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1 – 10 of 735Richard Lane and Brendan T. O'Connell
This paper builds on the Committee of Sponsoring Organizations (COSO) Report, which examined US Accounting and Auditing Enforcement Releases (AAERs). The purpose of this paper is…
Abstract
Purpose
This paper builds on the Committee of Sponsoring Organizations (COSO) Report, which examined US Accounting and Auditing Enforcement Releases (AAERs). The purpose of this paper is to provide valuable insights into the characteristics and realities of financial statement fraud in the post‐Enron regulatory environment.
Design/methodology/approach
This paper analyses a sample of AAERs from 2002 to 2005. It also provides case studies of an additional five high‐profile case studies from that period.
Findings
This paper finds evidence of changes in Securities and Exchange Commission (SEC) enforcement activities since the COSO Report. Specifically, it is found that enforcement activities have increased substantially post‐Enron and the companies subject to AAERs are, on average, much larger, more profitable and the frauds are more substantial than those exhibited in the COSO Report. These findings suggest that the SEC has become more aggressive at pursuing larger companies for financial statement fraud in the post‐Enron environment.
Research limitations/implications
This paper relies on AAERs as the source of analysis of financial statement fraud, its findings must be viewed in light of the limitations of using these documents. Specifically, the prevailing prosecutions agenda of the US SEC may be reflected in these results.
Practical implications
The study findings are of great practical relevance to accounting regulators and practitioners as they provide valuable insights into the nature and characteristics of financial statement fraud.
Originality/value
The paper provides empirical evidence concerning the changing face of financial statement fraud enforcement and provides a more in‐depth comparison of fraud than possible with most previous studies that have tended to focus on quantitative measures. This is possible because the present investigation utilises qualitative data from AAERs to supplement quantitative findings. Its originality is also due to the use of institutional theory which is not commonly applied in the corporate governance field.
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There have been new interests in internal control and the COSOreport represents a milestone in the evolution of internal control. Thebusiness community and accounting profession…
Abstract
There have been new interests in internal control and the COSO report represents a milestone in the evolution of internal control. The business community and accounting profession reactions to the COSO report have been positive in the USA. The provisions of the COSO report help organizations to understand and appreciate better the value and importance of internal control; they also expand the elements and components of internal control, and provide guidelines for establishing criteria against which all entities can assess the adequacy and effectiveness of their internal control systems. The COSO report should provide a great implication for organizations′ internal audit functions and have a significant positive impact on the better recognition of the proactive role of internal auditors.
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Vandana Pramod, Jinghua Li and Ping Gao
The purpose of this paper is to form a new framework for preventing money laundering by mapping COBIT (Control for Information and Related Technology) processes to COSO (Committee…
Abstract
Purpose
The purpose of this paper is to form a new framework for preventing money laundering by mapping COBIT (Control for Information and Related Technology) processes to COSO (Committee of Sponsoring Organisation) components.
Design/methodology/approach
First, a new framework for preventing money laundering in banks is formed by mapping COBIT to COSO. Further, the potential of the mapped framework to comply with the Bank Secrecy Act requirements is analysed.
Findings
The mapped framework effectively supports all the activities of financial sectors through defining efficient information technology‐based processes and control methods. Information systems play a key role for financial sectors in producing financial statements, managing customer databases, detecting frauds, etc.
Research limitations/implications
Case studies of banks of different sizes, and in different countries are needed. It is necessary to improve the mapped framework by considering Basel III regulations.
Practical implications
COBIT‐mapped‐COSO framework is useful for banks to fight money laundering. While adopting the new framework, an organisation should apply the best practices that suit its operations rather than all the control objectives.
Social implications
The new framework can help banks fight money laundering.
Originality/value
For preventing money laundering through banks, a number of policies and intelligence systems are in place. However, there is no efficient framework that could guide banks to follow these policies and use information technologies. This paper proposes a new framework to target these gaps.
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Said Bouheraoua and Fares Djafri
Islamic financial institutions (IFIs) are required to establish a Shariīʿah Governance Framework (SGF) to strengthen their Sharīʿah-compliance mechanism and ensure that all…
Abstract
Purpose
Islamic financial institutions (IFIs) are required to establish a Shariīʿah Governance Framework (SGF) to strengthen their Sharīʿah-compliance mechanism and ensure that all relevant IFI regulations are in line with Sharīʿah rules and principles. Effective implementation of the Shariīʿah-compliance function will further promote stakeholder confidence, as well as the integrity of IFIs, by reducing Shariīʿah non-compliance risks. This study aims to examine the internal control framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and explore the extent to which it can be incorporated in the Sharīʿah-compliance function of IFIs.
