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Details

Quality Control Procedure for Statutory Financial Audit
Type: Book
ISBN: 978-1-78714-226-8

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Article

Sonda Wali and Sana Mardessi Masmoudi

This study aims to examine whether the internal control system quality in the French context improve the information quality having been reflected by the level of real…

Abstract

Purpose

This study aims to examine whether the internal control system quality in the French context improve the information quality having been reflected by the level of real earnings management (REM) measured by inventory overproduction, discretionary expenses reduction and sales manipulation.

Design/methodology/approach

The research uses a multiple regression analysis to examine the association between internal control and REM. The years 2010-2015 are used as analysis period by focusing on the French context. Three panel data are applied to the companies belonging to the Cotation Assistée en Continu (CAC) 40 index for the entire study period.

Findings

The results show that high internal control index has a negative impact on the REM and that better internal control indeed makes financial reporting more credible to investors. Further, the results demonstrate that control environment, risk assessment, control activities and monitor are the components that mainly affect REM.

Originality/value

The results contribute to the literature dealing with the relationship between internal control quality and REM by shedding light on the importance of internal control quality in improving information quality in the French context. Moreover, this study is using a quantitative measure of the internal control quality while much of the prior literature uses material weaknesses to estimate the effectiveness of internal control system.

Details

Journal of Financial Reporting and Accounting, vol. 18 no. 2
Type: Research Article
ISSN: 1985-2517

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Article

Mahdi Salehi, Mahmoud Mousavi Shiri and Seyedeh Zahra Hossini

The purpose of this paper is to emphasize the relationship between managerial ability, earnings management, internal control quality and audit fees to establish whether or…

Abstract

Purpose

The purpose of this paper is to emphasize the relationship between managerial ability, earnings management, internal control quality and audit fees to establish whether or not there is a significant relationship between the variables of managerial ability, earnings management, internal control quality and the audit fees.

Design/methodology/approach

The study sample includes 190 listed companies on the Tehran Stock Exchange during 2009–2016. Research hypotheses were tested using the statistical methods of multivariable linear regression and data envelopment analysis pattern.

Findings

The obtained results indicate that there is a significant and direct relationship between managerial ability and internal control quality as well as real earnings management and internal control quality. Based on the results obtained from the second hypothesis, the authors could claim that there is an inverse and significant relationship managerial ability and audit fees. The third hypothesis also revealed that in companies with lower audit fees, there is a stronger relationship between managerial ability and internal control quality. The results of related tests show no significant relationship between accrual-based earnings management and internal control quality.

Originality/value

This paper is the first study in Iran whose main focus is on the relationship between managerial ability, earnings management, internal control quality and audit fees.

Details

International Journal of Productivity and Performance Management, vol. 69 no. 4
Type: Research Article
ISSN: 1741-0401

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Article

Faudziah Hanim Fadzil, Hasnah Haron and Muhamad Jantan

Two main objectives and they are: to determine whether the internal audit department of the companies listed in the Bursa Malaysia complies with the Standards for the…

Abstract

Purpose

Two main objectives and they are: to determine whether the internal audit department of the companies listed in the Bursa Malaysia complies with the Standards for the Professional Practice of Internal Auditors IIA (2000); and, to determine whether compliance to SPPIA will affect the quality of the internal control system of the company.

Design/methodology/approach

Two sets of questionnaires were used in the study. Internal auditing practices was measured by the items listed in the SPPIA and the internal control was measured by means of the statement on internal control: guidance for directors of public listed companies. The population used in this study was all the companies listed in the Bursa Malaysia in 2001. This study used both descriptive and inferential analyses.

Findings

It was found that management of internal audit department, professional proficiency, objectivity and review significantly influence the monitoring aspect of the internal control system. Scope of work and performance of audit work significantly influences the information and communication aspect of the internal control system while performance of audit work, professional proficiency and objectivity significantly influence the control environment aspect of the internal control system. The study also shows that management of internal audit department, performance of audit work, audit program and audit reporting significantly influences the risk assessment aspect of the internal control system. Lastly, performance of audit work and audit reporting significantly influences the control activities aspect of the internal control system.

