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1 – 10 of 947Audrey A. Gramling, Arnold Schneider and Lori Shefchik Bhaskar
This study’s purpose is to examine whether providing prior consulting services influences internal auditors’ subsequent assessments when providing assurance services to assist…
Abstract
This study’s purpose is to examine whether providing prior consulting services influences internal auditors’ subsequent assessments when providing assurance services to assist management in its assessment of internal control over financial reporting. A behavioral experiment is used, with internal auditors as participants. We provide some evidence that internal auditors who perform prior consulting services are less likely than others to conclude that an identified control deficiency is a material weakness, but only when the deficiency is directly related to the prior consulting services performed. Limitations include relatively small sample sizes and manipulation check failure rates that, although consistent with several prior studies, are somewhat high. If internal auditors have provided consulting services, they may want to consider limiting the assurance services provided to management that are more directly related to their consulting services. While prior studies have examined the effects of internal auditors’ role in designing internal controls on subsequent services, this is the first study to focus on the impact of providing internal audit consulting services on subsequent assurance services.
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Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial statements…
Abstract
Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial statements. This part also includes a detailed critical review of the recent Practice Statement on materiality, the FASB’s proposed ASU on the notes and the amendments to the Conceptual Framework proposed by the IASB and the FASB.
The part expands to issues that are typical of Management Commentary, including the SEC guidance on materiality in Management Discussion and Analysis.
It informs about the complexities and subtle differences between financial statements and bookkeeping and the different standards of reasonableness versus materiality.
A section moves from materiality to material misstatements and covers the application of materiality in auditing.
Another section goes in depth on internal control over financial reporting, showing the linkages between materiality and risk appetite and risk tolerance and the related application guidance.
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Joseph M. Onumah, Ransome Kuipo and Victoria A. Obeng
Purpose – This study examines the effectiveness of internal control systems of listed firms in Ghana. The recent (especially international) financial reporting scandals have…
Abstract
Purpose – This study examines the effectiveness of internal control systems of listed firms in Ghana. The recent (especially international) financial reporting scandals have caused regulators to place a lot of attention on internal control systems as a mechanism that could help improve the quality of financial reporting.
Design/methodology/approach – The study examined annual reports of a sample of 33 firms listed on the Ghana Stock Exchange. In measuring the level of internal control effectiveness, 23 items relating to internal control categorised under control environment, information and communication, risk assessment, control activities and monitoring were operationalised and the effectiveness score was determined based on the items.
Findings – Overall internal control system showed an average level of effectiveness in this study, which implied an overall low level of effectiveness. Of the five categories assessed under internal control system, control environment showed a higher level of effectiveness.
Originality/value – The study makes a contribution to the academic research activities relating to internal controls in Ghana.
Limitations – Inherent in the measurement process is an element of estimation error as a result of the use of subjective judgement for some items operationalised in assessing internal control effectiveness.
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Irina Farquhar and Alan Sorkin
This study proposes targeted modernization of the Department of Defense (DoD's) Joint Forces Ammunition Logistics information system by implementing the optimized innovative…
Abstract
This study proposes targeted modernization of the Department of Defense (DoD's) Joint Forces Ammunition Logistics information system by implementing the optimized innovative information technology open architecture design and integrating Radio Frequency Identification Device data technologies and real-time optimization and control mechanisms as the critical technology components of the solution. The innovative information technology, which pursues the focused logistics, will be deployed in 36 months at the estimated cost of $568 million in constant dollars. We estimate that the Systems, Applications, Products (SAP)-based enterprise integration solution that the Army currently pursues will cost another $1.5 billion through the year 2014; however, it is unlikely to deliver the intended technical capabilities.
Haiyan Zhou, Hanwen Chen and Zhirong Cheng
In this paper, we investigate whether internal control and whether corporate life cycle would affect firm performance in the emerging markets of China.
Abstract
Purpose
In this paper, we investigate whether internal control and whether corporate life cycle would affect firm performance in the emerging markets of China.
