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The purpose of this paper is to explore whether the choice of International Financial Reporting Standards (IFRS) vs Generally Accepted Accounting Principles (GAAP) is associated with the frequency and likelihood of accounting irregularities and fraud in US banks.

The authors examine the relationship between financial reporting standards and accounting irregularities in publicly listed US banks. Using a sample of 4,284 banks with accounting irregularities observed in the USA over the period of 1996–2014. They used logit model to estimate the likelihood of corporate misreporting having been committed in terms of accounting irregularities.

The authors show that banks that use US GAAP exhibit better operating performance than fraudulent banks that use IFRS except for certain variables. They also find that fraudulent banks are more likely to commit accounting irregularities when they have to follow IFRS and banks have relatively better bank performance.

Overall, the empirical findings result consistent with Kohlbeck and Warfield’s (2010) find that accounting standards are linked to fewer accounting irregularities.

In this study, accounting irregularities have a significant effect on bank performance during the Dodd–Frank period. It finds that banks that choose to use IFRS are more likely to have accounting irregularities and to engage in fraud.

This paper aims to investigate the impacts of audit engagement team’s ethical leadership, trainee auditors’ reporting intent and other selected factors on their likelihood of reporting client’s irregularities.

The present investigation is based on 150 effective questionnaire responses provided by a group of trainee auditors working for certified public accounting (CPA) firms. The questionnaire items relating to trainee auditors’ likelihood of reporting client’s irregularities are based on Crawford and Weirich’s (2011) classification of common forms of fraudulent financial reporting. The authors’ measurement of the audit engagement team leaders’ ethicality is based on the ethical leadership scale developed in Newstrom and Ruch (1975) and Kantor and Weisberg (2002). Regression models are used to testify the authors’ hypotheses on the correlations of the trainee auditors’ likelihood of reporting client’s irregularities with audit engagement team’s ethical leadership, trainee auditor’ reporting intents and other selected factors.

The major conclusion of this study is that there is a significantly positive correlation between trainee auditors’ likelihood of reporting client’s irregularities and their perception of audit engagement team leader’s ethicality. This paper also points out that trainee auditors’ higher evaluation of stable firm–client relationship reduces their likelihood of reporting client’s irregularities, whereas their concerns with future career development increase the likelihood of reporting. In addition, this paper documents the fact that male trainee auditors more easily perceive the ethicality of their team leader than females, and that trainee auditors with less academic achievements (lower GPA) tend to perceive more easily the ethicality of their team leader than those with better academic achievements (higher GPA).

Two business ethics variables constructed and used in this study, i.e. trainee auditors’ likelihood of reporting client’s irregularities and engagement team leader’s ethicality, can be applied in future research on whistleblowing in the audit profession.

Practical implications can also be drawn from the findings to enhance the ethical management at both engagement and firm levels.

This paper contributes to the audit research literature by providing evidence on the significant positive impacts of team leader’s ethicality on the entry-level audit professional’s likelihood of reporting client’s irregularities.

This study aims to examine the association between annual report readability and accounting irregularities in Indonesia. Using 967 firm-year observations over the 2014–2017 period, this paper unable to find evidence that annual report readability is associated with accounting irregularities. The results are robust after using alternate measurements of accounting irregularities proxies and readability indexes. This paper also finds that the corporate governance mechanism and foreign shareholder structure did not moderate the association between annual report readability and accounting irregularities.

The study uses an archival method with cross-sectional regression of 967 firm-year observations over the 2014–2017 period to investigate an association between annual report readability and accounting irregularities in an emerging market setting. To check the robustness of the results, this paper conducts a battery of robustness tests.

This paper finds evidence that annual report readability is not associated with accounting irregularities in Indonesia. The results are robust after using alternate measurements of accounting irregularities proxies and readability indexes. This paper also finds that the corporate governance mechanism and foreign shareholder structure did not moderate the association between annual report readability and accounting irregularities. This implies that the readability of annual reports does not have the ability to predict the likelihood of accounting irregularities in Indonesia. It is possible that firms with accounting irregularities will be inclined to voice simpler stories which can counteract the tendency of lies to be linguistically more complex. Indeed, according to the Education First English Proficiency Index, Indonesia is categorized at a low proficiency level. Furthermore, this paper also discovers that the average readability of the management discussion and analysis (MD&A) of Indonesian public listed firms is at an ideal score by having a Fog Index of 13.32. The findings provide valuable insights for stakeholders in using annual reports for their decision-making, especially in an emerging market setting and non-English speaking countries.