Research limitations/implications

The research has contributed to the agency theory with respect to the bonding costs that management has to pay to the internal auditors for the best interest of the principals of the companies. Another important implication pertains to the extent of the internal auditing practices among internal auditors in Malaysian public listed companies. Research has also shown that the compliance with internal auditing practices partially influence certain aspects of the quality of the internal control system.

Originality/value

This is the first empirical study that has linked the compliance of the internal auditing function to the SPPIA and its effect on the internal control system.

Details

Managerial Auditing Journal, vol. 20 no. 8
Type: Research Article
ISSN: 0268-6902

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Article

Ahmed Atef Oussii and Neila Boulila Taktak

This paper aims to investigate the association between internal audit function (IAF) characteristics and internal control quality.

Abstract

Purpose

This paper aims to investigate the association between internal audit function (IAF) characteristics and internal control quality.

Design/methodology/approach

Using data gathered from 59 chief audit executives from Tunisian listed companies, this paper uses a regression model to examine research hypothesis related to the association between IAF characteristics and internal control quality.

Findings

The findings of the current study reveal that internal control quality is significantly and positively associated with IAF competence, internal audit quality control assurance level, follow-up process and audit committee’s involvement in reviewing the internal audit program and results.

Practical implications

The findings have significant implications for IAF wishing to enhance their effectiveness, by recognizing the impact of the IAF’s characteristics on internal control quality. The findings of this study also have significant implications for regulatory bodies who are concerned with the internal control quality, managers and audit committees who determine IAF investment, oversight IAF activities and assess internal auditors’ performance.

Originality/value

This study helps fill a gap in the extant literature where existing empirical evidence of how the IAF characteristics influences the quality of the financial reporting process in emerging markets is scant.

Details

Managerial Auditing Journal, vol. 33 no. 5
Type: Research Article
ISSN: 0268-6902

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Article

Mahmoud Lari Dashtbayaz, Mahdi Salehi and Toktam Safdel

The purpose of this paper is to investigate the relationship between internal controls weakness and financial reporting quality and the effect of family ownership on the…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between internal controls weakness and financial reporting quality and the effect of family ownership on the mentioned relationship in Iranian listed firms.

Design/methodology/approach

In this way, the authors included the number of 139 firms from 2013 to 2017, of which 28 were family firms. The hypotheses are analyzed based on panel data and means comparison.

Findings

The results illustrated that weakness in internal controls has a significant negative relationship with financial reporting quality. In other words, internal controls weakness decreases the quality of financial reporting quality. Moreover, the results showed that being familial does not affect the aforementioned relationship.

Originality/value

Consequently, there is no suitable criteria to distinguish family firms and there is a need to take them into serious consideration because very few studies have been conducted focusing on this issue in Iran, as it is considered an argumentative subject to be discussed in the Iranian market.

Details

Journal of Family Business Management, vol. 9 no. 3
Type: Research Article
ISSN: 2043-6238

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Article

Liuchuang Li, Gaoliang Tian and Baolei Qi

The purpose of this study is to examine whether auditor's unqualified opinion on internal control (ARIC) is a powerful proxy for the effectiveness of internal control in…

Abstract

Purpose

The purpose of this study is to examine whether auditor's unqualified opinion on internal control (ARIC) is a powerful proxy for the effectiveness of internal control in Chinese context. A rich body of research conducts their designs on an assumption that companies have more effectiveness of internal controls if they disclose ARICs. This study argues that the ARICs are not always reliable, because audit market is well characterized by excessive competition and market supervision is poorer in China compared to developed countries.

Design/methodology/approach

The study uses 2008 and 2009 years Chinese listed‐firms data and the Tobit regression to test the relationship between ARIC and accrual quality. The paper employs the Heckman model for self‐selection bias, which are possibly introduced by choice in disclosing ARICs.

Findings

The paper finds that firms disclose ARICs do not report lower abnormal accruals relative the non‐ARIC firms, and firms with ARICs issued by dominant auditors show more reliable accruals relative to non‐ARIC firms and firms that disclose ARICs but fail to be issued by dominant auditors. The results are robust to additional accrual quality measure, additional audit quality measure, and the correction of self‐selection bias by using the inverse Millo ratio approach.

