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Article
Publication date: 1 March 2013

Thomas E. Vermeer, K. Raghunandan and Dana A. Forgione

Non-profit organizations constitute an important share of the U.S. economy, and recent audit failures and GAO findings highlight the importance of auditor reporting decisions in…

Abstract

Non-profit organizations constitute an important share of the U.S. economy, and recent audit failures and GAO findings highlight the importance of auditor reporting decisions in this sector. In this study, we examine going-concern modified audit opinions for non-profit organizations. Using audit opinion data for 3,567 non-profits exhibiting some signs of financial stress, we find that non-profits are more likely to receive a goingconcern modified opinion if they are smaller, are in worse financial condition, expend less on program-related activities, and have more internal control related audit findings. Our analysis of the subsequent resolution of the going-concern uncertainties suggest that only 27 percent of the non-profits receiving an initial going-concern modified audit opinion filed for dissolution in the subsequent four fiscal years. Our findings fill a gap in an important area that has received little research attention, and provide a useful benchmark for non-profits and their auditors.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 25 no. 1
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 1 March 2009

Thomas E. Vermeer, K. Raghunandan and Dana A. Forgione

Problems with governance at non-profit (NP) healthcare organizations have recently led to legislative scrutiny of their audit committee practices. Using data from a survey of…

Abstract

Problems with governance at non-profit (NP) healthcare organizations have recently led to legislative scrutiny of their audit committee practices. Using data from a survey of chief financial officers of NP healthcare organizations and from the GuideStar database, we examine audit committee interactions with external auditors for a sample of 69 NP healthcare organizations. We find that 71% of the audit committees in our sample meet privately with the external auditor and the mean number of such meetings 1.9. Our results also suggest that audit committee interaction with the external auditor varies in response to resource dependencies, existence of debt, audit quality, audit tenure, and organizational size. These findings suggest that NP healthcare organizations respond to monitoring demands by adopting suitable audit committee related interactions.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 21 no. 1
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 1 July 2004

Elizabeth Rainsbury

This study examines factors related to audit committee membership for a sample of large New Zealand listed companies. This study reveals that non‐executive directors who are…

Abstract

This study examines factors related to audit committee membership for a sample of large New Zealand listed companies. This study reveals that non‐executive directors who are independent, and directors with financial expertise, are more likely to be members of audit committees. The results are consistent with the New Zealand Securities Commission’s corporate governance guidelines for audit committees of New Zealand listed companies. However, in the current New Zealand regulatory environment, directors with accounting expertise can include non‐executives affiliated with the firm. In these situations the financial expert is not independent. Remuneration committee members are found more likely to be members of the audit committee. This may be a result of their power and influence or be due to the skills they bring. The number of years that directors serve on the board, the number of other directorships they hold, and the number of shares they own in the company are not related to audit committee membership.

Details

Pacific Accounting Review, vol. 16 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 24 August 2021

R. Narayanaswamy, K. Raghunandan and Dasaratha V. Rama

This study aims to examine the resignations of Indian audit committee directors after a systemic shock (failure of Satyam Computer Services Ltd.).

Abstract

Purpose

This study aims to examine the resignations of Indian audit committee directors after a systemic shock (failure of Satyam Computer Services Ltd.).

Design/methodology/approach

The authors develop the research questions based on interviews with company directors and audit partners, in addition to economic theory. The authors then use archival data to test the research questions.

Findings

The authors find that social and peer pressure is a very important factor in explaining such departures and provides the basis for some counter-intuitive empirical results, for example, directors were less likely to resign from companies audited by Indian affiliates of PricewaterhouseCoopers even though Satyam was audited by one such auditor and ownership by founding families was not associated with director departures.

Research limitations/implications

Going beyond economic theory and analyzes can be useful in examining issues related to corporate boards and audit committees.

Practical implications

Regulators should consider requiring disclosure about director attendance percentages, in addition to the number of meetings, at audit committee – and, perhaps, other board sub-committee – meetings.

Social implications

Caution is warranted when using results from the USA and other Anglo-Saxon countries to address governance-related issues in India or other Asian countries.

