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Article
Publication date: 1 April 2003

Lawrence Cohen

In the Spring 2003 issue of this Journal, I addressed the regulatory uncertainty surrounding the treatment of broker‐dealers’ expense‐sharing arrangements. As pointed out…

Abstract

In the Spring 2003 issue of this Journal, I addressed the regulatory uncertainty surrounding the treatment of broker‐dealers’ expense‐sharing arrangements. As pointed out in that article, in 2002 the National Association of Securities Dealers, Inc. (NASD) conducted a comprehensive “sweep” examination of member‐firms’ financial reporting procedures, with special attention to the treatment of expenses and liabilities. The results of the sweep confirmed that many broker‐dealers, particularly small firms, relied on parents and affiliates to pay for part or all of their expenses. The results of this regulatory audit raised the NASD’s concern that many broker‐dealers failed to adhere to the financial responsibility rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In large part, this was due to an inherent conflict between the general accounting standards governing the recording of expenses and liabilities and the requirements imposed on broker‐dealers to accrue and book expenses and liabilities under the Exchange Act’s financial reporting rules. Following the sweep, the NASD wrote to certain member firms that did not appear to be following the financial responsibility rules. These letters asked the firms to explain their failure to report expenses that were paid, or subject to payment by, affiliated parties and to justify their procedures on expense and liability reporting. Some broker‐dealers responded that it was not possible to coordinate the accounting of expense‐sharing arrangements with the reporting requirements set forth under the Exchange Act’s rules.

Details

Journal of Investment Compliance, vol. 4 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

Book part
Publication date: 10 February 2020

Mahmut Sami Öztürk and Hayrettin Usul

The change of production methods, the industrial revolutions, technological developments, and digital transformation have affected almost all functions in the enterprises…

Abstract

The change of production methods, the industrial revolutions, technological developments, and digital transformation have affected almost all functions in the enterprises. Accounting and auditing areas are also quite affected by this transformation. Another important result of technology and digitalization is the rapid increase in errors, frauds, and irregularities. Enterprises are looking for new solutions and investigations against irregularities and frauds. Audits for errors, frauds, or irregularities are among the interests of forensic accounting. Many methods are used to identify errors and frauds in the forensic accounting. However, it is inevitable that digital technologies should be utilized in forensic accounting applications as a result of the rapid spread of automation and computer programs in enterprises within the framework of digitalized business activities. Hence, enterprises will be able to get more effective results through computer programs and artificial intelligence in terms of fraud audit in forensic accounting. Expert system applications use artificial intelligence to enable computer programs to behave just like people. One of the most widely used, most easily applicable, and most understandable types of expert system is rule-based expert system. The aim of this study is to determine the accounting fraud that may occur in enterprises within the framework of forensic accounting through rule-based expert systems. For this purpose, various applications have been implemented in a large-scale production enterprise through the use of rule-based expert systems for the determination of accounting fraud. Benford’s Law, risk levels, and various other criteria were used in the creation of expert systems. According to the results obtained from the study, it has been seen that by means of rule-based expert system applications, enterprises can better detect existing frauds and prevent further irregularities in the future. The study is important and it is expected that the study will contribute to the literature because it is shown in the study that the rule-based expert systems, applied in many fields under the title of social sciences, can also be applied in the field of forensic accounting and auditing.

Details

Contemporary Issues in Audit Management and Forensic Accounting
Type: Book
ISBN: 978-1-83867-636-0

Keywords

Article
Publication date: 23 March 2022

Manish Bansal

The study aims at examining the relationship between the forms of misclassification practices, namely expense shifting and revenue shifting. In particular, the study aims…

Abstract

Purpose

The study aims at examining the relationship between the forms of misclassification practices, namely expense shifting and revenue shifting. In particular, the study aims at identifying the form of shifting that has been preferred by firms to meet the industry average profitability.

Design/methodology/approach

Core earnings and operating revenue expectation models are used to measure expense shifting and revenue shifting, respectively. The panel fixed-effects models are used to control for unobserved heterogeneity across industries and time.