Design/methodology/approach
This study adopts a qualitative method of inquiry, utilizing the inductive method and content analysis to build comprehensive knowledge that will assist in exploring the framework of COSO methodology and the extent to which it can be adopted by IFIs.
Findings
The findings indicate that the existing frameworks of Sharīʿah governance, whether that of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) or Bank Negara Malaysia (BNM), need to be further developed. Therefore, the adoption of COSO methodology in the internal Sharīʿah audit of IFIs, as suggested by AAOIFI, is not only possible but desirable. The study also finds that the COSO framework places the highest priority on risk management in that it makes it an integral part of the decision-making process in all the institution's activities. As a result, incorporating the comprehensive COSO risk management structure within the Sharīʿah-compliance function will enhance risk management in IFIs.
Originality/value
This study highlights the importance of the COSO internal control framework and examines its components, principles and the possibility of its adoption by IFIs. The findings of this study are expected to contribute to enhancing the Sharīʿah-compliance function of IFIs.
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C. Richard Aldridge and Janet L. Colbert
Internal Control – Integrated Framework (COSO Report, 1992) definesinternal control, suggests a framework for internal control, andpresents criteria to use in evaluating controls…
Abstract
Internal Control – Integrated Framework (COSO Report, 1992) defines internal control, suggests a framework for internal control, and presents criteria to use in evaluating controls. The document also provides guidance to management developing a report on controls for use by external parties. SSAE 2, “Reporting on an Entity′s Internal Control Structure over Financial Reporting” (1993) offers assistance to the practitioner reporting on management′s assertion regarding internal control over financial reporting. Discusses and provides an example of management′s report on internal control prepared according to COSO. Also discusses the accountant′s examination under SSAE guidance of management′s assertions and subsequent report and provides an example of the accountant′s report. Concludes by discussing the new business opportunities for the accountant which may result from external reporting on internal controls over financial reporting.
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Rocco R. Vanasco, Clifford R. Skousen and Curtis C. Verschoor
Professional accounting associations in various countries andgovernmental and other quasi‐official bodies have played an importantrole not only in the evolution of internal…
Abstract
Professional accounting associations in various countries and governmental and other quasi‐official bodies have played an important role not only in the evolution of internal control reporting on a global scale, but also in educating management, investors, financial institutions, accountants, auditors, and other interested parties highlighting the pervasiveness of the effects of a sound internal control structure in corporate reporting as well as other aspects of an organization′s success. These associations include the Institute of Internal Auditors (IIA), the American Institute of Certified Public Accountants (AICPA), the General Accounting Office (GAO), the Securities and Exchange Commission (SEC), the Cadbury Committee, the Institute of Chartered Accountants of England and Wales (ICAEW), the Scottish Institute of Chartered Accountants (SICA), the Canadian Institute of Chartered Accountants (CICA), and others. Business failures, management fraud, corporate misconduct, international bribery, and notorious business scandals in all sectors of business have prompted the US government to take drastic action on internal control reporting to safeguard public interest. Several professional and government committees were formed to study this precarious situation: the Treadway Commission, the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, the Packard Commission, the Cohen Commission, the Adams Commission in Canada, the Cadbury Committee in the UK, and others. The principal motivation for the changing dynamics has been growing public pressure for greater corporate accountability. The government′s pressure on the accounting profession and management of public corporations has been pivotal in spearheading internal control reporting. Examines the role of professional associations, governmental agencies, and others in promulgating standards for internal control reporting, and the impact of legislation on this aspect of internal auditing in the USA and worldwide.
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This paper aims to examine the effectiveness of the Committee of Sponsoring Organization’s 2013 Framework, by investigating how the number of auditor-reported material weaknesses…
Abstract
Purpose
This paper aims to examine the effectiveness of the Committee of Sponsoring Organization’s 2013 Framework, by investigating how the number of auditor-reported material weaknesses compares for Early-, Timely- and Late-adopters of the framework, and how the number of auditor-reported material weaknesses changed for Early- and Timely-adopters following their adoption of the framework.
Design/methodology/approach
The paper uses regression analyses based on a sample of US firms subject to Sarbanes-Oxley Act Section 404(b).
Findings
Timely-adopters of the 2013 Framework continued to exhibit fewer instances of auditor-reported material weaknesses than Late-adopters, even though they had a marginal increase in the number of auditor-reported material weaknesses, in the post-2013 Framework period.
Practical implications
The findings suggest that the effectiveness of the 2013 Framework may lie in the iterative nature of the internal control process, and as firms remedy deficiencies they or their auditors identify, they will continuously improve the effectiveness of their internal control systems.
Originality/value
Unlike existing literature, this paper uses data from the pre-2013 Framework, transition and post-2013 Framework periods to examine changes in the number of auditor-reported material weaknesses, thus differentiating between Early-, Timely- and Late-adopters of the 2013 Framework. It also shows the effect of adopting the 2013 Framework on the number of auditor-reported material weaknesses.
