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Article
Publication date: 1 November 1994

C. Richard Aldridge and Janet L. Colbert

Internal Control – Integrated Framework (COSO Report, 1992) definesinternal control, suggests a framework for internal control, andpresents criteria to use in evaluating…

15334

Abstract

Internal Control – Integrated Framework (COSO Report, 1992) defines internal control, suggests a framework for internal control, and presents criteria to use in evaluating controls. The document also provides guidance to management developing a report on controls for use by external parties. SSAE 2, “Reporting on an Entity′s Internal Control Structure over Financial Reporting” (1993) offers assistance to the practitioner reporting on management′s assertion regarding internal control over financial reporting. Discusses and provides an example of management′s report on internal control prepared according to COSO. Also discusses the accountant′s examination under SSAE guidance of management′s assertions and subsequent report and provides an example of the accountant′s report. Concludes by discussing the new business opportunities for the accountant which may result from external reporting on internal controls over financial reporting.

Details

Managerial Auditing Journal, vol. 9 no. 7
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 August 1995

Rocco R. Vanasco, Clifford R. Skousen and Curtis C. Verschoor

Professional accounting associations in various countries andgovernmental and other quasi‐official bodies have played an importantrole not only in the evolution of…

8172

Abstract

Professional accounting associations in various countries and governmental and other quasi‐official bodies have played an important role not only in the evolution of internal control reporting on a global scale, but also in educating management, investors, financial institutions, accountants, auditors, and other interested parties highlighting the pervasiveness of the effects of a sound internal control structure in corporate reporting as well as other aspects of an organization′s success. These associations include the Institute of Internal Auditors (IIA), the American Institute of Certified Public Accountants (AICPA), the General Accounting Office (GAO), the Securities and Exchange Commission (SEC), the Cadbury Committee, the Institute of Chartered Accountants of England and Wales (ICAEW), the Scottish Institute of Chartered Accountants (SICA), the Canadian Institute of Chartered Accountants (CICA), and others. Business failures, management fraud, corporate misconduct, international bribery, and notorious business scandals in all sectors of business have prompted the US government to take drastic action on internal control reporting to safeguard public interest. Several professional and government committees were formed to study this precarious situation: the Treadway Commission, the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, the Packard Commission, the Cohen Commission, the Adams Commission in Canada, the Cadbury Committee in the UK, and others. The principal motivation for the changing dynamics has been growing public pressure for greater corporate accountability. The government′s pressure on the accounting profession and management of public corporations has been pivotal in spearheading internal control reporting. Examines the role of professional associations, governmental agencies, and others in promulgating standards for internal control reporting, and the impact of legislation on this aspect of internal auditing in the USA and worldwide.

Details

Managerial Auditing Journal, vol. 10 no. 6
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 1 May 1996

Kenton B. Walker

Points out that traditional financial systems used for internal reporting are limited in several ways. Describes how a company implemented a philosophy of dynamic…

3484

Abstract

Points out that traditional financial systems used for internal reporting are limited in several ways. Describes how a company implemented a philosophy of dynamic management reporting (DMR) that provided for a highly flexible performance reporting system. DMR can serve as a catalyst for organizational change, introduce new reporting concepts, incorporate a wide variety of performance measures, and encourage cross‐ functional understanding and co‐ordination.

Details

Industrial Management & Data Systems, vol. 96 no. 3
Type: Research Article
ISSN: 0263-5577

Keywords

Article
Publication date: 11 September 2017

Robert M. Cornell, Anne M. Magro and Rick C. Warne

The purpose of this paper is to examine investors’ propensity to litigate when harmful events occur subsequent to accounting choices. Consistent with Culpable Control…

Abstract

Purpose

The purpose of this paper is to examine investors’ propensity to litigate when harmful events occur subsequent to accounting choices. Consistent with Culpable Control Theory, the authors find that investors are more likely to pursue litigation against management when managers are perceived to have more financial reporting flexibility, such as when they apply imprecise, principles-based accounting guidance. Investors are more likely to pursue litigation when they find management more responsible for harmful events, and they find management more responsible for those events when they perceive management to have more reporting flexibility. To provide additional insight, the authors investigate how the relationship between reporting flexibility and assessed manager responsibility is mediated by investors’ perceptions of management’s self-interested behavior. The authors consider monetary and non-monetary motivations for litigation against management such as recouping financial losses and punishing management. The results suggest that recouping financial losses is not the sole motivation for litigation. The authors provide evidence that punishing management is an important non-monetary component of the litigation decision. The results contribute to the limited literature on investor litigation decisions and inform the debate surrounding the potential effects of more principles-based accounting standards.

