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Article
Publication date: 12 March 2024

Bai Liu, Tao Ju, Jiarui Lu and Hing Kai Chan

This research investigates whether focal firms employ strategic supply chain information disclosure, focusing on the concealment of supplier and customer identities, as part of…

Abstract

Purpose

This research investigates whether focal firms employ strategic supply chain information disclosure, focusing on the concealment of supplier and customer identities, as part of their supply chain environmental risk management strategies (supplier sustainability risk and customer loss risk, respectively).

Design/methodology/approach

Using a panel dataset of Chinese listed firms from 2009 to 2019 and utilizing the suppliers’ environmental punishment of peer firms (peer events) as an exogenous shock and employing ordinary least squares (OLS) estimation, this study conducts a regression analysis to test how focal firms disclose the identities of their suppliers and customers.

Findings

Our results indicate that focal firms prefer to hide the identities of their suppliers and customers following the environmental punishment of peer firms’ suppliers. In addition, supplier concentration weakens the effect of withholding supplier identities, whereas customer concentration strengthens the effect of hiding customer identities. Mechanism analysis shows that firms hide supplier identities to avoid their reputation being affected and hide customer identities to prevent the deterioration of customers’ reputations and thus impact their market share.

Originality/value

Our study reveals that reputation spillover is another crucial factor in supply chain transparency. It is also pioneering in applying the anonymity theory to explain focal firms’ information disclosure strategy in supply chains.

Details

International Journal of Operations & Production Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3577

Keywords

Article
Publication date: 1 March 2024

Li Jen He and Faradillah Amalia Rivai

This paper aims to investigate the impact of gender diversity in the composition of engagement auditors on the disclosure of key audit matters (KAMs) in a dual-signature…

Abstract

Purpose

This paper aims to investigate the impact of gender diversity in the composition of engagement auditors on the disclosure of key audit matters (KAMs) in a dual-signature environment.

Design/methodology/approach

The authors used the unique institutional setup of Taiwan, where the law requires that audit reports be signed by two audit partners. The authors examined the effect of gender diversity composition among engagement auditors on KAM disclosure, considering behavioral differences between female and male auditors.

Findings

The empirical results indicate that gender diversity composition in the dual-signature environment is associated with the number of disclosed KAM items (KAMIT) and the length of the explanations for each KAMIT. Furthermore, the authors found that gender diversity composition, particularly when led by female audit partners, has a more pronounced impact on the explanation of each KAMIT rather than on the disclosure of KAMIT. The authors also noted that the moderating effect of audit firm specialization does not influence the gender diversity composition of audit partners in disclosing KAMs.

Originality/value

This study’s empirical findings demonstrate that the interaction between different gender compositions in a dual-signature environment influences KAM disclosure.

Details

Managerial Auditing Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 17 July 2023

Yosra Mnif and Marwa Tahri

The purpose of this study is to examine the impact of industry specialization of audit partners and audit committee members on the level of tax avoidance in Australian banks.

Abstract

Purpose

The purpose of this study is to examine the impact of industry specialization of audit partners and audit committee members on the level of tax avoidance in Australian banks.

Design/methodology/approach

This study uses a multivariate regression analysis based on hand-collected data consisting of 180 observations from Australian domestic banks between 2010 and 2018.

Findings

The primary results of the empirical analysis indicate that audit partner industry specialization is negatively associated with the level of tax avoidance in Australian banks. Regarding the audit committee, the proportion of industry specialists among audit committee members reduces the magnitude of tax avoidance. These results are robust, as they hold the same for alternative measures of tax avoidance and industry specialization of audit partner and audit committee members. Results from supplementary analysis reveal that the interactive effect of both audit firm and audit partner industry specialization strengthens the auditors’ effectiveness in reducing the level of tax avoidance.

Practical implications

As this study highlights the importance of the industry specialization in decreasing tax avoidance, it can be beneficial for policymakers to assess the impact of good governance on the level of tax avoidance in the banking industry.

Originality/value

Even though the existing studies examine the link between the governance actors’ industry specialization and tax avoidance in nonfinancial firms, this paper explores the banking industry that differs from nonfinancial firms in among others; accounting and fiscal regulations. This study further provides unique evidence indicating that industry specialization of the audit partner constitutes a significant determinant of minimizing the bank’s level of tax avoidance.

Details

Meditari Accountancy Research, vol. 32 no. 2
Type: Research Article
ISSN: 2049-372X

Keywords

Article
Publication date: 11 March 2024

Devon Jefferson

This paper’s objective is to provide a systematic literature review of the contextual factors affecting downward communication from supervisors to subordinates in the audit…

Abstract

Purpose

This paper’s objective is to provide a systematic literature review of the contextual factors affecting downward communication from supervisors to subordinates in the audit environment. In addition, this review identifies emerging research themes and directions for future research.