Findings

Based on a sample of Bombay Stock Exchange-listed firms, the author finds that firms prefer expense shifting over revenue shifting to meet industry average profitability, implying that firms choose the shifting tool based on the relative advantage. Further, the findings deduced from the empirical results demonstrate that firm life cycle and mandatory adoption of International Financial Reporting Standards (IFRS) moderates the relationship between shifting forms and industry average profitability. However, the negative impact of IFRS on shifting practices is found to be less pronounced among BigN audit firms.

Originality/value

The study is among the pioneering attempt to document the substitution relationship between shifting forms. It is the first study that examines a form of classification shifting, where gross profit and core earnings both change as an effect of misclassification.

Details

South Asian Journal of Business Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2398-628X

Keywords

Book part
Publication date: 28 September 2020

David L. Gray

Purpose – This article examines the operating lease cost stickiness characteristics exhibited by retail firms.Methodology/approachAnderson, Banker, and Janakiraman (2003

Abstract

Purpose – This article examines the operating lease cost stickiness characteristics exhibited by retail firms.

Methodology/approachAnderson, Banker, and Janakiraman (2003) laid important groundwork for the study of asymmetric cost behavior or cost stickiness. The authors found that a firm’s selling, general, and administrative costs (SG&A) costs increase more with a sales increase than those expenses decrease with an equivalent sales decline. Their findings provided avenues for many studies with differing focal variables; however, extant research has not explored the degree of cost stickiness associated with operating lease expenses. Recognizing the nature and magnitude of operating leases and the competitive and changing environment for retailers, this study adapts Anderson et al.’s (2003) model to provide insights into operating lease stickiness. The study uses archival financial data from 1997 through 2016 for specialty retail firms in testing the lease cost stickiness hypotheses.

Findings – The results of this study supported the hypotheses that operating lease expenses exhibit stickiness behavior and are relatively stickier than future lease commitments for retail firms.

Originality/value – By focusing on retail firms and related lease expenses, this study provides insights into the increasingly competitive retailer environment. This article’s findings will enhance understanding of how specialty retail firms’ managers react to reduced revenues. Finally, given recent authoritative pronouncements affecting accounting for leases and the significance of leasing transactions, research providing insights into cost behavior and managerial actions stands to make an important contribution to literature and practice.

Article
Publication date: 21 March 2022

Manish Bansal and Hajam Abid Bashir

This study aims to investigate the impact of business strategy on the classification shifting practices of Indian firms.

Abstract

Purpose

This study aims to investigate the impact of business strategy on the classification shifting practices of Indian firms.

Design/methodology/approach

The study considered cost leadership and differentiation strategy. Two forms of classification shifting, namely, expense misclassification and revenue misclassification have been examined in this study. Panel data regression models are used to analyze the data for this study.

Findings

The results show that managers of cost leadership strategy firms are more likely to be engaged in expense misclassification, whereas firms following differentiation strategy are likely to be engaged in revenue misclassification. Subsequent tests of this study suggest that firms following a hybrid strategy (mix of cost leadership and differentiation) prefer revenue misclassification over expense misclassification for reporting inflated operating performance. These results imply that firms prefer the shifting tool based on the ease and need of each shifting strategy. These results are consistent with several robustness measures.

Practical implications

The results suggest that investors should understand business strategy before developing insights about the accounting quality of firms. Investors should conduct a comprehensive review of income statement items before using items for portfolio evaluation.

Originality/value

To the best of the authors’ knowledge, this is the first study to examine the association between business strategy and classification shifting.

Details

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

Keywords

Book part
Publication date: 1 October 2015

James E. McNulty and Aigbe Akhigbe

Directors help determine the strategic direction of a corporation and are responsible for ensuring the institution has a good system of internal control. Banking…

Abstract

Directors help determine the strategic direction of a corporation and are responsible for ensuring the institution has a good system of internal control. Banking institutions without a strategic direction emphasizing sound lending practices that promote the long-run financial health and viability of the institution will be sued more frequently than peer institutions. Institutions that do not have a good system of internal control will also be sued more frequently. Hence, legal expense is a bank corporate governance measure. We compare the performance of bank legal expense and a widely cited corporate governance index in a regression framework to determine which better predicts bank performance. The regressions indicate legal expense is a much better predictor, hence a better measure of bank corporate governance. Regulators should require legal expense reporting and rank institutions by the ratio of legal expense to assets to help identify institutions with weak governance. Seven case studies illustrate the role of legal expense in corporate governance.