It is important to interpret the findings in the context of the limitations of the readability index the authors used. It is argued that Fog Index, Flesch-Kincaid and Flesch Reading Ease have their own limitations as considered inadequate to be used in the context of business and accounting narratives that are adult-oriented and specialist in nature (Jones and Shoemaker, 1994; Loughran and McDonald, 2014). Another caveat relates to the use of proxies for accounting irregularities. The M-Score and F-Score have some limitations in which, among others, were determined without considering the normal level of accruals or period where manipulations were absent (Ball, 2013).

One reason underlying the result is that Indonesian firms, in general, do not consider the complexity of the annual report, particularly MD&A disclosures, as a tool to mask financial reporting irregularities. It is also possible that firms with accounting irregularities will incline to voice simpler stories because it is difficult to be untruthful (Lo et al., 2017). Indeed, according to Education First English Proficiency Index, Indonesia was categorized in low proficiency level and ranked 61st out of 100 countries being surveyed (Education First, 2019). As policymakers, locally and globally, are calling for more simplified reports including a plain English approach, the study can be insightful to their deliberations. It suggests that policymakers need to consider a country’s English proficiency, writing skills, regulatory environment and corporate policy on shaping the complexity and narrative of a firm’s communications.

The study contributes to a scarcity of research that investigates English-written annual reports in non-English speaking countries (Jeanjean et al., 2015; Lundholm et al., 2014). As such, the study findings provide insights related to MD&A in an under-researched area and contribute to improving MD&A not only in Indonesia but also in neighbor countries that share similar social, political and economic characteristics. Also, this study is important for foreign institutions or individuals investing on Indonesian-listed firms. According to Candra (2016), approximately 60% of companies listed in the Indonesia stock exchange are owned by foreign individuals or institutions. They rely greatly on the English texts of annual reports to understand the companies’ financial performance. Moreover, La Porta et al. (2002) asserted that firms with a majority of foreign shareholders (dominantly owned by foreign investors) are more likely to face information asymmetry, primarily due to geographical factors and language barriers.

The study examines audit reports of a federal loan program which has a high incidence of reported irregularities. The following research questions are examined: (1) are there characteristics common to projects in which irregularities are reported? (2) Can variables be identified which are significant in differentiating between projects with and without reported irregularities? Projects with reported irregularities are found to be significantly associated with internal control weaknesses, related party transactions, lower net income, smaller cash flow, fewer projects per developer, and an auditor with fewer Farmers Home Administration (FmHA) clients.

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.

The purpose of this paper is to examine the relationship between a firm's internal audit function (IAF) and the quality of its financial reporting. Since regulations on corporate governance were introduced, numerous national and international bodies have emphasized the fundamental role of the IAF in the financial reporting process, especially since it generally leads to higher quality reporting.

The paper uses questionnaires sent to internal audit directors of Spanish banks.

Banks with high quality financial reporting have greater collaboration between internal and external auditors in the annual audit. Greater involvement of internal audit in reviewing financial reporting leads to improved quality financial reporting.

Besides the usual caveats of survey research, there are limitations to this study. First, the problem of response bias may exist. Second, the 66 per cent survey response rate may mean that respondents have larger or better‐developed internal audit functions, affording them more opportunity or motivation to respond to the survey. Hence, the results obtained through the survey may not be generalizable to non‐respondents.

The findings are relevant for bank regulators, management, boards of directors, and investors. In the current discussion on transparency, integrity and quality of financial reporting, these findings help define the issues.

Previous empirical studies analyse the quality of financial reporting with actors in the corporate governance mosaic (board of directors, audit committee and external audit), but they do not do so directly with the IAF. This paper extends prior banking literature that analyses quality financial reporting along with other variables, but not internal audit.

The purpose of this paper is to provide an overview of financial restatements by US companies to help students, professors, and practitioners gain a better understanding of restatements. Data from restatement activity that occurred between January 1, 1997 and June 30, 2002 is presented and relevant literature is cited to discus the players involved in restatements, the causes of restatements and their impacts.

A sample of 919 restatement announcements compiled by the General Accounting Office (GAO) that occurred between January 1, 1997 and June 30, 2002 is analyzed. The data and the relevant literature are used to examine the roles of companies, auditing firms, and the Security and Exchange Commission (SEC) in the financial reporting process and show how they are involved in prompting restatements. Literature is also reviewed on the root causes of restatements and their impact.

The misstatements that lead to earnings restatements are driven by a variety of forces, the most often studied and discussed being deceptive accounting practices by managers. The results of these restatements include a decline in the market value of the firm, an increase in the cost of capital, a loss of reputation for the firm and managers and an overall loss of confidence from investors. Key players in restatements by US companies are the Securities and Exchange Commission (SEC), the restating firms' auditors and the management of the restating firms. Restatements prompted by the SEC tend to be larger than those prompted by other entities. They also tend to involve firms with high profitability before the restatement. The Sarbanes‐Oxley act is the latest significant piece of legislation that impacts financial reporting by firms.