Design/methodology/approach

The authors test the hypotheses using an experiment with a 2×1 between-subjects design in which the authors manipulate reporting flexibility at two levels by varying the precision of accounting guidance and measure all other variables of interest. Participants are 82 part-time executive MBA program students at a major public university in the USA. Most participants work full-time (94 percent), own or have owned stocks either directly or through retirement plans (84 percent), indicate general investment knowledge (97 percent), and report high levels of familiarity with corporate financial statements, including balance sheets and income statements (92 percent). Thus, the authors conclude that these executive MBA students are reasonable surrogates for investors.

Findings

Consistent with the predictions, perceived management reporting flexibility affects investors’ propensity to pursue litigation against management. The authors find that the assignment of responsibility to management for harmful events such as investor losses, employee job losses, and economic losses suffered by a community mediates the relationship between reporting flexibility and investors’ intention to litigate. The authors also find that the relationship between reporting flexibility and assignment of responsibility to management for harmful events is not direct but instead works through the effect of reporting flexibility on perceived management self-interested behavior. As predicted, assessed management responsibility for the harmful event is positively related to investors’ propensity to litigate against management, and this relation is only partially mediated by investors’ perceptions that the litigation will be successful. This result suggests that the litigation decision is driven at least in part by corporate governance goals such as the desire for retribution or punishment of management. The second experiment provides additional support for the theory that the desire to punish management is an important component of investors’ litigation decisions.

Research limitations/implications

The research makes important contributions to the literature on investor litigation and to the ongoing debate regarding principles- vs rules-based accounting standards. While some archival research addresses the conditions under which securities litigation occurs, little empirical research has directly addressed the investor decision to litigate. The paper provides additional evidence to address the question of why investors litigate. By doing so, the authors add to the debate on the desirability of shifting from more rules-based to more principles-based accounting standards.

Practical implications

The theory tested in this study could be used to design mechanisms to mitigate the differential propensity for investors to litigate under differing accounting regimes. As standard setters discuss a move to more principles-based standards in the USA, some observers have expressed concern that investor litigation will increase. The theory suggests that if the standard-setting body can control perceptions of management reporting flexibility such that investors believe principles-based standards provide no more flexibility than rules-based standards, they can limit an increase in the amount of investor litigation.

Originality/value

The authors contribute to theory by providing evidence regarding why investors desire to pursue litigation against management. The authors find that the assignment of responsibility to management for harmful events mediates the relationship between reporting flexibility and investors’ intention to litigate. The authors also find that the relationship between reporting flexibility and assignment of responsibility to management for harmful events is not direct but instead works through the effect of reporting flexibility on perceived management self-interested behavior. Furthermore, assessed management responsibility for the harmful event is positively related to investors’ propensity to litigate against management, and this relation is only partially mediated by investors’ perceptions that the litigation will be successful. Those findings provide theoretical contributions to the literature.

Details

Journal of Applied Accounting Research, vol. 18 no. 3
Type: Research Article
ISSN: 0967-5426

Keywords

Book part
Publication date: 22 October 2019

Olayinka Moses, Emmanuel Edache Michael and Joy Nankyer Dabel-Moses

This study explores the extent of environmental management and reporting regulations in Nigeria, highlighting areas of inadequacies in regulatory enforcement and…

Abstract

Purpose

This study explores the extent of environmental management and reporting regulations in Nigeria, highlighting areas of inadequacies in regulatory enforcement and companies’ compliance. We approach the review within the context of the UN 2030 Sustainable Development Agenda (SDA).

Methodology

This chapter is based on a systematic review of extant environmental regulations and academic literature.

