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The confidence in the qualifications and independence of the audit activities and professionals has been lost due to the financial scandals that have arisen over time. These scandals in the accounting and auditing fields caused both enterprises and investors to suffer from large amounts of losses and thus the need for reliable financial statements and corporate governance increased.

Both investors and decision-makers need independent assurance to achieve transparent, reliable, and impartial financial information. The fulfillment of this requirement is possible through independent auditing activity and independent audit firms. Business management shall carry out the selection of independent auditors based on various criteria (fee, reputation, audit team, relations, etc.). In addition, it may also be necessary to periodically change an independent audit firm due to rotation or other reasons (fee, disputes, relationships, etc.).

In this study, a ranking of the importance level of the evaluation criteria, for the selection and change of the independent audit firm in an enterprise in Borsa İstanbul (BIST) 100 in Turkey, was conducted. Analytical Hierarchy Process (AHP), which is one of the multicriteria decision-making techniques, was used for ranking. In the hierarchy established for the selection of the independent audit firm, the main criteria of the “audit fee” and the “reputation and qualifications of the audit firm” have been established. According to the findings obtained as a result of binary comparisons, the first four ranks among sub-criteria are “provision of international service,” “quality of technical expertise of audit firm,” “industry expertise of audit firm,” and “suitability of fee offered by audit firm.”

For the change of audit firm, four main criteria “audit fee,” “disputes arising during the audit process,” “relations with the audit firm,” and “rotation” are taken into consideration. For sub-criteria, first four criteria were “rotation of independent audit firm,” “rotation of independent auditor,” “audit firm’s inability to adequately practice proactive audit approaches,” and “inadequate communication.”

This chapter examines corporate governance–related financial reporting issues in the context of globalization. Over the past few decades, the process of globalization has substantially altered the fields of corporate governance and accounting. More specifically, Anglo-American models of corporate governance and financial reporting have received increasing momentum in emerging economies, including China. However, a review of relevant studies suggests that there is limited research examining the implementation of Anglo-American concepts in various countries regardless of their growing acceptance. This monograph extends the existing literature by comprehensively investigating the adoption of internationally acceptable principles and standards in China, the largest transitional economy that has different institutional context from Anglo-American countries. In addition, the review has a number of implications for developing the theoretical framework, and determining the research methodology for the monograph.

We investigate the association between attributes of the audit committee of a firm and the likelihood of negative events occurring in the firm’s life in Israel. The mandate of the audit committee in Israel is substantially different from its mandate in the US. The responsibilities of the committee in the US are divided between two committees in Israel, one of which deals with reviewing the financial statements and the other one, titled “audit committee,” is in charge of the remaining tasks of the US-type audit committee. This allows us a unique opportunity to focus on the roles of the audit committee other than reviewing the financial statements. Using hand-collected data on firms traded on Tel Aviv Stock Exchange in 2010–2014, we find that the larger the audit committee size, the larger the likelihood of negative events, consistent with the cumbersome workings and potential conflicts of interests characterizing a large committee. The percentage of directors with accounting and financial expertise on the audit committee is associated with a lower likelihood of negative events, in line with the value of such experts in tasks beyond reviewing the financial statements. The fraction of independent directors on the audit committee is not found to be significantly related to the likelihood of negative events. This is consistent with the notion that some independent directors are independent in form but not necessarily in substance, which is surprising in light of the comprehensive regulation regarding audit committee independence imposed by the Israeli regulator.

The aim of this paper is to analyze the impact of corporate governance (focused on some key mechanisms as board size, board independence, managerial ownership, institutional ownership, and chief executive officer duality) on financial analysts’ behavior in US. Results from panel data analysis for 294 US listed firms observed from 2007 to 2014 show that several attributes of the board of directors and audit committee have no effects on the number of analysts who are following the firm and the properties of analysts’ earnings forecasts. Findings also suggest that firms with independent and large boards and blockholders ownership benefit of more analyst following. In addition, it is proven that analysts’ earnings forecasts are optimistic and more accurate for companies where blockholder ownership, either by managers or external entities have larger quoted spreads but of lower quality for the ones which have greater independent board members and institutional investor’s holding.