Details

International Corporate Governance
Type: Book
ISBN: 978-1-78560-355-6

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Book part
Publication date: 1 July 2004

John L. Peterman

A study of the price discounts granted by Morton Salt Company and other producers of table salt in the U.S. on their sales of table salt to grocery wholesalers and…

Abstract

A study of the price discounts granted by Morton Salt Company and other producers of table salt in the U.S. on their sales of table salt to grocery wholesalers and retailers. The discounts were found to be illegal under the Robinson-Patman Act by the Federal Trade Commission and the Supreme Court. The Commission and the Court believed that the discounts were unjustified price concessions granted to “large” buyers, consistent with the concerns of the Robinson-Patman Act. However, the evidence indicates that the most common discount – the “carload discount” – was received by virtually all buyers, regardless of the buyer’s size; the other discounts – “annual volume” discounts – though received primarily by “large” buyers, were likely cost based. The history of the discounts and likely reasons why they were granted are explored in detail.

Details

Antitrust Law and Economics
Type: Book
ISBN: 978-0-76231-115-6

Abstract

Details

Modelling Our Future: Population Ageing, Health and Aged Care
Type: Book
ISBN: 978-1-84950-808-7

Article
Publication date: 16 July 2021

Stephanie Monteiro Miller

In a wide variety of settings, individuals target round-numbered thresholds, relaxing effort when they are out of reach. This paper aims to investigate whether this…

Abstract

Purpose

In a wide variety of settings, individuals target round-numbered thresholds, relaxing effort when they are out of reach. This paper aims to investigate whether this phenomenon occurs in nonprofits as well.

Design/methodology/approach

The paper empirically examines nonprofits’ propensity to cut expenses relative to the attainability of the zero-profit threshold.

Findings

This paper finds nonprofit firms are more likely to cut expenses when faced with small expected losses than with larger losses, and this pattern varies predictably with incentives to reach the zero-profit threshold.

Research limitations/implications

This suggests managers are motivated by desire to reach the zero-profit threshold rather than to improve firms’ economic situations, as the propensity to cut expenses is lower when the threshold is out of reach.

Social implications

Additionally, the results suggest that even the lack of explicit profit motive may not quell earnings management behavior.

Originality/value

These results begin to close the gap in our understanding of expense management in nonprofit firms, showing how operating expenses can be used to manage earnings.

Details

Pacific Accounting Review, vol. 33 no. 4
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 26 October 2021

Manish Bansal

The study aims to examine the impact of the firm life cycle on the misclassification practices of Indian firms. The study also examines the impact of International…

Abstract

Purpose

The study aims to examine the impact of the firm life cycle on the misclassification practices of Indian firms. The study also examines the impact of International Financial Reporting Standards (IFRS) on the misclassification practices of Indian firms.

Design/methodology/approach

The study uses Dickinson (2011) cash flow patterns to classify firm-years under life cycle stages. Two forms of misclassification, namely revenue misclassification and expense misclassification have been examined in this study.

Findings

Based on a sample of 19,268 Bombay Stock Exchange (BSE) firm-years spanning over ten years from March 2010 to March 2019, results show that firms operating at high (low) life cycle stage are more likely to be engaged in revenue (expense) misclassification, implying that firms substitute between the classification shifting tools depending upon ease and needs of each tool. Further, our results demonstrate that the magnitude of expense shifting has been significantly increased among test firms (firms reporting under IFRS) relative to benchmark firms (firms reporting under domestic GAAP) in the post-IFRS adoption period, implying that adoption of IFRS negatively affects the accounting quality of Indian firms.

Research limitations/implications

The study considers only two main forms of misclassification, namely revenue and expense misclassification. However, future research may explore the cash flow misclassification.

Practical implications

The findings suggest that standard-setting authorities make more mandatory disclosure requirements under IFRS to curb the corporate misfeasance of classification shifting.

Originality/value

First, the study is among the earlier attempts to examine the impact of the firm life cycle on misclassification practices. Second, the study explores the unique Indian institutional settings concerning the phased-manner implementation of IFRS and examines its impact on the classification shifting practices of firms.

Details

Journal of Applied Accounting Research, vol. 23 no. 3
Type: Research Article
ISSN: 0967-5426

Keywords

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