Design/methodology/approach

I accomplish this review’s objectives by leveraging communication literature to establish a framework to identify and synthesize contextual factors affecting downward communication in the audit environment. The review identifies 50 published articles in the last 20 years from leading accounting and auditing journals.

Findings

This study consolidates research findings on downward communication under two primary contextual factors: (1) message and (2) channel. Findings indicate that empirical research examining communication in audit is fragmented and limited. Studies examining the message focus heavily on its content and treatment in the areas of feedback, nonverbal cues, and fraud brainstorming, and a handful of additional studies examine the effectiveness of the channel in these areas. Additional research is needed to understand a broader set of supervisor–subordinate communication practices, including those that are computer-mediated, and their effect on subordinate auditors’ judgments and behaviors in the contemporary audit environment.

Originality/value

Much of the audit literature examining communication to date is topic-versus construct-based, making it difficult to see how the research findings relate to one another. This review is the first to synthesize the literature to provide academics recommendations for a way forward, and inform practitioners of communication practices whereby supervisors can be trained to improve audit quality.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 28 November 2023

Hanen Khaireddine, Isabelle Lacombe and Anis Jarboui

Although the association between sustainability assurance (SA) quality and firm value has been examined in previous studies, the moderating relationship is novel in this study and…

Abstract

Purpose

Although the association between sustainability assurance (SA) quality and firm value has been examined in previous studies, the moderating relationship is novel in this study and highlights the effect of corporate environmental sustainability performance (CESP) on the relationship between SA quality and firm value. This study aims to examine whether such an effect is strengthened or weakened by eco-efficiency, as measured by ISO 14001 certification, aggregate CESP score and each individual dimension of CESP (emission reduction [ER], resource reduction [RR] and product innovation [PI]).

Design/methodology/approach

The sample includes 40 companies in Euronext Paris with the largest market capitalisations (the Cotation Assistée en Continu 40 [CAC 40] index) from 2010 to 2020. The authors apply the feasible generalised least squares regression technique to estimate all the regression models. Because observed associations may be biased by reverse causation or self-selection, the authors use the instrumental variable approach and Heckman two-stage estimation.

Findings

The results show that SA quality had a positive and significant effect on firm value. Second, the authors demonstrate that CESP, as assessed by ISO 14001 certification, has a stronger interaction with assurance quality and acting as a moderator variable. Using the ASSET4 scores, an alternative proxy for CESP, the authors find inconsistent evidence regarding the impact of CESP attributes. The CESP and ER scores are homogeneous and have a positive effect on firm value. However, the PI and RR CESP attributes are not homogenous and do not have the same interactive effect on firm value. The results are robust to the use of an instrumental variable approach and the Heckman two-stage estimation procedure.

Research limitations/implications

Policy implications: Regulators may be interested in the findings when considering current and future assurance requirements for sustainability reporting, and shareholders when considering SA as an investment choice criterion. The insights into and enhanced understanding of the incentives for obtaining high SA quality can help policymakers develop effective policies and initiatives for SA. Considering the possible improvements in sustainability performance when obtaining a high level of sustainability verification, governments need to consider mandating SA.

Practical implications

Firms receive clear confirmation of the importance of investing in SA quality. Financial markets do not evaluate SA dichotomously but reward companies with higher SA quality because of the greater credibility it provides. Firms should allocate a significant percentage of their annual budgets and other relevant resources to environmental training and development programmes to improve and maintain environmental performance. If they care about environmental issues, they must announce this by issuing sustainability reports and seeking assurance of the information disclosed. High-quality assurance not only has a significant effect on investors’ investment reliability judgements but also the perceived credibility of environmental performance fully moderates the effect of assurance on these judgements.

Social implications

This study has social implications; the authors find that the French market rewards firms that provide a high-quality assurance to guarantee the integrity of their sustainability reports. Therefore, by incorporating environmental sustainability into their financial goals, a better assurance ultimately will urge firms to move from green washing to strategic goals, which is beneficial for society. Further, firms that focus on sustainability as part of their business strategy may attract employees who engage in green behaviours at work and create a friendlier and productive environment because it gives meaning to the work they do and keeps them engaged to the level needed to perform their jobs capably.

Originality/value

This study contributes to the literature by re-examining the relationship between SA quality and firm value. It also provides new evidence on the moderating effect of CESP on the SA quality–firm value nexus. Specifically, it explores the joint effect of credibility and eco-efficiency on market confidence in sustainability information.

Details

Sustainability Accounting, Management and Policy Journal, vol. 15 no. 2
Type: Research Article
ISSN: 2040-8021

Keywords

Article
Publication date: 21 December 2023

Meena Subedi

The current study uses an advanced machine learning method and aims to investigate whether auditors perceive financial statements that are principles-based as less risky. More…

Abstract

Purpose

The current study uses an advanced machine learning method and aims to investigate whether auditors perceive financial statements that are principles-based as less risky. More specifically, this study aims to explore the association between principles-based accounting standards and audit pricing and between principles-based accounting standards and the likelihood of receiving a going concern opinion.

