It gives an opportunity to analyze its financial statements to understand how its decisions shaped its performance Complexity academic level The case aims for students to take a comprehensive view of the financial statement analysis of Amtek Auto including the following: vertical and horizontal analysis; comprehensive ratio analysis including liquidity, profitability, leverage and turnover ratios with special emphasis on debt as a double-edged sword; analysis of Armtek Auto’s financial performance over a period of 10 years. Supplementary materials Teaching Notes are available for educators only. Subject code CSS 1: Accounting and Finance.

Can Auditors Mitigate Information Asymmetry in M&As? An Empirical Analysis of the Method of Payment in Belgian Transactions

2013 ◽  
Vol 33 (1) ◽  
pp. 57-91 ◽  
Author(s):  
Mathieu Luypaert ◽  
Tom Van Caneghem
Keyword(s):  
Information Asymmetry ◽  
Private Information ◽  
Regression Models ◽  
Financial Statements ◽  
Financial Statement ◽  
Firm Characteristics ◽  
Target Level ◽  
Financial Statement Audit ◽  
Method Of Payment ◽  
The Relationship

SUMMARY In this paper, we empirically examine the relationship between the external financial statement audit and the method of payment across a sample of Belgian mergers and acquisitions between listed and private firms over the period 1997–2009. We investigate whether a Big N audit (at the target level) reduces the need for a contingent payment resulting from information asymmetry about the target's value. In addition, we analyze whether a Big N audit (at the bidder level) limits incentives for bidders to exploit private information about their own value. Using multivariate ordered probit and binary regression models, we determine that contingent payments are less common when the target is audited by a Big N auditor after controlling for several other deal and firm characteristics. Furthermore, we find that the incentive to use stock payments in periods of stock market overvaluation is lower for acquirers with a Big N auditor. Finally, target shareholders are more likely to accept a contingent offer if the acquirer's financial statements are certified by a Big N auditor. JEL Classifications: G34; M4.

scholarly journals FINANCIAL STATEMENTS AS AN INFORMATION SOURCE FOR THE FINANCIAL CONDITION ANALYSIS AT THE ENTERPRISE

2020 ◽  
Vol 1 (18(46)) ◽  
pp. 57-61
Author(s):  
Nataliia Ivanchuk
Keyword(s):  
Information Needs ◽  
Direct Method ◽  
Information Source ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Resources ◽  
Financial Condition ◽  
Income Statement ◽  
Wide Range ◽  
Detailed Interpretation

Financial statements contain a wide range of indicators that are required for the correct assessment of the financial resources, directions of investment and efficiency of financial resources usage at the enterprise. This enables to ensure the adoption of the necessary management decisions, to raise funds to finance the activities of the entity from potential investors. In the research, the author has considered the essence, the purpose of drawing up and interested users of the financial statements, its shortcomings in the analysis of a financial condition. The article has proved that the financial statements of the company need improvement to ensure fuller satisfaction of the information needs of interested users, as the existing system of indicators of this report does not fully solve all the problems of financial condition analysis of the company. The author has suggested the following ways to improve the structure of financial statements of the enterprise: 1) in the Income Statement: – adding lines that will show fixed and variable costs of the enterprise; – showing in a separate line the financial costs related to the accrual of interest for the use of borrowed funds; 2) in the Cash Flow Statement (created by the direct method): – adding an additional section, which reflects the monthly receipt and expenditure of cash (during the reporting and previous period); 3) in the Financial Statement Notes: – providing a detailed interpretation of the articles from the previous forms so that users do not have questions about the content of articles that contain the word «others»; – providing the necessary information about the renewal of fixed assets; the usage of equipment; rationing of current assets; changes in overdue receivables; structure of receivables and payables in terms of such types as debts under the terms of contracts and overdue debts; – publishing the index of prices for products of the enterprise and the index of change in the cost of production compared to the previous year; buyers and suppliers the company interacts with; prices and profitability of securities owned by the company; investments in inventory incurred during the year; 4) approving a single form of the Financial Statement Notes that will ensure uniformity of information presentation by all domestic enterprises.

scholarly journals IMPLEMENTASI SAK SYARIAH DALAM LAPORAN KEUANGAN KOPERASI PENGKREDITAN RAKYAT SYARIAH (KPRS)

2020 ◽  
Vol 11 (2) ◽  
pp. 123-132
Author(s):  
Nimatul Ula ◽  
Nawirah Nawirah
Keyword(s):  
Qualitative Research ◽  
Balance Sheet ◽  
Accounting Standards ◽  
Financial Statements ◽  
Financial Accounting ◽  
Financial Statement ◽  
Online Data ◽  
Financial Reports ◽  
Financial Report ◽  
Financial Position