Originality/value

A triangulation of economic theory and societal norms enables us to gain valuable insights about the resignations of audit committee directors in India.

Details

Managerial Auditing Journal, vol. 36 no. 8
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 4 November 2014

Damon Fleming, Kevin Hee and Robin N. Romanus

– The purpose of this paper is to investigate the association between auditor industry specialization and audit fees surrounding Section 404 implementation.

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Abstract

Purpose

The purpose of this paper is to investigate the association between auditor industry specialization and audit fees surrounding Section 404 implementation.

Design/methodology/approach

With a sample of 1,006 industrial firms over the 2003-2005 reporting periods, an ordinary least square regression model was used to regress change in audit fees on auditor specialization measure and other control variables.

Findings

It was found that auditor industry specialization is negatively related to the change in audit fees during the first year of Sarbanes–Oxley Act (SOX) compliance (2003-2004). It was also found that there were no significant cost savings associated with auditor industry specialization in the second year of SOX compliance (2004-2005).

Practical implications

These results suggest that industry-specific expertise may enable auditors to adapt more efficiently to new significant audit standards and regulations, but that such efficiencies are likely to be most pronounced during the initial implementation year.

Originality/value

Auditor competition and auditor specialization are at the forefront of today’s ever-changing accounting industry. Analysis of a contemporary auditing issue (auditor specialization) in the context of major legislation (SOX) provides a research setting that gives both academics and practitioners valuable insight toward how future legislation can impact current accounting industry issues such as the increasing need to have more expertise.

Details

Review of Accounting and Finance, vol. 13 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 28 October 2007

Hassan R. HassabElnaby, Amal Said and Glenn Wolfe

In this study we examine the oversight responsibilities of audit committees in the post Sarbanes‐Oxley Act of 2002 (SOX) era. The results show that audit committee oversight…

Abstract

In this study we examine the oversight responsibilities of audit committees in the post Sarbanes‐Oxley Act of 2002 (SOX) era. The results show that audit committee oversight responsibilities assigned and disclosed in proxy statements expanded post‐SOX compared to pre‐SOX. We design a survey instrument to measure the difference between the perceived oversight responsibilities of audit committee members and the oversight responsibilities actually assigned in the proxy. Our results indicate that although audit committees made a substantial commitment to increase their assigned responsibilities over the period of 2001 to 2004, they still need to do more to meet the many additional challenges facing them in a post‐SOX environment. Overall, our results suggest that the intent of SOX‐for audit committees to be more involved and active in the oversight role of an organization‐is becoming institutionalized. These results should be interesting to policy makers, a variety of interest groups, and accounting researchers.

Details

American Journal of Business, vol. 22 no. 2
Type: Research Article
ISSN: 1935-5181

Keywords

Article
Publication date: 19 April 2011

Samer Khalil

The purpose of this paper is to test whether firms audited by the same Big 4 audit firm (Big 4 continuing clients) are more/less likely to report material weaknesses (systemic…

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Abstract

Purpose

The purpose of this paper is to test whether firms audited by the same Big 4 audit firm (Big 4 continuing clients) are more/less likely to report material weaknesses (systemic material weaknesses) in internal controls over a financial reporting than those audited by the same Non‐Big 4 audit firm (Non‐Big 4 continuing clients) over the period 2005‐2008. It also investigates whether the number of material weaknesses and that of systemic material weaknesses varies among the two groups.

Design/methodology/approach

Logistic regression and count regression analysis for panel data tests the hypotheses using all firms that had SOX 404 filings and that were audited by the same auditor over the period 2005‐2008 (1,668 firms; 6,672 firm‐year observations).

Findings

Findings document that Big 4 continuing clients are less likely to report material weaknesses and systemic material weaknesses than Non‐Big 4 continuing clients, especially during the first two years of investigation. Results also demonstrate that the number of material weaknesses and that of systemic material weaknesses reported by Big 4 continuing clients is significantly lower than that reported by Non‐Big 4 continuing clients, primarily for the years 2005 and 2006.