Design/methodology/approach

The study uses an advanced machine-learning method to understand the role of principles-based accounting standards in predicting audit fees and going concern opinion. The study also uses multiple regression models defining audit fees and the probability of receiving going concern opinion. The analyses are complemented by additional tests such as economic significance, firm fixed effects, propensity score matching, entropy balancing, change analysis, yearly regression results and controlling for managerial risk-taking incentives and governance variables.

Findings

The paper provides empirical evidence that auditors charge less audit fees to clients whose financial statements are more principles-based. The finding suggests that auditors perceive financial statements that are principles-based less risky. The study also provides evidence that the probability of receiving a going-concern opinion reduces as firms rely more on principles-based standards. The finding further suggests that auditors discount the financial numbers supplied by the managers using rules-based standards. The study also reveals that the degree of reliance by a US firm on principles-based accounting standards has a negative impact on accounting conservatism, the risk of financial statement misstatement, accruals and the difficulty in predicting future earnings. This suggests potential mechanisms through which principles-based accounting standards influence auditors’ risk assessments.

Research limitations/implications

The authors recognize the limitation of this study regarding the sample period. Prior studies compare rules vs principles-based standards by focusing on the differences between US generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) or pre- and post-IFRS adoption, which raises questions about differences in cross-country settings and institutional environment and other confounding factors such as transition costs. This study addresses these issues by comparing rules vs principles-based standards within the US GAAP setting. However, this limits the sample period to the year 2006 because the measure of the relative extent to which a US firm is reliant upon principles-based standards is available until 2006.

Practical implications

The study has major public policy suggestions as it responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US Securities and Exchange Commission (SEC), to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the International Accounting Standards Board (IASB) Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks such as climate change.

Originality/value

The study has major public policy suggestions because it demonstrates the value of principles-based standards. The study responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US SEC, to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information as business transactions and investor needs continue to evolve globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the IASB Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks like climate change. The study fills the gap in the literature that auditors perceive principles-based financial statements as less risky and further expands the literature by providing empirical evidence that the likelihood of receiving a going concern opinion is increasing in the degree of rules-based standards.

Article
Publication date: 13 February 2024

Cori Crews, John Abernathy, Jimmy Carmenate, Divesh Sharma and Vineeta Sharma

The purpose of this study is to investigate the association between nonaudit services (NAS) and out-of-period adjustments (OOPAs). Over the years, the number of OOPAs has risen…

Abstract

Purpose

The purpose of this study is to investigate the association between nonaudit services (NAS) and out-of-period adjustments (OOPAs). Over the years, the number of OOPAs has risen while the number of restatements has decreased. This could indicate an improvement in financial reporting quality. It could also indicate the use of a type of stealth restatement for opportunistic purposes. These less prominent restatements are more likely to go undetected and could perpetuate opportunistic disclosure and mitigate the likelihood of unfavorable market reactions.

Design/methodology/approach

The authors use a two-stage multivariate regression analysis to examine the relationship between NAS and the reporting of an OOPA. The authors use prior research on NAS to guide the model development. The authors perform several robustness checks including different types of NAS and different characteristics of OOPAs.

Findings

The results indicate that NAS has a significantly negative association with the existence of OOPAs. The core findings suggest that NAS does not impair auditor independence. Rather, greater amounts of NAS may contribute to knowledge spillover, which leads to higher financial reporting and audit quality. The results are robust to several additional tests.

Research limitations/implications

The results raise interesting implications for regulators, executives, auditors, investors and future research. The authors provide insight into the relationship between NAS and auditor independence.

Originality/value

To the best of the authors’ knowledge, prior research has not considered the effect of NAS on OOPAs. The authors contribute to the literature by providing evidence that OOPAs, a form of stealth restatements, is an important consideration in audit quality research.

Details

Managerial Auditing Journal, vol. 39 no. 3
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 25 September 2023

Md. Harun Ur Rashid, Farhana Begum, Syed Zabid Hossain and Jamaliah Said

This study aims to investigate whether socially responsible businesses with corporate social expenditure are less prone to engaging in tax avoidance. The study also examines…

Abstract

Purpose

This study aims to investigate whether socially responsible businesses with corporate social expenditure are less prone to engaging in tax avoidance. The study also examines whether political connections moderate the association between corporate social responsibility (CSR) and tax avoidance.

Design/methodology/approach

The study uses ordinary least squares to analyse the panel data of all 30 listed banks on the Dhaka Stock Exchange covering 2012 to 2020. The study uses a set of alternative variables to check the robustness of the findings.