Findings

The results show several inadequacies with respect to Nigeria’s environmental management and reporting regulations. We specifically note the changing environmental management and reporting landscape in Nigeria birthing several emerging mandatory reporting codes. We find that fragmented reporting regulations and inappropriate sanctions are responsible for the unsatisfactory compliance and disclosure level noted among firms in the country. Additionally, weak enforcement, funding limitations, unrealistic financial penalties, and general implementation deficits remain factors impeding effective environmental management practice in Nigeria.

Originality

This research provides insight into environmental management and reporting inadequacies in Nigeria, and the actions regulators and firm managers need to take on board to help the country actualize the UN 2030 SDA.

Book part
Publication date: 31 July 2013

Cathy Van Dyck, Nicoletta G. Dimitrova, Dirk F. de Korne and Frans Hiddema

The main goal of the current research was to investigate whether and how leaders in health care organizations can stimulate incident reporting and error management by…

Abstract

Purpose

The main goal of the current research was to investigate whether and how leaders in health care organizations can stimulate incident reporting and error management by “walking the safety talk” (enacted priority of safety).

Design/methodology/approach

Open interviews (N=26) and a cross-sectional questionnaire (N=183) were conducted at the Rotterdam Eye Hospital (REH) in The Netherlands.

Findings

As hypothesized, leaders’ enacted priority of safety was positively related to incident reporting and error management, and the relation between leaders’ enacted priority of safety and error management was mediated by incident reporting. The interviews yielded rich data on (near) incidents, the leaders’ role in (non)reporting, and error management, grounding quantitative findings in concrete case descriptions.

Research implications

We support previous theorizing by providing empirical evidence showing that (1) enacted priority of safety has a stronger relationship with incident reporting than espoused priority of safety and (2) the previously implied positive link between incident reporting and error management indeed exists. Moreover, our findings extend our understanding of behavioral integrity for safety and the mechanisms through which it operates in medical settings.

Practical implications

Our findings indicate that for the promotion of incident reporting and error management, active reinforcement of priority of safety by leaders is crucial.

Value/originality

Social sciences researchers, health care researchers and health care practitioners can utilize the findings of the current paper in order to help leaders create health care systems characterized by higher incident reporting and more constructive error handling.

Details

Leading in Health Care Organizations: Improving Safety, Satisfaction and Financial Performance
Type: Book
ISBN: 978-1-78190-633-0

Keywords

Article
Publication date: 1 October 2020

Anete Pajuste, Elva Poriete and Reinis Novickis

This paper explores how the text complexity and content of management discussion and analysis (MD&A) relate to earnings management in Baltic listed companies.

Abstract

Purpose

This paper explores how the text complexity and content of management discussion and analysis (MD&A) relate to earnings management in Baltic listed companies.

Design/methodology/approach

Using a panel data set of 250 firm-year observations from the Baltic markets in the period 2012–2016, this paper uses linear regression analysis to examine the relation between earnings management and reporting complexity.

Findings

The results show that earnings could be managed in about 6–11% of firm-years, depending on specification, and there is a positive relationship between earnings management and reporting complexity; however, this relationship is confined to more liquid companies. The authors argue that higher scrutiny by market participants in more liquid companies incentivizes managers to obfuscate negative financial results through report complexity.

Originality/value

This paper presents a novel application of the opportunistic perspective of positive accounting theory (PAT) in relation to managers' choice of reporting complexity. The findings of this paper contribute by providing empirical evidence for strategic reporting by managers and can be useful for regulators and investors that should monitor the level of reporting complexity in the listed companies.

Article
Publication date: 23 November 2012

Sawsan Saadi Halbouni and Mostafa Kamal Hassan

The purpose of this paper is to examine Johnson and Kaplan's claim that “external reporting influences managerial accounting information” in an emerging capital market…

2692

Abstract

Purpose

The purpose of this paper is to examine Johnson and Kaplan's claim that “external reporting influences managerial accounting information” in an emerging capital market, the United Arab Emirates (UAE).

Design/methodology/approach

The paper relies on a survey instrument and institutional theory analysis in order to: first, explore accountants' perceptions of the extent to which financial accounting conventions‐based information is utilized, instead of managerial accounting information, in internal decision making; and second, articulate respondents' perception to the UAE's wider social and institutional context expressed in terms of accounting regulars, accountancy profession and partnership with multinational companies.