Originality/value

The results suggest that implementing Chinese‐SOX could be facilitated by improving audit quality.

Details

Nankai Business Review International, vol. 3 no. 4
Type: Research Article
ISSN: 2040-8749

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Abstract

Details

Quality Control Procedure for Statutory Financial Audit
Type: Book
ISBN: 978-1-78714-226-8

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Article

Masumi Nakashima and David A. Ziebart

– The purpose of this paper is to investigate whether Japanese Sarbanes – Oxley Act (J-SOX) impacted earnings management and earnings quality of public firms in Japan.

Abstract

Purpose

The purpose of this paper is to investigate whether Japanese Sarbanes – Oxley Act (J-SOX) impacted earnings management and earnings quality of public firms in Japan.

Design/methodology/approach

This archival study compares earnings management and earnings quality of firms that disclose at least one material weakness with a sample matched on size and industry without a material weakness.

Findings

The authors investigate whether the differences in regulations, corporate governance and regulatory environment acceptance influence earnings management and earnings management of Japanese listed firms, relative to findings in the USA. They found the Japanese results to be slightly different from the results found in previous USA studies. First, the time-series observations suggest that while accruals management and real earnings management remained unchanged for control firms, accruals management and real earnings management increased for material weaknesses disclosing firms following J-SOX. The regression analyses suggest that accruals management for both the groups is significant in the pre-and post-J-SOX periods, but that real earnings management declined for both the groups post-J-SOX. Second, while, both accruals quality and accuracy of cash flow predictions improved in the post-J-SOX period.

Research limitations/implications

The sample of Japanese firms disclosing a material weakness is small because the number of firms that disclose internal control deficiencies is decreasing in Japan. The authors have no evidence that their results are not generalizable to a larger sample and leave this for future research.

Practical implications

The authors provide evidence that J-SOX, which does not have a direct reporting system, does not constrain earnings management. Their results drive the regulator to reconsider whether the reporting system works in the Japanese business environment. Additionally, their results show that J-SOX has no effect on earnings management; thus, regulators need to reconsider the governance function of directors and internal auditors. This paper communicates to the world how J-SOX works in Japan through changes in earnings quality and management post J-SOX and the root problems.

Originality/value

This paper is the first (of which the authors are aware) to examine whether J-SOX impacted both earnings management and earnings quality in Japan. This paper discusses how the differences in regulations and corporate governance as well as the differences between USA-SOX and J-SOX may explain the results observed in Japan. This paper provides results regarding whether J-SOX improved earnings quality.

Details

Managerial Auditing Journal, vol. 30 no. 4/5
Type: Research Article
ISSN: 0268-6902

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Article

Kirsty Rae and Nava Subramaniam

This study aims to bring together theoretical concepts from the organizational justice, internal control and fraud literature to develop two distinct models relating to…

Abstract

Purpose

This study aims to bring together theoretical concepts from the organizational justice, internal control and fraud literature to develop two distinct models relating to employee fraud and the quality of internal control procedures (ICP), respectively.

Design/methodology/approach

Survey data from 64 Australian firms were used to develop the two models. The first model was tested using a logistic regression analysis, and the second model was tested using a multiple regression analysis.

Findings

The first model reveals that the quality of ICP has a moderating effect on the relationship between perceptions of organizational justice and employee fraud. The second model indicates that ICP quality is significantly and positively related to three key organizational factors: the corporate ethical environment, the extent of risk management training of staff, and the internal audit (IA) activity level.

Practical implications

Risk management strategies relating to employee fraud will need to pay greater attention to organizational factors that affect both perceptions of justice at the workplace and ICP quality, including fostering a more ethical and equitable work environment, increasing IA activities and staff training in risk management.

Originality/value

Using the fraud triangle framework, this study extends previous literature by providing empirical evidence on the role of organizational justice and ICP regarding employee fraud.

Details

Managerial Auditing Journal, vol. 23 no. 2
Type: Research Article
ISSN: 0268-6902

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