Search results

The purpose of this paper is to explore the audit-related causes of financial scandals and advice on how emerging technologies can provide solutions thereto. Specifically, this study seeks to look at the facilitators of financial statement fraud and explain specific fintech advancements that contribute to financial information reliability for equity investments.

The study uses the case studies of Enron and Arthur Andersen to document the evidence of audit-related issues in historical financial scandals. Then, a comprehensive and interdisciplinary literature review at the intersection of business, accounting and engineering, provides a foundation to propose technology advancements that can solve identified problems in accounting and auditing.

The findings show that blockchain, internet of things, smart contracts and artificial intelligence solutions have different functionality and can effectively solve various financial reporting and audit-related problems. Jointly, they have a strong potential to enhance the reliability of the information in financial statements and generally change how companies operate.

The proposed and explained technology advancements should be of interest to all publicly listed companies and investors, as they can help safeguard equity investments, thus build investors’ trust towards the company.

Aside from implications for capital markets participants, the study findings can materially benefit various stakeholder groups, the broader company environment and the economy.

This is the first paper that seeks solutions to financial fraud and audit-related financial scandals in technology and not in implementing yet another regulation. Given the recent technology advancements, the study findings provide insights into how the role of an external auditor might evolve in the future.

In 1954, the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure released an auditing book, which listed under the heading “Material” certain items of which it cautioned “material errors” could occur (AICPA, 1954, p. 1). From this date until the present, the accounting profession has struggled in its endeavors to find both a suitable definition and associated guidance to determine the materiality of information provided to financial statement users. Accordingly, in September 2015, the Financial Accounting Standards Board (FASB) issued two exposure drafts that address the concept and interpretation (our emphasis) of materiality. The releases are Proposed Amendments to Statement of Financial Accounting Concepts, Conceptual Framework for Financial Reporting; Chapter 3: Qualitative Characteristics of Useful Financial Information (Financial Accounting Standards Board (FASB), 2015a) and Proposed Accounting Standards Update, Notes to Financial Statements (Topic 235) Assessing Whether Disclosures Are Material (FASB, 2015b). In this article, the authors focus on the Chapter 3 amendments (FASB, 2015a), which proposes a new definition whose genesis is based on the US Supreme Court definition of the concept. Accordingly, the authors examined the views of two stakeholders in the US financial reporting system, auditors in large public accounting firms, and Chief Financial Officers of the Fortune 1000 companies, regarding their perceptions of the proposed definition. The authors developed the research instrument to evaluate their perceptions of the proposed definition’s potential impact on various aspects of the audit and financial reports. The authors found that both populations have negative perceptions of the materiality definition in the exposure draft and an interpretation of the responses did not indicate an addition of any benefits from its adoption. Subsequent to our solicitation for our subjects’ opinions, the FASB voted unanimously in November 2017 to remove the reference to materiality as a legal concept (FASB, 2017) and in August 2018 (FASB, 2018) amended FASB Concept Statement No. 8 to replace the materiality definition with language similar to the previously superseded FASB Concept Statement No. 2. However, as the authors will explain in this article, the fact that three authoritative definitions exist, which continue to present problems for financial statement preparers and auditors. In this analysis, the authors find evidence that auditors and investors continue to see a significant difference between the terminology of “users” and “reasonable resource provider” within the various materiality definitions.

This study investigates how the timeliness of financial reporting by listed companies in the United Arab Emirates (UAE) is influenced by the interaction effect between industry-specialist auditors and board governance.

The Emirati capital markets – the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) – were used to obtain the data, which covered the seven-year period between 2011 and 2017. In total, 385 observations were obtained. Descriptive statistics and multiple regression were the principal statistical tests employed using the panel data method.

The results of the direct effect tests reveal that board independence and industry-specialist auditors have no significant influence on financial reporting timeliness. Nevertheless, the results also show that the timeliness of financial reporting by listed companies in the UAE is influenced by the interaction effect between auditors' industry specialisation and the governance of firm boards. More specifically, the results reveal that financial reporting timeliness is positively associated with board independence for companies audited by industry-specialist auditors. This finding is consistent with the notion that industry-specialist auditors complement the role of effective board governance.

This study only focuses on secondary data from non-financial companies listed in the UAE markets. Therefore, the outcomes may not be generalisable to sectors related to finance. Future researchers are recommended to examine financial sectors and apply alternative measurements such as surveys or interviews with directorial boards and external auditors. Furthermore, this study used only one measure of industry-specialist auditors, while board governance was limited to board independence. Future studies could utilise different measurements for industry-specialist auditors and more board governance measures to obtain more robust findings.

