The auditing profession and the key audit matter reporting requirement

Purpose This study aims to examine the setting of International Standards on Auditing (ISA) 701 on disclosing key audit matters (KAMs) to explore the role of standard setting in maintaining or reconstituting the relationship of the auditing profession with preparers and users of financial reports. Design/methodology/approach This study draws on concepts from the sociology of the professions literature and the regulatory space metaphor. Data comprises comment letters and other documents pertaining to the setting of ISA 701. Findings The study shows that the KAM reporting requirement is part of the ongoing re-calibration of the regulatory arrangements governing auditing, which started in the early 2000s. This study interprets standard setting as a site for negotiating the relationships between linked ecologies in the audit regulatory space, namely, the auditing profession, preparers of financial statements and users of audited reports. This study identifies three processes involved in setting ISA 701, namely, reconstitution of the rules governing auditors’ reports as a link between the three ecologies, preserving boundaries between the auditing profession and preparers and negotiation aimed at balancing competing interests of the interrelated ecologies. Originality/value The study offers insights into the role of regulatory rule setting as a central medium through which the adaptive relationship of the profession with its environment is negotiated.

Towards Responsiveness: Consumer and Citizen Engagement in Co-Regulatory Rule-Making in the Australian Communications Sector

This article begins the process of evaluating the adequacy of the procedural and substantive requirements that Australian communications regulators (and hence industry bodies) must satisfy before co-regulatory codes of practice can be registered. It considers if the procedural requirements relating to consumer and public consultation, included in the statutory frameworks that authorise and govern co-regulation in the media, online and telecommunications sectors, ensure co-regulatory rule-making is sufficiently responsive to the interests of consumers and citizens. Drawing on publicly available information about seven industry bodies that have drafted codes of practice and round table discussions with industry, consumers and regulators, the article highlights that the current engagement practices of industry bodies often fall short of the ‘democratic credentials’ of responsiveness. It suggests that the code registration criteria relating to consumer and public consultation must be overhauled if these weaknesses are to be rectified.

Control in a preliminary contract: the problem of fixing and implementing the right

Control within the framework of the preliminary contract is aimed at preventive identification of possible obstacles to the proper performance of the obligations assumed by the counterparty to the conclusion of the main transaction. Verification provides (inter alia) information certainty of commodity circulation participants, allowing minimizing the risks of non-performance or improper performance of future obligations. It is proposed, applying the law analogy, to provide a regulatory rule giving the party to the preliminary contract an opportunity to refuse to perform the contract in case of establishing (by the results of the control) that the obligation to conclude the main contract will not be performed by the counterparty within the time-frame. It seems that this rule will have a regulatory function, encouraging the parties to the preliminary contract to organize proper control so that, on the one hand, to ensure the proper exchange of information, on the other hand – to prevent unwarranted interference in the economic activities of the counterparty. In this case, the unreasonable refusal of a party to a preliminary contract to provide the counterparty with an opportunity to exercise control (to provide the necessary information, property for inspection) should be regarded as a lack of interest or even intentional obstruction of the preliminary contract purpose achievement. The recognition of such dishonest behavior of a person as evasion from entering into a basic civil-law relation allows us to talk about the possibility of application of operative measures of influence by a competent subject.

Financial performance following discontinued operations

Purpose Prior literature provides empirical evidence that financial performance improves for core remaining operations after a firm discontinues some of their operations. This study aims to examine whether the association between discontinued operations and future financial performance improvement is affected by a regulatory rule (i.e. Statement of Financial Accounting Standards 144 [SFAS 144]) that significantly altered the reporting requirements of discontinued operations. This study also examines whether the association is dependent on the profitability of the operations discontinued. Design/methodology/approach Ordinary least square regressions are used to test the association between discontinued operations and financial performance improvement, conditional on the profitability of operations discontinued in the pre-SFAS 144 and SFAS 144 regulatory regimes. Data on profitability of operations discontinued is hand-collected. Findings Results suggest that firms experience improvement in financial performance following the reporting of discontinued operations in the pre-SFAS 144 era. Using hand-collected data on the profitability of operations discontinued, this research study also shows that improvement in performance is stronger for firms that discontinue loss operations compared to those that discontinue profitable operations. Originality/value This study explores the impact of regulatory change on the association between discontinued operations and future performance. Furthermore, unique hand-collected data is used to understand whether financial performance improvement is conditional on the profitability of the operations discontinued. Results documented in this paper should be of interest to investors, regulators and analysts in understanding the long-term strategic implications of discontinued operations.

