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Article
Publication date: 22 April 1992

Arnold Schneider and Neil Wilner

This article investigates the impact of auditing on the commission of financial reporting irregularities by managers. We also examine whether the deterrent effect of auditing is…

Abstract

This article investigates the impact of auditing on the commission of financial reporting irregularities by managers. We also examine whether the deterrent effect of auditing is affected by individual demographics. An experiment, using three case scenarios, was employed. Our findings indicated that auditing had a strong deterrent effect when the following conditions were present: material dollar amounts, irregularities involving asset overstatements, unambiguous violations of accounting principles, and low incentive for misstating income. While age, experience, and contact with auditors did not influence the deterrent effect of auditing, we found evidence that respondents with accounting and finance specializations perceived auditing as a greater deterrent than other respondents.

Details

American Journal of Business, vol. 7 no. 1
Type: Research Article
ISSN: 1935-5181

Keywords

Article
Publication date: 18 May 2022

Zhuoan Feng, Lina Zixuan Li, Hau Yan Wong and Jilnaught Wong

This paper aims to examine how auditors respond through audit fees and audit quality following disciplinary actions imposed by audit regulators in an emerging market setting.

Abstract

Purpose

This paper aims to examine how auditors respond through audit fees and audit quality following disciplinary actions imposed by audit regulators in an emerging market setting.

Design/methodology/approach

This paper uses the disciplinary actions in 2017 against two major audit firms in China as an exogenous shock to examine the effect of tougher enforcement actions on auditor behavior as reflected in their emended audit fees and audit quality. This paper sampled from publicly listed firms in China with requisite data for the period 2015 through 2018. Using a difference-in-differences model, this paper examines whether the enforcement action (i.e. the suspension of audit firms) significantly impacted the audit fees and audit quality for clients of the disciplined audit firms (hereafter, suspended audit firms) in the two-year period postsuspension relative to audit firms that were not disciplined (hereafter, nonsuspended audit firms).

Findings

This paper finds evidence of increased audit fees and improved audit quality by the suspended audit firms relative to the nonsuspended audit firms in the two-year period postsuspension. These findings suggest that in contrast to symbolic disciplinary actions such as public censures documented in prior literature (Boone et al.,2015), tougher punitive disciplinary actions are followed by an increase in audit fees and an improvement in audit quality by the suspended audit firms. This paper also finds that the deterrent effect from the audit firm suspension is exclusive to the penalized audit firms and had no positive spillover effects on their peers.

Research limitations/implications

A limitation of this study is the focus on the effect of audit firm suspension against two large local audit firms in China. Given the unique characteristics of the Chinese audit market and the Chinese regulatory environment, our findings may not be generalizable to audit firms in other countries and jurisdictions, especially where the audit market is dominated by the international Big 4 auditors that possess greater brand name capital than second-tier local audit firms.

Originality/value

This paper provides novel evidence on the impact of strengthened enforcement on auditor behavior in an emerging market setting. This paper contributes to the existing literature examining the impact of regulatory interventions on financial reporting outcomes and audit quality. While there is evidence on how regulations affect financial statement preparers’ demand for high audit quality, there is limited research on how regulatory interventions affect auditor’s incentive to supply higher audit quality. This paper also contributes to the scant existing evidence on the effect of disciplinary actions against audit firms in emerging economies.

Details

Meditari Accountancy Research, vol. 31 no. 5
Type: Research Article
ISSN: 2049-372X

Keywords

Article
Publication date: 1 June 1999

Rocco R. Vanasco

The Foreign Corrupt Practices Act (FCPA) of 1977 and its amendment – the Trade and Competitive Act of 1988 – are unique not only in the history of the accounting and auditing

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Abstract

The Foreign Corrupt Practices Act (FCPA) of 1977 and its amendment – the Trade and Competitive Act of 1988 – are unique not only in the history of the accounting and auditing profession, but also in international law. The Acts raised awareness of the need for efficient and adequate internal control systems to prevent illegal acts such as the bribery of foreign officials, political parties and governments to secure or maintain contracts overseas. Its uniqueness is also due to the fact that the USA is the first country to pioneer such a legislation that impacted foreign trade, international law and codes of ethics. The research traces the history of the FCPA before and after its enactment, the role played by the various branches of the United States Government – Congress, Department of Justice, Securities Exchange commission (SEC), Central Intelligence Agency (CIA) and the Internal Revenue Service (IRS); the contributions made by professional associations such as the American Institute of Certified Public Accountants (AICFA), the Institute of Internal Auditors (IIA), the American Bar Association (ABA); and, finally, the role played by various international organizations such as the United Nations (UN), the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) and the International Federation of Accountants (IFAC). A cultural, ethical and legalistic background will give a better understanding of the FCPA as wll as the rationale for its controversy.

Details

Managerial Auditing Journal, vol. 14 no. 4/5
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 4 September 2023

Md Khokan Bepari, Shamsun Nahar, Abu Taher Mollik and Mohammad Istiaq Azim

In this study the authors examine the nature and contents of key audit matters (KAMs), and the consequences of KAMs reporting on audit quality in the context of a developing…

Abstract

Purpose

In this study the authors examine the nature and contents of key audit matters (KAMs), and the consequences of KAMs reporting on audit quality in the context of a developing country, Bangladesh. The authors’ proxies of audit qualities are discretionary accruals, small positive earnings surprise, audit report lag, earnings management via below the line items and audit fees.