The evidence provided indicates that when a company listed in the UAE has a high-quality board, it benefits by engaging auditors who specialise in the industry in terms of improving the timeliness of financial reporting. The findings also indicate the need for closer monitoring of management to safeguard their reputation. This might attract the attention of the Big Four audit firms and industry–specialist auditors to continuously re-evaluate their audit work, professional training and staff skills, while they might also try to differentiate their performance and monitoring capabilities from the non-Big Four audit firms and non-industry specialist auditors.

The main contribution of this study to the overall body of research is the concept that having independent directors is associated with improved reporting timeliness because financial reports are monitored with greater efficiency by industry–specialist auditors. This study provides evidence for the interaction effect between internal and external governance mechanisms on financial reporting quality, which has not been the focus of prior studies on financial reporting quality.

This paper aims to investigate auditor choice in those Italian non-listed firms adopting the “traditional” model of corporate governance. In Italy, non-listed firms can choose between two types of auditor: the Board of Statutory Auditors (BSA), that is the statutory auditors, or an “external” auditor. At the same time, a BSA conducts the administrative auditing for all companies with equity exceeding €120,000.

The paper estimates a logistic regression model of firm auditor choice between an external auditor and the BSA, which incorporates variables proxying for both agency conflict and organizational complexity effects.

The results show that of the potential agency factors, only board independence drives auditor choice, whereas organizational complexity and risk factors including firm size, investment in inventories, subsidiary status and complexity drive auditor choice. These results may be explained in the administrative audit role of the BSA, which monitors both day-by-day firm operations and the financial statements preparation “project”. Stakeholders as a result are reassured that, in general, their interests are protected. Finally, it was found that legal form and voluntary International Financial Reporting Standards compliance exert an impact on auditor choice.

The paper provides support for an internal yet independent auditing body such as the Italian BSA as a wider model for corporate governance in European non-listed firms (OECD, 2004 and 2015). The BSA as an administrative and financial auditing body made up solely of independent highly qualified professionals can work within the firm on an operational basis, and in so doing can increase stakeholder protection.

This paper aims to analyze the relationship between the following auditor's characteristics with detecting frauds in the listed companies on the Tehran Stock Exchange.

A multiple regression model is used to test the research hypothesis. The hypothesis was further tested with a sample of 187 companies listed on the Tehran Stock Exchange (1,309 observations) from 2012 to 2018 and by using multiple regression models based on panel data and the random-effects model.

The results suggest a positive and significant relationship between audit firms' size, auditor rotation, specialization in the industry, the audit market's focus, auditor's independence, audit report lag and renewal of financial statements with fraud detection. The results revealed a significant relationship between the period of auditor tenure, auditor's narcissism, audit fees and the type of auditors' opinion (un-qualified opinion) with fraud detection.

As the present study is a pioneer in examining this issue in the emerging markets, it provides users, analysts and legal entities with useful information about auditor characteristics that significantly affect the fraud detection of financial statements. The results mitigate the literature gap and improve knowledge in this area.

As technology integration in auditing continues to grow, it is important to understand how auditors perceive connections between use of generalized audit software (GAS) and audit benefits.

The DeLone and McLean information systems success model (2003) is adapted with audit-related uses of GAS as antecedents to information quality. Survey data on 188 current users of GAS, who are financial and IT auditors, is analyzed with partial least squares method.

For financial auditors, detecting material misstatements antecedent is the only significant indicator of information quality for GAS. For IT auditors, detecting control deficiencies and fraud significantly impacts information quality. Information quality influences use for both auditors; however, it only influences satisfaction with GAS for financial auditors. System quality impacts GAS satisfaction for only IT auditors and has no impact on GAS use for either type of auditor. Service quality influences use of GAS for financial, but not IT auditors. For both groups, service quality has no impact on satisfaction with GAS, and GAS use and satisfaction with GAS positively increases their perceptions of audit benefits.

Financial and IT auditors who use GAS are both focused on matching GAS use with their primary audit objectives. Results suggest that as GAS use increases, system quality may be important to satisfaction. Training should first focus on the usefulness of GAS to the audit to increase extent of use. Lastly, the more auditors use GAS and are satisfied with it, the greater their perception GAS contributing directly to benefit the audit.