Originality/value

Findings support the risk avoidance perspective where large audit firms avoid riskier clients due to potential litigation costs and/or due to potential sanctions by the Public Company Accounting Oversight Board (PCAOB). Results also suggest that smaller audit firms did not extensively test the quality of internal controls prior to the year 2004. They highlight that the enactment of SOX 404 and the establishment of the PCAOB heightened audit firms focus on internal controls and raised their sensitivity to audit risk arising from weaknesses in internal controls over financial reporting.

Details

Managerial Auditing Journal, vol. 26 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 29 July 2018

Max Schreder

This paper provides a quantitative review of the literature on the repercussions of idiosyncratic information on firms’ cost of equity (CoE) capital. In total, I review the…

Abstract

This paper provides a quantitative review of the literature on the repercussions of idiosyncratic information on firms’ cost of equity (CoE) capital. In total, I review the results of 113 unique studies examining the CoE effects of information Quantity, Precision and Asymmetry. My results suggest that the association between firm-specific information and CoE is subject to moderate effects. First, the link between Quantity and CoE is moderated by disclosure types and country-level factors in that firms in comparatively weakly regulated countries tend to enjoy up to four times greater CoE benefits from more expansive disclosure—depending on the type of disclosure—than firms in strongly regulated markets. Second, a negative relationship between Precision and CoE is only significant in studies using non-accrual quality proxies for Precision and risk factor-based (RFB)/valuation model-based (VMB) proxies for CoE. Third, almost all VMB studies confirm the positive association between Asymmetry and CoE, but there is notable variation in the conclusions reached when ex post CoE measurers are used.

Details

Journal of Accounting Literature, vol. 41 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 28 October 2002

Uma V. Sridharan, Lori Dickes and W. Royce Caines

Between October and November 2001 the world witnessed the collapse of Enron, a major US publicly traded corporation with global operations. The Enron case highlights the impact…

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Abstract

Between October and November 2001 the world witnessed the collapse of Enron, a major US publicly traded corporation with global operations. The Enron case highlights the impact corporate failure has on American society and capital markets and underscores the need for better enforcement of regulations and ethical business behavior. This paper discusses the role played by Enron’s senior management, its board of directors, Enron’s auditors, consultants, bankers, Wall Street and the government, in the spectacular rise and fall of this corporate giant. It also examines the impact of Enron’s failure on its employees, the employees of Andersen, and on thousands of ordinary Americans who invested in the stock via their pensions and mutual funds. This paper highlights the conflicts of interest that pervade the financial system and discusses the social and financial impact of a combined business and oversight failure. Students and teachers of finance, corporate governance, and business strategy may be interested in this paper as a pedagogical tool to teach undergraduate finance, business ethics, business strategy, and corporate governance.

Article
Publication date: 12 June 2023

David Manry, Hua-Wei Huang and Yun-Chia Yan

The purpose of this study is to investigate whether the likelihood that a firm will face financial statement fraud litigation is affected by the disclosure of internal control…

Abstract

Purpose

The purpose of this study is to investigate whether the likelihood that a firm will face financial statement fraud litigation is affected by the disclosure of internal control material weaknesses (MW) and the “busyness” of a firm’s board of directors.

Design/methodology/approach

The results are derived from logistic regression models and data are collected from the Audit Analytics database augmented by data from CompuStat, the Stanford Law School website and the SEC Accounting and Auditing Enforcement Releases. The authors also test for endogeneity with a propensity score matching procedure.

Findings

The authors find that an MW report is strongly associated with the likelihood of subsequent financial statement fraud litigation, and that the influence of entity-level MW on litigation likelihood is stronger than that of account-level MW. Moreover, the number of outside board directorships significantly increases the influence of entity-level MW on the likelihood of litigation, indicating that board of directors’ busyness significantly increases the risk of litigation.

Originality/value

Previous research notes that board members holding multiple directorships cannot effectively oversee the financial reporting process and, thus, are associated with poorer governance. The authors extend this implication of board busyness to the association between disclosure of MW type and the filing of subsequent litigation alleging financial statement fraud. To the best of the authors’ knowledge, no other research has done so.

Details

Accounting Research Journal, vol. 36 no. 4/5
Type: Research Article
ISSN: 1030-9616

Keywords

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