Data on US restatements occurring between January 1, 1997 and June 30, 2002 are presented. Restatements are a continuing, global, phenomenon so studies involving restatements by firms in various countries and from more recent periods would be useful.

This paper provides a useful overview of restatement activity in the USA for any individual looking to become more familiar with the topic. Ideas for future research are presented.

This paper fills a hole in the literature by providing data and citing relevant literature to provide an overview of accounting restatement activity in the USA.

Although the effect of culture on financial reporting practices has been addressed in earlier studies, the existing empirical evidence totally neglects an important dimension in Gulf Cooperation Council (GCC) markets: tribal culture. The authors fill this gap in the literature using Oman as the setting.

The authors collect data for 583 company-year observations for companies listed on the Omani capital market, 2007–2014. The authors run a two-way fixed effects panel data regression to test their hypothesis.

Tribal culture has a negative effect on financial reporting quality (FRQ), measured by both accrual-based and real earnings management. The findings are robust under a variety of sensitivity analyses. In additional analysis, the findings confirm that tribal culture negatively moderates the effectiveness of internal monitoring mechanisms and is associated with low-quality auditing. Further, the authors find tribal culture associated with delayed financial information.

To the authors' knowledge, the study makes several contributions to the literature because it is the first archival evidence linking tribal culture with FRQ. It is the first to show that the effect of corporate governance mechanisms on FRQ is moderated by tribal culture. The study has valuable implications for policymakers, regulators, boards of directors and auditors in GCC countries as well as in countries with similar cultures.

The purpose of this paper is to test the impact of the internal audit function (IAF), an increasingly common internal governance mechanism, on a firm's financial reporting quality. Specifically, this paper investigates the association between the quality of the IAF and abnormal accruals (as a proxy for financial reporting quality) and whether the board of directors play a role in moderating the relationship.

This paper uses a unique dataset of survey responses and archival data. Regression analysis was used to test their hypotheses.

Although their initial findings show an unexpected positive relationship between internal audit quality and abnormal accruals, this relationship is contingent on whether firms outsource their internal audit activities and/or whether they are politically linked. In estimations excluding outsourcing and political connections observations, this paper shows that the association between internal audit quality and abnormal accruals is negative and in particular internal audit organisational independence, financial focus audit activities and investment are associated with lower income-increasing (opportunistic) abnormal accruals. Next, when this paper interact board quality with internal audit quality, this paper finds although the lower ordered variables board quality and internal audit quality coefficients are negatively related to abnormal accruals, the interaction variable between these two variables is positively associated with abnormal accruals, indicating the possibility of a substitution relationship between board quality and internal audit quality.

Their findings show that certain internal audit attributes play an important role in the financial reporting process and thus these findings are expected to inform the Institute of Internal Auditors and other regulatory bodies on the role of internal audit (being an important internal governance mechanism) in financial reporting, which in turn can assist in market/regulatory reforms/changes and inform the revised Malaysian Code of Corporate Governance.

This paper extends prior internal auditing literature by examining the relationship between internal audit quality and financial reporting quality in the context of a developing country, namely Malaysia, and whether the board of directors moderate the examined association.

The purpose of this paper is to examine the impact of corporate (CG) and Islamic (IG) governance mechanisms on corporate earnings management (EM) behaviour in Oman.

The authors employ one of the largest and extensive data sets to-date on CG, IG and EM in any developing country, consisting of a sample of 116 unique Omani listed corporations from 2001 to 2011 (i.e. 1,152 firm-year observations) and a broad CG index containing 72 CG provisions. The authors also employ a number of robust econometric models that sufficiently account for alternative CG/EM proxies and potential endogeneities.

First, the authors find that, on average, better-governed corporations tend to engage significantly less in EM than their poorly governed counterparts. Second, the evidence suggests that corporations that depict greater commitment towards incorporating Islamic religious beliefs and values into their operations through the establishment of an IG committee tend to engage significantly less in EM than their counterparts without such a committee. Finally and by contrast, the authors do not find any evidence that board size, audit firm size, the presence of a CG committee and board gender diversity have any significant relationship with the extent of EM.

To the best of the authors’ knowledge, this is a first empirical attempt at examining the extent to which CG and IG structures may drive EM practices that explicitly seek to draw new insights from a behavioural theoretical framework (i.e. behavioural theory of corporate boards and governance).