Methodology/approach
We use Chen, Dong, Han, and Zhou’s (2013) internal control index on the effectiveness of internal control and Dickinson’s (2011) definition on firm life cycle. We use multivariate regression analysis.
Findings
We find that the internal control improves corporate performance. When dividing firm life cycle into five stages: introduction, growth, mature, shake-out and decline, we find that the impacts of internal control on firm performance vary with different stages. The positive impact of internal control on firm performance is more significant in maturity and shake-out stages than other stages.
Research limitations/implications
Our findings would have implications for the regulators and policy makers with regards to the importance of internal control in corporate governance and the effectiveness of implementing standards and guidelines on internal control in public firms.
Practical implications
In addition, our findings on the various roles of internal control at different stages of firm life cycle would help managers and board of directors find more focus in risk management and board monitoring, respectively.
Originality/value
Although the prior literature have examined the link between internal control, information quality and cost of equity capital (Ashbaugh-Skaife, Collins, Kinney, & LaFond, 2009; Ogneva, Subramanyam, & Raghunandan, 2007), our study would be the first attempt to investigate the link between internal control and firm performance during different stages of firm life cycles.
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After the Royal Ahold accounting scandal occurred in 2003, the Dutch government responded by publishing a new Corporate Governance code, often referred to as the “Tabaksblat…
Abstract
After the Royal Ahold accounting scandal occurred in 2003, the Dutch government responded by publishing a new Corporate Governance code, often referred to as the “Tabaksblat Code”, updated in 2016. The Code focuses on long-term value creation by emphasizing risk management and accountability and reinforcing the roles and duties of management board, internal audit function, and supervisory board in designing adequate risk management and control systems and in assessing their effectiveness. Differently than the rule-based Anglo-Saxon regulations, the Code is based on best practices provisions and adopts a “comply or explain” approach. Professional bodies are actively supporting their associates in developing skills in current and emerging risk management areas. Despite these efforts, it is worth noting that there are still significant differences on how companies apply the risk management provisions. For instance, in terms of appointing a dedicated manager as Chief Risk Officer (CRO), in the frequency and scope of risk assessment, and in defining the risk appetite of the company.
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Jacqueline A. Burke and Hakyin Lee
Mandatory auditor firm rotation (mandatory rotation) has been a controversial issue in the United States for many decades. Mandatory rotation has been considered at various times…
Abstract
Mandatory auditor firm rotation (mandatory rotation) has been a controversial issue in the United States for many decades. Mandatory rotation has been considered at various times as a means of improving auditor independence. For example, in the United States, the Public Company Accounting Oversight Board (PCAOB) has considered mandatory rotation as a solution to the independence problem (PCAOB, 2011) and the European Parliament approved legislation that will require mandatory rotation in the near future (Council of European Union, 2014). The concept of implementing a mandatory rotation policy has been encouraged by some constituents of audited financial statements and rejected by other constituents of audited financial statements. Although there are apparent pros and cons of such a policy, the developmental process of such a policy in this country has not necessarily been an open-democratic, objective process. Universal mandatory rotation may or may not be the ideal solution; however, an open-democratic, objective process is needed to facilitate the development of a solution that considers the needs of all major stakeholders of audited financial statements – not simply accounting firms and public companies, but also investors. The purpose of this paper is to critically examine key issues relating to mandatory rotation and to encourage and stimulate future research and ongoing dialogue regarding this issue, in spite of efforts by certain constituents to silence the issue. This paper provides an overview of the various reasons, including practical, theoretical, political, and self-motivated reasons, why a mandatory rotation policy has not been implemented in the United States in order to address the potential conflict of interest between the auditor and client. This paper will also discuss how some deliberations of mandatory rotation have been flawed. The paper concludes with a summary of key issues along with two approaches for regulators, policy makers, and academics to consider as ways to improve the process and address auditor independence. The authors are not advocating for any specific solution; however, we are advocating for a more objective, unified approach and for the dialogue regarding auditor rotation to continue.
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