Findings

In line with Johnson and Kaplan's claim and contrary to the studies of Hopper et al., Joseph et al. and Scapens et al., the paper's findings show evidence of financial reporting domination on managerial accounting information in the UAE. Locating such results in a UAE companies social and institutional context, the paper reveals that the activities of regulators and accountancy professionals pay more attention to financial reporting, an issue which contributes towards reinforcing respondents' general perceptions that management accounting is subservient to the demands of financial reporting requirements.

Research limitations/implications

Although the paper's findings trigger the importance of the UAE's institutional context in reinforcing accountants' perceptions, the interaction between financial accounting requirements and managerial accounting information is an area that needs further in‐depth case‐study‐based investigation in emerging market economies.

Practical implications

The paper's findings highlight the type of information that UAE's managers utilize when making decisions. These findings are in the interest of business investors and the accountancy profession that aims at increasing practitioners' professional knowledge.

Originality/value

This is one of few papers that combine survey results and institutional theory analysis to explore whether financial accounting dominates managerial accounting information and, at the same time, provides an understanding of the underlying reasons behind that domination in an emerging market economy such as the UAE.

Details

International Journal of Commerce and Management, vol. 22 no. 4
Type: Research Article
ISSN: 1056-9219

Keywords

Article
Publication date: 7 January 2014

Subhash Asanga Abhayawansa

With a view to enabling organisations provide a clear understanding of firm value creation, several national and supranational institutions have produced guidelines and…

2372

Abstract

Purpose

With a view to enabling organisations provide a clear understanding of firm value creation, several national and supranational institutions have produced guidelines and frameworks for externally reporting intellectual capital (IC). In many cases regulators, the accounting profession and accounting scholars have driven these initiatives. The purpose of this paper is to summarise, analyse and compare the guidelines and frameworks that have been developed with a focus on externally reporting IC.

Design/methodology/approach

The paper analyses the assumptions underpinning 20 guidelines and frameworks that have been developed with a focus on reporting IC using a self-constructed framework.

Findings

The review resulted in a comparison of IC reporting guidelines and framework based on target audience, role of IC within the organisational strategic management process and reporting IC indicator. It provides an understanding of the state of the art in relation to external reporting of IC.

Practical implications

The insights provided by the comparison of the guidelines and frameworks are likely to be helpful for practitioners wanting to adopt or develop an IC reporting model for their organisation. Policy-makers will find these insights beneficial when attempting to refine existing frameworks and guidelines for reporting IC and in developing new ones to suit various circumstances. Also, this paper provides a useful review for academics.

Originality/value

This is the first paper to provide a review of a large number of business reporting guidelines and frameworks with a focus on IC. It is a valuable reference for practitioners, policy-makers and academics on IC reporting models.

Details

Journal of Intellectual Capital, vol. 15 no. 1
Type: Research Article
ISSN: 1469-1930

Keywords

Article
Publication date: 15 October 2016

Martin Plöckinger, Ewald Aschauer, Martin R.W. Hiebl and Roman Rohatschek

In recent years, numerous studies have investigated whether individual executives and their characteristics relate to financial reporting choices. In this article, we…

Abstract

In recent years, numerous studies have investigated whether individual executives and their characteristics relate to financial reporting choices. In this article, we review archival, experimental and survey research on the influence of individual executives on corporate financial reporting and use upper echelons theory as our organizing framework. Our review of 60 studies shows that research consistently finds that top management executives exert significant influence on financial reporting decisions, particularly on disclosure quality. Empirical research has developed promising approaches to investigate executives' psychological attributes and character traits. The results of studies examining the influence of demographic characteristics of individual executives are, however, sometimes contradictory and ambiguous. Nevertheless, the overall empirical results we review are supportive of upper echelons predictions. Additional research in this field is needed to clarify the influence of unexamined upper echelon characteristics, important moderator variables, and adverse selection effects. We also suggest that future research more closely investigates the magnitudes of managerial influence and adopts a more holistic perspective on financial reporting outcomes.

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