Valuing Coastal Habitat–Fishery Linkages under Regulated Open Access

This paper explores how regulation of an open access fishery influences the value of a coastal habitat that serves as breeding and nursery grounds. A model of the fishery supported by a coastal wetland is developed, which includes a quota rule that restricts harvest to a fixed proportion of the current stock. The model is applied to mangrove-dependent shellfish and demersal fisheries in Thailand. The value of the welfare effects associated with a change in a supporting coastal habitat is influenced significantly by whether or not the regulatory quota can adjust in response to these changes. Welfare losses are considerably higher when the quota is fixed as opposed to when it can be adjusted. With the restriction in place, effort cannot change to offset the decline in biomass, and as a result, there is a much larger fall in harvest. In addition, the welfare losses are much larger for the shellfish compared to the demersal fisheries. The analysis illustrates that imposing a regulatory rule on an open access fishery has important implications for valuing any linkage between coastal breeding and nursery habitat and a near-shore fishery.

Supervisory and Regulatory Functions of Federal Executive Bodies: Problems of Differentiation in the Context of Administrative Reform

The article deals with the problems of differentiation between control and regulatory (rule-making) functions of federal ministries and federal services. Analyzing the logic of differentiating the functions in question within the framework of the administrative reform carried out in Russia in 2004, the author highlights, on the one hand, the reduction of the influence of corruption factors on the process of departmental rule-making as a positive effect of the reform, and reduction of efficiency in the preparation of normative legal acts, the negative impact of disagreements and contradictions between federal ministries and Federal services on the process and the results of rule-making. The author proposes to limit regulatory powers of regulatory authorities in terms of their adoption of normative legal acts regulating foreign relations, i.e. the activities of controlled entities, as well as regulating the procedure of control (supervision). At the same time, in the author’s opinion, it is irrational to limit the powers of federal services concerning adoption of normative legal acts of intra-organizational nature or aimed at regulating human resources issues and issues of providing social guarantees to officers of governmental agencies. The author concludes that improvement of the structure of federal executive agencies and the differentiation of functions between them should be carried out on the basis of functional and procedural reforms providing for the adoption of federal laws on normative legal acts and on state control (supervision). It is expedient to exclude from the rule-making from functions forming the basis for determining the types of federal agencies of executive power in accordance with the Decree of the President of the Russian Federation of March 09, 2004 No. 314 “On the System and Structure of Federal Executive Bodies.”

Part II Financial Services Regulation, 12 Market Abuse

This chapter examines the market abuse regime designed to protect and maintain orderly financial markets in the UK. It first provides an introduction to market abuse before discussing the development of the market abuse regime and the provisions of the European Union Market Abuse Regulation (EU MAR). It then considers the range of civil offences under the market abuse regime, including offences committed before EU MAR took effect, as well as the legislative and regulatory rule changes that were required in the UK to implement EU MAR. It also explains the distinction between criminal prosecution and civil action by the Financial Conduct Authority (FCA), the obligations to detect and prevent market abuse, and the range of sanctions that can be imposed by the FCA for breaches of EU MAR. The chapter concludes with an analysis of enforcement trends, the mood of the regulator and future developments relating to market abuse.

The CFTC turns to insider trading enforcement

Purpose To alert participants in the commodities markets to an important development in the exercise of enforcement authority by the Commodity Futures Trading Commission. Design/methodology/approach Explains a recent proceeding which resulted in the CFTC’s first-ever application of a newly-promulgated regulatory Rule to punish “insider trading” involving the commodities markets. Findings The CFTC has shown that it intends to apply its new Rule aggressively to address insider trading in the commodities markets. Practical implications As a result of the CFTC’s new enforcement approach to regulating insider trading in the areas under its jurisdiction, all participants in the commodities markets must be attuned to the prohibition on insider trading, familiar with actions that might be deemed unlawful insider trading, and act accordingly to avoid improper trading activities. Originality/value Practical guidance for participants in the commodities markets from an experienced attorney with expertise in government enforcement matters.