Design/methodology/approach

The authors use content analysis of the KAMs for the period 2018–2021 to understand the nature and extent of KAMs reported by auditors in Bangladesh. The authors then use multivariate regression analysis to examine the effect of the number and content characteristics of KAMs on audit quality by using multivariate regression analysis.

Findings

Auditors in Bangladesh disclose a higher number of KAMs compared to other countries, disclose short descriptions of KAMs and industry generic KAMs. The authors document significant cross-sectional variations in the number and content characteristics of KAMs reported by auditors in Bangladesh. The authors’ pre-post analysis suggest that audit quality has improved after the adoption of KAMs. Cross-sectional analysis suggests that KAMs number and content characteristics are related to audit quality.

Practical implications

The authors’ findings imply that the KAMs reporting has the potential to play significant monitoring role in reducing the opportunistic behavior of managers. Hence, KAMs reporting can play a significant role in reducing the agency problem. For regulators, shareholders and corporate managers, the authors’ findings imply that if the audit quality is to be increased, the audit effort should be supported by an appropriate amount of audit fee.

Social implications

The content characteristics of KAMs significantly influence managerial reporting behavior and affect the level of audit efforts.

Originality/value

Unlike developed countries (Gutierrez et al., 2018; Lennox et al. 2022), this study supports that KAMs reporting improves audit quality and control opportunistic behavior of managers in developing countries. The authors show that even though the KAMs disclosure quality is poor, it has the potential to improve financial reporting quality.

Details

Journal of Accounting in Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 5 May 2020

Ahmad Farhan Alshira'h and Hijattulah Abdul-Jabbar

The purpose of this paper is to investigate the impact of tax audit, tax rate and tax penalty on sales tax compliance and examine the moderating effect of patriotism on the…

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Abstract

Purpose

The purpose of this paper is to investigate the impact of tax audit, tax rate and tax penalty on sales tax compliance and examine the moderating effect of patriotism on the associations between tax audit, tax rate and tax penalty with sales tax compliance among Jordanian manufacturing small- and medium-sized enterprises (SMEs).

Design/methodology/approach

In this study, 660 questionnaires were distributed by using systematic random sampling to manufacturing SMEs in Jordan, after which a total of 385 useable questionnaires were deemed suitable for analysis. Partial least squares structural equation modelling (PLS-SEM) was used to validate the measurement model and structural model and the predictive relevance of the study’s model.

Findings

The findings showed that tax audit and tax penalty were positively associated with the level of sales tax compliance, whereas tax rate was insignificantly associated with sales tax compliance. They also demonstrated the moderating significant effect of patriotism on the relationship between tax penalty, tax audit and tax rate with sales tax compliance.

Research limitations/implications

Tax authorities and policymakers in developing majority societies in developing countries and in other Arab countries, especially in Jordan may use the results to focus their interest on the formulation of policies founded on the outcomes of the study to strengthen eligible SMEs to comply to further boost their sales collections.

Originality/value

This study extends the deterrence theory in the context of sales tax compliance by proposing the moderating effect of patriotism in the deterrence theory on sales tax compliance among SMEs. Moreover, the suitability for the use of PLS-SEM as a statistical tool in investigating the extended deterrence theory with patriotism as a moderating variable as well as its implications for theory and practice was also discussed.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 13 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 1 March 1996

Michael S. Luehlfing

This study investigates the effect of institutional controls (governance), accounting controls (surveillance), and legitimation tactics on the size of municipal budgets. Ordinary…

Abstract

This study investigates the effect of institutional controls (governance), accounting controls (surveillance), and legitimation tactics on the size of municipal budgets. Ordinary least squares regression analysis is employed as the primary data analysis technique in this study. Overall, the results suggest that reform approaches to local government have not been as successful as the reformers envisioned. Additionally, while the results suggest that timely reporting is a deterrent to increased expenditures, the results also suggest that, to some degree, the use of legitimation tactics may offset the benefits of timely reporting.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 8 no. 2
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 18 May 2015

Itsaso Barrainkua and Marcela Espinosa-Pike

The purpose of this paper is to provide evidence on underreporting of time (URT) by audit partners and the factors that drive URT at their level. In particular the study tests the…

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Abstract

Purpose

The purpose of this paper is to provide evidence on underreporting of time (URT) by audit partners and the factors that drive URT at their level. In particular the study tests the relationship between URT and the following variables: pressures perceived by auditors related to audit budgets, the ethical acceptability of URT, the influence of peers and superiors on the resolution of ethical conflicts, and organisational ethical culture. A deeper analysis of URT practices is necessary, as failing to correctly report the total hours worked by audit partners poses a threat to audit quality, and can have a detrimental effect on individual auditors, audit firms, and even the auditing profession itself.