In 2001, the US moved to regulate internal control reporting by management and auditors. While some jurisdictions have followed the lead of the US, many others have not. An important question, therefore, is the relevance of internal control to stakeholders. The more specific issue of the benefits of US-style regulation of internal control reporting is also topical. We review studies on the determinants of internal control quality and its economic consequences for stakeholders including investors, creditors, managers, auditors and financial analysts. We extend previous reviews by focusing on US studies published since 2013 as well as all non-US studies investigating IC quality including countries regulating IC disclosure as well as unregulated settings and both developed and developing economies. In doing so, we identify research questions where evidence remains mixed and new directions in which there are research opportunities.

Three main insights arise from our analysis. First, evidence on the economic consequences of internal control quality suggests that the quality of internal control can have a significant effect on decision making by users of financial information. Second, the results of research on the empirical association between ownership structure, certain board characteristics and internal control quality is generally mixed. Empirical evidence concerning the association between audit committee characteristics and internal control quality generally supports a positive and significant association. Finally, while studies in non-US jurisdictions are increasing, opportunities remain to explore the determinants and consequences of internal control in other jurisdictions. Our review provides evidence for policy makers of whether there are benefits from requiring management and auditors to report on internal control over financial reporting.

The purpose of this paper is to investigate the jurisdictional expansion of audit into the area of UK financial regulation. The paper draws on the analytical framework of new audit spaces (Andon et al., 2014, 2015), which built on the concept of regulatory space (Hancher and Moran, 1989), and characterises this new audit space as regulatory work.

Through an intensive reading of a variety of publicly available documentary sources, the paper investigates the role of auditors and accountants in the reporting accountants’ and skilled persons’ regimes in the UK under the Banking Act 1987 and the Financial Services and Markets Act 2000.

The paper identifies a new audit space characterised as regulatory work, which is made up of three distinct phases (and suggests the recent emergence of a fourth phase), and considers the extent to which these phases of regulatory work share common themes across new audit spaces identified by Andon et al. (2015) as independence, reporting, accreditation and mediating.

The paper identifies a further jurisdictional expansion of audit into a new audit space, characterised as regulatory work.

This paper examines the role of professional associations, governmental agencies, and international accounting and auditing bodies in promulgating standards to deter and detect fraud, domestically and abroad. Specifically, it focuses on the role played by the US Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), the Institute of Internal Auditors (IIA), the Institute of Management Accountants (IMA), the Association of Certified Fraud Examiners (ACFE), the US Government Accounting Office (GAO), and other national and foreign professional associations, in promulgating auditing standards and procedures to prevent fraud in financial statements and other white‐collar crimes. It also examines several fraud cases and the impact of management and employee fraud on the various business sectors such as insurance, banking, health care, and manufacturing, as well as the role of management, the boards of directors, the audit committees, auditors, and fraud examiners and their liability in the fraud prevention and investigation.

The purpose of this paper is to investigate insights into current practices in auditing “environmental matters” in accordance with Audit Guidance Statement 1010: The Consideration of Environmental Matters in the Audit of Financial Reports, which was introduced by the New Zealand Institute of Chartered Accountants in 2001.

The approach to gathering evidence for this study is qualitative semi‐structured in‐depth personal interviews with 27 auditors: 18 financial auditors (FAs) in chartered accounting practice and nine public sector auditors (PSAs) from the office of the Auditor‐General.

The interview findings confirmed that the auditors respond to isomorphic pressures that affect them, either by employing acquiesce or compromise strategies and that institutional theory fits best as an appropriate theory to frame the research. Environmental matters are only considered in the planning of a company audit when it is significant and relevant to financial reporting. However, evidence showed that FAs are influenced by mimetic isomorphism by adopting the perspective of company management. On the other hand, PSAs are driven by the legislative mandate imposed by the Local Government Act 2002 to search out and verify the validity, accuracy and completeness of information on environmental matters. FAs auditing both companies in the private sector and public sector organisations are able to maintain two dissimilar approaches and attitudes, depending on the type of entities they are auditing.

As with all qualitative interviews, there are some limitations associated with individuals' responses to the semi‐structured open‐ended interview questions.

To prioritise the consideration of environmental matters in the audit practices of FAs for company audits will require both coercive and normative pressures in their organizational sphere.

This study assists in understanding an audit phenomenon not widely known. It would also add a geographical variation to existing literature.