Findings

Confirming the corporate culture theory, the study findings indicate that the higher the firms’ CSR expenditure, the lower the tax avoidance. Contrarily, the moderating effect of political connection weakens the role of CSR in tax avoidance, implying that political relation makes the firms socially irresponsible. Besides, the findings document that firms with strong political connections are more likely to be tax aggressive by weakening the role of CSR. The findings imply that firms with weaker political connections are more socially responsible than firms with strong political ties.

Research limitations/implications

The study provides the bank management and regulatory bodies valuable insights to take necessary actions so that they can easily monitor whether the banks follow their instructions regarding CSR and tax payments. As the politicians make the firm socially irresponsible, the regulatory bodies and bank management should not keep them or their relatives on the board.

Originality/value

The study contributes to the CSR and tax avoidance literature considering the moderating role of political connections in Bangladesh banking sector.

Details

Social Responsibility Journal, vol. 20 no. 4
Type: Research Article
ISSN: 1747-1117

Keywords

Article
Publication date: 4 December 2023

Marta Sánchez-Sancho, Jennifer Martínez-Ferrero and Javier Perote-Peña

This paper aims to investigate the potential influence of managers on sustainability assurance. When the quality of sustainability reporting is questionable because of subsequent…

Abstract

Purpose

This paper aims to investigate the potential influence of managers on sustainability assurance. When the quality of sustainability reporting is questionable because of subsequent restatements, the authors explore whether assurance is used to enhance its credibility as a legitimization tool or as an impression management strategy. Additionally, the authors analyze how capital markets react to this potential managerial capture and, particularly, whether investors penalize this practice through the cost of capital.

Design/methodology/approach

Using an international sample from 2012 to 2016 and panel data regressions, this study relies on DICTION’s master variables of optimism and certainty to examine the impact of managers on assurance and the market’s reaction to these practices.

Findings

The study shows that some managers might use assurance as a legitimization tool rather than as a means of reinforcing the credibility of sustainability reporting. In such cases, the results reveal that investors penalize (reward) managerial influence (no influence) on assurance.

Practical implications

The new findings help companies understand that they will not improve their financing terms if investors perceive that managers have influenced assurance. Moreover, these findings emphasize the need for standardization to clarify assurance criteria and prevent managerial influence.

Social implications

Managerial influence on assurance raises doubts about its value in terms of reducing information asymmetry and especially improving investors’ decision-making.

Originality/value

The present study represents the first evidence of the potential use of assurance for non-informative purposes. The authors provide clear evidence of how investors penalize managerial influence on assurance, in contrast to the mainstream literature, which shows that this practice always improves investors’ decision-making and is rewarded.

Details

Sustainability Accounting, Management and Policy Journal, vol. 15 no. 2
Type: Research Article
ISSN: 2040-8021

Keywords

Article
Publication date: 1 April 2024

Phuong Thi Nguyen, Michael Kend and Dung Quang Le

This study aims to explore some perceptions related to the suggestion that external auditors will be replaced by audit technologies that use artificial intelligence (AI) tools to…

Abstract

Purpose

This study aims to explore some perceptions related to the suggestion that external auditors will be replaced by audit technologies that use artificial intelligence (AI) tools to make audit judgements when performing the financial statement audits. Digital transformation is revitalising the technologies used by external auditors and their firms; thus, the authors seek to understand what challenges this creates for the auditing profession in Vietnam.

Design/methodology/approach

Through the theoretical lens of new institutionalism theory, this study uses a qualitative approach involving 20 semi-structured interviews conducted with external auditors in Vietnam during 2022. This sample includes the global Big Four, global mid-tier and smaller local Vietnamese audit firms.

Findings

The findings indicate that there is resistance or disagreement with the suggestion that in the future audit technologies using AI tools can replace humans (external auditors). The role of external auditors in the professional services sector will gradually be changed by audit technologies; however, external auditors are unlikely to be replaced by audit technologies that use AI tools based on the responses of the participants. Strict institutional rules that exist in Vietnam would prevent the replacement of (human) external auditors. In the future, external auditors may take on new roles as consultants, with unique skills in classifying and processing data for decision-making processes; however, they will not be completely replaced by technology in the audit space.

Research limitations/implications

This study has limitations that it is based on the data collection from a single developing country, Vietnam; therefore, the generalisability of the findings is limited to Vietnam. Also, the authors sought insights into the future of external audits in Vietnam.

Practical implications

This study highlights the changing role of auditors and institutions. Thus, policymakers, external auditors and auditees in other developing countries would find the findings helpful.

Originality/value

This study provides new perspectives, particularly from local Vietnamese firms, about audit practices that emerge due to high-level technological advancements and then embed themselves into existing audit practices in an emerging economy. Prior studies tended to focus on the global Big Four firms, thus this study contributes by sharing the perceptions of the smaller practitioners also.

Details

Pacific Accounting Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0114-0582

Keywords

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