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Kathleen Bakarich and Devon Baranek
This study aims to identify characteristics of firms reporting multiple years of material weaknesses in internal control over financial reporting (MWICFR), labeled “Repeat…
Abstract
Purpose
This study aims to identify characteristics of firms reporting multiple years of material weaknesses in internal control over financial reporting (MWICFR), labeled “Repeat Offenders”, and examine their characteristics and the types of material weaknesses they report using both broad and COSO-based classification schemes. The analysis compares these firms with firms reporting only one year of MWICFR and examines the differences between Repeat Offenders reporting consecutive and non-consecutive weaknesses.
Design/methodology/approach
Univariate and multivariate analyses were conducted on a sample of 1,793 firm-year observations, split into Repeat Offenders and non-Repeat Offenders, and collected from AuditAnalytics and Compustat from 2007 to 2015.
Findings
On average, 40% of adverse opinions in ICFR each year can be attributed to Repeat Offenders. Compared to one-time MWICFR firms, Repeat Offenders are significantly more likely to report general material weaknesses and, within the COSO framework, are significantly more likely to report issues with Segregation of Duties and Processes and Procedures. Repeat Offenders reporting consecutive years of MWICFR are significantly more likely to have general weaknesses than non-consecutive Repeat Offenders and are also significantly more likely to report issues with Segregation of Duties and Personnel.
Research limitations/implications
Prior studies have examined unremediated ICFR issues in the periods immediately following SOX implementation. This study extends this literature with a longer, more current sample period, focusing on both broad and COSO-specific control issues, as well as examining consecutive and non-consecutive MWICFR and firms with more than two years of MWICFR.
Originality/value
This study underpins recent Securities and Exchange Commission and Public Company Accounting Oversight Board concerns regarding pervasive ICFR issues. This study identifies some of the characteristics of firms associated with weaker ICFR and pinpoints more specific areas within internal controls that frequently lead to adverse opinions.
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Joseph M. Onumah, Ransome Kuipo and Victoria A. Obeng
Purpose – This study examines the effectiveness of internal control systems of listed firms in Ghana. The recent (especially international) financial reporting scandals have…
Abstract
Purpose – This study examines the effectiveness of internal control systems of listed firms in Ghana. The recent (especially international) financial reporting scandals have caused regulators to place a lot of attention on internal control systems as a mechanism that could help improve the quality of financial reporting.
Design/methodology/approach – The study examined annual reports of a sample of 33 firms listed on the Ghana Stock Exchange. In measuring the level of internal control effectiveness, 23 items relating to internal control categorised under control environment, information and communication, risk assessment, control activities and monitoring were operationalised and the effectiveness score was determined based on the items.
Findings – Overall internal control system showed an average level of effectiveness in this study, which implied an overall low level of effectiveness. Of the five categories assessed under internal control system, control environment showed a higher level of effectiveness.
Originality/value – The study makes a contribution to the academic research activities relating to internal controls in Ghana.
Limitations – Inherent in the measurement process is an element of estimation error as a result of the use of subjective judgement for some items operationalised in assessing internal control effectiveness.
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Eija Vinnari and Peter Skærbæk
The purpose of this paper is to analyse the implementation of risk management as a tool for internal audit activities, focusing on unexpected effects or uncertainties generated…
Abstract
Purpose
The purpose of this paper is to analyse the implementation of risk management as a tool for internal audit activities, focusing on unexpected effects or uncertainties generated during its application.
Design/methodology/approach
Public and confidential documents as well as semi-structured interviews are analysed through the lens of actor-network theory to identify the effects of risk management devices in a Finnish municipality.
Findings
The authors found that risk management, rather than reducing uncertainty, itself created unexpected uncertainties that would otherwise not have emerged. These include uncertainties relating to legal aspects of risk management solutions, in particular the issue concerning which types of document are considered legally valid; uncertainties relating to the definition and operationalisation of risk management; and uncertainties relating to the resources available for expanding risk management. More generally, such uncertainties relate to the professional identities and responsibilities of operational managers as defined by the framing devices.
Originality/value
The paper offers three contributions to the extant literature: first, it shows how risk management itself produces uncertainties. Secondly, it shows how internal auditors can assume a central role in the risk management system. Thirdly, it develops Callon's framing/overflowing framework with the notion that multiple frames are linked and create unexpected dynamics, and applies it to the study on the effects of risk management tools in an internal audit context. It shows how, despite recurring attempts to refine risk management, further uncertainties are continuously produced, thus providing an empirical illustration of how reframing and overflowing intertwine in a continual process.
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