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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.

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.

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.

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.

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.

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.

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 examine how and why disclosure of corporate social responsibility (CSR) information was influenced by independent directors in Japan and the USA.

The author used a pooled cross-sectional data set of 498 Fortune Japanese and American firms between 2006 and 2011 and fixed effects estimation method. The author analysed the results by employing a comparative approach between the two national contexts.

This study found that independent directors in Japanese firms had a significant positive effect on CSR disclosure whilst no evidence was found in the US firms, although the proportion of independent directors on American boards traditionally and largely outnumbers that of the Japanese counterparts.

The study results offer an insight that independent directors could be evaluated in terms of effectiveness and efficiency in CSR disclosure. The findings support the stakeholder theory in Japanese globalised companies while challenging the theory in the US context, thereby calling for further research into the stakeholder engagement models, particularly in the USA.

This study focuses on a survey of chief financial officers (CFOs) in public firms in Japan concerning the following six points: the importance of the definition earnings quality; higher quality earnings; the determinants of earnings quality; prevalence, magnitude, and motivation of earnings management; accounting that influences earnings quality; and misrepresenting of earnings. The results are following: first, Japanese CFOs define earnings quality as earnings accurately reflecting economic reality, earnings accurately reflecting the results of operations, and earnings backed by cash flows, earnings sustainability, recurring, and consistent, and earnings reflecting long-term trend importance. Second, Japanese firms consider earnings that reflect consistent reporting choices over time as higher quality. They do not consider that earnings having accruals that are eventually realized as cash flow as higher earnings quality. Third, Japanese CFOs indicate that 30% of earnings quality is impacted by firm characteristics such as firm’s business model, industry, and macroeconomic conditions. Surprisingly, the influence of the board of directors is greater than the impact of their internal controls. Fourth, as for the determinants of earnings quality, CFOs consider that more than 70% of Japanese CFOs do not allow the discretion and that accounting standards limit their ability to report higher earning quality. Fifth, Japanese CFOs consider that higher earnings are influenced by accounting principles such as policies that match expenses with revenues and policies that rely on fair value accounting as much as possible. Sixth, CFOs themselves predict that 50% of Japanese firms use discretions and that they use 20% of earnings per share (EPS). Since there is inside and outside pressure to hit earnings benchmarks, Japanese firms possess the motivation to use earnings to misrepresent economic performance, Japanese managers see a red flag when generally accepted accounting principle’s earnings do not correlate with cash flow from operations.

The purpose of this paper is to identify the application of the fundamental principle of accounting conservatism within the EU food and drink industry. Furthermore, the authors would also investigate in-depth the above relationship in two different subsamples (income smoothers and non-income smoothers).

All EU-listed companies of the food and drink industry were identified covering the year 2019. Eckel's model was used to classify listed companies as smoothing or non-smoothing, and Basu's model was adopted to test the degree of conditional conservatism.

The results indicate that conservatism is strongly present in food and drink industry and also in its subindustries. We also showed that non-smoothing firms had higher levels of conditional conservatism in terms of more opportunity to recognize future economic losses because the market could use the stock return data to anticipate future losses contained in the information regarding profits.

One limitation of this work is the small size of the investigated companies. The authors demonstrate that the likely increased use of conservatism produces better credibility in the EU markets. Practical implications indicate a higher degree of monitoring of the accounting practices adopted by firms. Regulators have to set accounting policies to enhance the quality of the informational environment, investors and shareholders might exercise control over executives' decisions, and lenders might impose contractual clauses requiring the timely disclosure of “bad news.”

This industry is “belted” from any external speculations. This research made it possible also to observe theoretical relationships between the financial information provided by the EU food and drink industry that contributes to the market distinction between smoothers and non-smoothers.

The purpose of this paper is to examine whether foreign directors’ influence on opportunistic behavior among managers varies between Islamic banks (IBs) and conventional banks (CBs). It also examines how religious ethics and morals guide foreign directors to be better monitors.

A panel fixed effects regression is used to analyze the effect of foreign directors on opportunistic behavior among managers in IBs and CBs. The authors use different proxies such as loss avoidance, discretionary loan loss provision and expense preference behavior to measure management opportunistic behavior.

Based on sample of 3,758 bank-year observations for 164 banks over the period 1993-2015, the authors show that the presence of foreign directors in IBs increases boards’ effectiveness in impeding management opportunistic behavior, whereas the presence of foreign directors in CBs reduces boards’ effectiveness in curbing management’s unethical acts. The authors also document that IBs (CBs) with foreign directors demonstrate less (more) earnings management and expense-preference behavior among managers. In addition, the authors’ evidence indicates that the existence of the Shari’ah supervisory boards helps foreign directors be more effective monitors.

The current study focuses on banks only which makes its results subject to sample bias; there are many other forms of financial institutions (e.g. investments, real-estates and mutual funds) complying to the Shari’ah law. Second, owing to the lack of foreign board directors characteristics, the authors cannot investigate the intensity of the specific characteristics that could have specific directions in affecting managerial behavior.

The findings in this paper may help standards-setters, auditors, investors and regulators take appropriate measures and create better policies that reduce managers’ discretion. This could in turn improve information transparency decision-making, monitoring, advising and accounting quality.

The authors’ theoretical framework combines the agency, contingency, resource-dependence, stewardship and stakeholders’ theories and applies them to Shari’ah as an alternative ethical and internal governance mechanism. The authors find that the impact of foreign directors on management opportunistic behavior depends on the corporate religious norms within boards of directors, in particular, suggesting that religious values affect how foreign directors influence bank managers’ behavior.

The purpose of this paper is to estimate the cost of the internal control audit for small firms and assess whether the costs are scalable or, alternatively, whether they are higher in relation to firm size for small firms than for larger firms.

The method estimates the Section 404 audit fee premium for companies that became accelerated filers for the first time in 2006 and 2007. The authors use the estimated audit fee premium as a proxy for the premium that non‐accelerated filers would have to pay if they were required to obtain an internal control audit.

The main finding shows that the Section 404(b) estimated cost of the internal control audit divided by assets are significantly higher for non‐accelerated filers and first‐time filers than for those of larger firms.

One limitation of the study is that, while it shows that the costs of the Section 404 audit are not scalable to firm size, it does not prove that the costs of the audit exceed the benefits for non‐accelerated filers.

The finding that the costs are proportionately higher for small firms provides some evidence supporting the decision to permanently exempt non‐accelerated filers from Section 404(b).

The results show that smaller firms pay proportionately more for the Section 404 internal control audit than larger firms. This suggests that the revised AS no. 5 did not succeed in making the internal control audit completely scalable to firm size.

The primary objective of this research is to chronicle how the Environmental Protection Agency (EPA) and other United States Federal Government Agencies (USFGA) agencies have played a role in shaping the trajectory of financial reporting for sustainability, with a particular emphasis on triple bottom line (TBL). This exploration extends to other indexes reporting sustainability data encompassed within financial, social and environmental reporting.

This study adopts an illustrative methodology, utilizing data sourced from governmental, business and international organizational documents.

Sustainability accounting predominantly finds its place within the framework of TBL. However, it is crucial to note that sustainability reporting remains voluntary rather than mandatory. Nevertheless, accounting firms and professional accounting societies have embraced it as a supplementary facet of financial accounting reporting.

The research highlights the historical evolution of sustainability within the USFGA and corporate entities. Corporations’ interest in accounting for sustainability performances has significantly contributed to the emergence of voluntary sustainability accounting rules, as embodied by the TBL.