Design/methodology/approach

A multiple regression data analysis was conducted, based on 84 responses from Spanish audit partners working in small- and medium-sized audit firms.

Findings

The results reveal that URT is affected by the pressures perceived by auditors related to audit budgets, the ethical acceptability of URT, and the influence of peers and superiors on the resolution of ethical conflicts.

Originality/value

This study contributes to international literature on the organisational context of audit firms by analysing URT from the perspective of audit partners. It also has practical implications, as it focuses on understanding the beliefs and behavioural patterns of audit partners, which is critical to proposing mechanisms for avoiding dysfunctional behaviour at all levels of audit firms.

Details

Accounting, Auditing & Accountability Journal, vol. 28 no. 4
Type: Research Article
ISSN: 0951-3574

Keywords

Book part
Publication date: 11 November 1994

E. Eide

Abstract

Details

Economics of Crime: Deterrence and the Rational Offender
Type: Book
ISBN: 978-0-44482-072-3

Article
Publication date: 12 December 2017

Henry Chalu and Hassan Mzee

This paper aims to explore factors influencing the effectiveness of tax audit in Tanzania. The study organized factors into four categories: organizational-related, tax…

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Abstract

Purpose

This paper aims to explore factors influencing the effectiveness of tax audit in Tanzania. The study organized factors into four categories: organizational-related, tax auditors-related, taxpayers-related and regulatory-related factors.

Design/methodology/approach

The study used an explanatory approach, whereby data from 225 auditors in 23 tax regions in Tanzania were collected using a mailed questionnaire. The questionnaire had 25 statements representing factors and 5 statements representing the tax audit effectiveness. The collected data were analysed using both descriptive and inferential statistics. In the case of descriptive statistics, the study used frequency, percentage, mean and standard deviation. For the inferential statistics, the study used exploratory factor analysis (EFA) and multiple regression analysis.

Findings

The study findings showed that there were five main critical factors for tax audit effectiveness. The first factor, which is the implementation of tax auditors’ recommendations by management, was found under the organizational category. The second factor, which was adequacy of tax audit unit, was found under the tax auditors’ category, while the third factor was taxpayers’ attitude, found under the taxpayers’ category. The fourth and fifth factors, which were availability and application of regulations and standards for tax audit, and leadership and tax policies for tax audit, respectively, were found under the regulatory category.

Research limitations/implications

Despite the contributions of this study, there are some limitations which need to be acknowledged. First, data were collected from tax auditors only. Second, only 25 statements for factors were used. Third, the study has used only primary data. Last, the study has used perceptual measures of tax audit effectiveness. The authors consider that if other approaches were used, they could have reached different conclusions. Therefore, future studies could be conducted in the areas where limitations have been identified.

Practical implications

From a practical perspective, tax authorities may be relying heavily on tax auditors, as well as regulations and policies, for tax audit effectiveness. The study shows that taxpayers, management, as well as tax audit standards, are critical factors too. However, the study also has practical implications for governments, tax authorities, tax auditors as well taxpayers.

Originality/value

This paper extends prior research in the area of tax audit and is the first paper to use four categories of factors to analyse the influence of tax audit effectiveness, taking into consideration both tax authorities and taxpayers. It also used EFA, which helped to generate variables with multiple prior theories (i.e. theoretical triangulation). Hence, new theories were combined with old theories to produce findings which take into consideration the context of the country.

Details

Managerial Auditing Journal, vol. 33 no. 1
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 16 March 2021

Irene Nalukenge, Twaha Kigongo Kaawaase, Juma Bananuka and Peter Francis Ogwal

This study aims to (1) examine the contribution of internal audit quality, punitive measures to accountability in statutory corporations in developing countries such as Uganda and…

Abstract

Purpose

This study aims to (1) examine the contribution of internal audit quality, punitive measures to accountability in statutory corporations in developing countries such as Uganda and (2) test whether internal audit quality mediates the relationship between punitive measures and accountability in Uganda's statutory corporations.

Design/methodology/approach

This study is cross-sectional and correlational. Data were collected through a questionnaire survey conducted for 82 statutory corporations. The study's unit of analysis was a statutory corporation. Chief Internal Auditors and Chief Finance Officers were the study's unit of inquiry. Data were analyzed through correlation coefficients and linear regression using Statistical Package for Social Sciences.

Findings

The results suggest that internal audit quality and punitive measures independently predict accountability. However, punitive measures do not predict accountability in the presence of internal audit quality. Results further indicate that internal audit quality mediates the relationship between punitive measures and accountability in Uganda's statutory corporations.

Originality/value

This study confirms internal audit quality (a preventive measure) as a significant predictor of accountability in statutory corporations relative to punitive measures. To achieve accountability, more emphasis thus needs to be put on preventive mechanisms than on punitive mechanisms. This study also enhances our understanding of the relationship between punitive measures, internal audit quality and accountability. In this study, we arrive at new evidence on the mediating role of internal audit quality in the relationship between punitive measures and accountability in Uganda's statutory corporations.

Details

Journal of Economic and Administrative Sciences, vol. 38 no. 3
Type: Research Article
ISSN: 1026-4116

Keywords

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