On the one hand, the auditing of the public hospitals regarding their financial information is carried out by the State Audit Court which is the Supreme Auditing Institution in our country, on the other hand it is carried out by the auditors of the Ministry of Health. While the audits made by the Ministry of Health are generally about compatibility and medical controls, the financial information of the hospitals needs to be made by the external independent auditors and their impact on the general budget needs to be determined.

In this study, the subject matter of financial auditing has been elaborated on within the specificity of the public health sector and evaluated as to whether the conducted auditing is effective in determining the mistakes in the financial information of the organizations. For the purpose of conducting the evaluation, the six-year auditing reports between the years of 2012 and 2017 of the Supreme Auditing Institution (State Audit Court) conducting the financial auditing of the public health sector regarding the Public Hospitals Administration of Turkey (Türkiye Kamu Hastaneleri Kurumu). The auditing reports are addressed within the framework of the types and numbers of findings determined by the State Audit Court, the responses that the Public Hospitals Administration of Turkey has given against those findings and the opinion of auditing. In the consequence of the conducted evaluation, it was concluded that the Court of Accounts was effective in determining the mistakes in the financial reports and increasing the correctness and reliability of the financial information of the Administration.

The need for independent audit goes back to the agency theory, the theory of delegation of power and the issue of trust. Stakeholders delegate power to management to manage the business on their behalf, yet they face the risk of information asymmetry and management motivations to commit fraud. The main aim of having an independent auditor was therefore to reduce the risk of information asymmetry and fraudulent behaviour by management. Auditors are required by the International Auditing Standards to detect material fraud and error, and they are expected to have a duty of care for stakeholders. However, recently independent auditors, whether conducting private or public audit, have been scrutinised for failing to detect material fraud. There have been a lot of discussions in the literature about the role of private auditors in detecting fraud, but very little discussions about the role of public auditors in detecting fraud. This chapter will outline the difference between private audit and public audit; explain the legal liability of public auditors in relation to fraud detection; the role of public auditors in detecting fraud; and will critically review the root causes for auditors’ failure to detect fraud.

The research question we address in this paper is whether the effort invested by the internal auditor in the firm is associated with better firm performance. Our measure of effort is the number of audit hours invested in the firm, and firm performance is measured by the likelihood of a restatement of the firm's financial results. This study is the first to analyze this question, an endeavor made possible by a difference in disclosure requirements regarding internal audit effort between the US and Israel. Our analysis is conducted using hand-collected data on firms traded on Tel Aviv Stock Exchange (TASE) during the period 2010–2014. We expect that auditor effort is negatively associated with the likelihood of restatements of the firm's financial results. Indeed, our findings support this hypothesis. We also consider the association between restatements and two audit committee characteristics – the degree of independence and the degree of expertise of its members. However, these associations are not upheld by the data.

Recent corporate scandals such as WorldCom, Enron, and others suggest a failure of corporate governance, that is, of the allocation of power and its lawful use and accountability within the corporation.

This chapter presents a game theoretic model for analyzing the power dynamics among the three groups responsible for oversight in the Anglo-American corporate model – namely the Board of Directors through its audit committee, corporate management, and the external auditors.

The chapter shows, among other findings, that the current governance structure results in an extreme imbalance of power among the three groups that not only permits but even induces management to conceal necessary financial data and often to ignore the long-term interests of the firm.

The chapter also derives changes in principles of governance that can right such imbalances and prevent defalcations from taking place through institutionalizing effective ex-ante checks and balances of power in addition to the ex post measures that come into play only after a wrong has been committed and which are the case with recent exchange rules and Congressional enactments.

None.

No prior analysis along these lines.