The purpose of this study is to determine the suitability of the presentation of the An-Nahl Pandaan KPRS financial statements to Syaria FAS. This research uses descriptive qualitative research in which the purpose is to describe and illustrate the application of Sharia Financial Accounting Standards in terms of the financial statements prepared by KPRS An-Nahl Pandaan. The techniques used in data collection are through observation, interviews, documentation, and online data search techniques. The results of the analysis and discussion of this study indicate that most of the financial statement presentations in KPRS An-Nahl are in accordance with Sharia FAS even though only the entity only reports the financial position (Balance Sheet). From the An-Nahl KPRS financial report that looks very prominent the discrepancy is that An-Nahl KPRS does not make the six other financial report components listed in the Sharia FAS because the KPRS An-Nahl management itself does not yet understand how to prepare financial reports in accordance with applicable standards.

scholarly journals THE VALUE OF RESTATEMENT TO FRAUD PREDICTION

2019 ◽  
Vol 20 (6) ◽  
pp. 1210-1237
Author(s):  
Shi Qiu ◽  
Hong-Qu He ◽  
Yuan-sheng Luo
Keyword(s):  
Balance Sheet ◽  
Financial Statements ◽  
Primary Objective ◽  
Financial Statement ◽  
Financial Statement Fraud ◽  
Financial Reports ◽  
Financial Report ◽  
Financial Restatements ◽  
Fraud Prediction ◽  
Different Characteristics

A financial report restatement reflects errors in the previous financial statement, and thus it increases investors’ doubt about the credibility of the financial statement. The primary objective of this paper is to examine whether restatement announcements imply increased fraud risks in Chinese firms in the context that up to one quarter of listed companies have restated their financial reports in China, and explore the implications of the content, severity and reasons for restatements with respect to fraud. In this paper, firms with financial restatements prove to be more likely to be labeled as fraudulent by regulators in China. Second, the following results also are revealed: (1) financial statements, except balance sheet restatements, provide insights into the revelation of fraudulent behaviors, (2) the severity of restatements is positively correlated with future fraud disclosures, and (3) restatements due to negligence are positively correlated with future fraud occurrences. These results imply that restatement announcements and their different characteristics provide important information for detecting financial statement fraud.

Horse Vet, LLC: Transaction Analysis and Statement of Cash Flows Preparation (Option 1)

2017 ◽  
pp. 1-12
Author(s):  
Mark E. Haskins
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Financial Statements ◽  
Cash Flows ◽  
Financial Statement ◽  
Balance Sheets ◽  
Income Statement ◽  
Transaction Analysis ◽  
Business Events ◽  
Statement Of Cash Flows

This case pertains to the foundational underpinnings of the accounting process and the statement of cash flows. In Part I, students are presented with 23 business events that they must evaluate for recording in the financial records. Part II requires students to prepare a 2012 statement of cash flows using the information presented in the company's 2011 and 2012 year-end balance sheets along with its 2012 income statement. In Part III, students must rely on a 2011 balance sheet and a 2011 statement of cash flows to work backward to derive the 2010 year-end balance sheet. There are two versions of this case: Option 1 and Option 2. The Option 2 case is a bit more challenging than the Option 1 case. Instructors should use Option 2 if they feel students are well grounded in their understanding of financial statement relationships and the customary financial reporting of a typical set of business events. Both cases reinforce students' learning related to the accounting process and the connectivity between the financial statements. Please note that only one version of the case should be used due to the existence of some overlap between the two.

The Joint Influence of the Extent and Nature of Audit Evidence, Materiality Thresholds, and Misstatement Type on Achieved Audit Risk

2012 ◽  
Vol 31 (2) ◽  
pp. 19-41 ◽  
Author(s):  
David V. Budescu ◽  
Mark E. Peecher ◽  
Ira Solomon
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Internal Controls ◽  
Financial Statement ◽  
Audit Risk ◽  
Joint Influence ◽  
Materiality Thresholds ◽  
External Auditor ◽  
Audit Effectiveness

SUMMARY We use simulation to investigate the joint effects of materiality, evidence extent, evidence nature, and misstatement type on achieved audit risk, i.e., the risk of undetected material financial statement misstatement due to error or fraud. Our primary results are fourfold. First, contrary to conventional audit wisdom, we show that elevating the extent of testing decreases achieved audit risk only under certain conditions and may well increase it. Second, reducing materiality (attempting to perform a more precise audit) can either enhance or jeopardize audit effectiveness. Third, learning about the quality of the internal controls over financial reporting not only can help the auditor to perform an integrated audit, but also helps the auditor to reach better judgments about the extent to which and how evidence from the auditee organization's management and/or information systems may be distorted as a result of misstatement, reducing the risk that the auditor would be misled by such evidence. Fourth, when financial statements are biased intentionally due to fraud, it is especially important for the external auditor to supplement more traditional audit tests with tests that produce evidence that is less likely to be biased by management. Auditors who do not understand these four results run a heightened risk of compromising audit effectiveness.

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