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Book part
Publication date: 10 February 2020

Joseph John Woods, Sharon Seychell, Ercan Ozen, Jonathan Spiteri, Robert Suban and Simon Grima

Although most of the traditional economic theories used to explain investor behaviour assume full investor rationality, experience proves otherwise. In this study, we examine a…

Abstract

Although most of the traditional economic theories used to explain investor behaviour assume full investor rationality, experience proves otherwise. In this study, we examine a number of important determinants of risk appetite and tolerance, including gender, education and knowledge of financial services and loss aversion. We do this by designing a questionnaire to measure the level of risk appetite and tolerance, together with various demographic characteristics and loss aversion. The survey is administered among a random sample of 1,648 respondents from Turkey. We find that on average men exhibit a higher level of risk appetite and tolerance than women, thus suggesting a clear gender divide in terms of investment behaviour. Furthermore, knowledge of financial services is associated with higher levels of both risk appetite and tolerance, with younger respondents also exhibiting similar patterns of behaviour. By contrast, loss-averse respondents are less open and tolerant of risk, which indicates that behavioural biases such as loss aversion can have a meaningful impact on investment decisions, at odds with traditional models based on rational choice theory. The findings have a number of important implications for investment behaviour and education, including the importance of gender balance within investment committees in order to ensure a more even distribution of risk behaviour, as well as the need to incorporate considerations related to loss aversion in all aspects of policymaking and regulation.

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Contemporary Issues in Audit Management and Forensic Accounting
Type: Book
ISBN: 978-1-83867-636-0

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Book part
Publication date: 28 November 2017

Francesco Bellandi

Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial statements…

Abstract

Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial statements. This part also includes a detailed critical review of the recent Practice Statement on materiality, the FASB’s proposed ASU on the notes and the amendments to the Conceptual Framework proposed by the IASB and the FASB.

The part expands to issues that are typical of Management Commentary, including the SEC guidance on materiality in Management Discussion and Analysis.

It informs about the complexities and subtle differences between financial statements and bookkeeping and the different standards of reasonableness versus materiality.

A section moves from materiality to material misstatements and covers the application of materiality in auditing.

Another section goes in depth on internal control over financial reporting, showing the linkages between materiality and risk appetite and risk tolerance and the related application guidance.

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Materiality in Financial Reporting
Type: Book
ISBN: 978-1-78743-736-4

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Book part
Publication date: 4 May 2021

Nicola Dalla Via

After the Royal Ahold accounting scandal occurred in 2003, the Dutch government responded by publishing a new Corporate Governance code, often referred to as the “Tabaksblat…

Abstract

After the Royal Ahold accounting scandal occurred in 2003, the Dutch government responded by publishing a new Corporate Governance code, often referred to as the “Tabaksblat Code”, updated in 2016. The Code focuses on long-term value creation by emphasizing risk management and accountability and reinforcing the roles and duties of management board, internal audit function, and supervisory board in designing adequate risk management and control systems and in assessing their effectiveness. Differently than the rule-based Anglo-Saxon regulations, the Code is based on best practices provisions and adopts a “comply or explain” approach. Professional bodies are actively supporting their associates in developing skills in current and emerging risk management areas. Despite these efforts, it is worth noting that there are still significant differences on how companies apply the risk management provisions. For instance, in terms of appointing a dedicated manager as Chief Risk Officer (CRO), in the frequency and scope of risk assessment, and in defining the risk appetite of the company.

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Operational Risk Management in Banks and Idiosyncratic Loss Theory: A Leadership Perspective
Type: Book
ISBN: 978-1-80455-223-0

Book part
Publication date: 4 May 2021

Anita Meidell and Kjell Ove Røsok

Since the mid-1990s, enterprise risk management (ERM) has proliferated in both the private and public sector as a holistic, enterprise-wide approach to risk management. In this…

Abstract

Since the mid-1990s, enterprise risk management (ERM) has proliferated in both the private and public sector as a holistic, enterprise-wide approach to risk management. In this chapter, we begin by exploring the economic, regulatory and professional context of ERM practices in Norway. To gain an understanding of the current state of ERM practices among Norwegian entities, we have conducted a survey among members of the Institute of Internal Auditors (IIA) Norway. Based on the survey data, we go on to analyse the perceived maturity of risk management practices of the surveyed organizations, as well as their integration of risk management with governance mechanisms and accounting practices. Four main findings emerged from the survey. We firstly observed that a majority of the respondents perceived that they had implemented ERM. Secondly, the average maturity of risk management practice is at a medium level, with ambitions to improve it further in the future. We further observed that a majority of the organizations have established risk management governance structures regarding the roles of risk management. However, there is still work to be done in relation to risk management functions in order for them to gain more attention and influence in the organizations. Finally, we find that risk management is more integrated with reporting processes than with strategic and performance planning processes, suggesting a more reactive than proactive approach to managing risks.

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Enterprise Risk Management in Europe
Type: Book
ISBN: 978-1-83867-245-4

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Book part
Publication date: 4 May 2021

Stefan Hunziker and Mirjam Durrer

A commonly misunderstood characteristic of ERM in Switzerland is that it is perceived as a risk minimization tool. However, ERM is about controlling an ideal risk exposure level…

Abstract

A commonly misunderstood characteristic of ERM in Switzerland is that it is perceived as a risk minimization tool. However, ERM is about controlling an ideal risk exposure level to pursue strategic objectives. ERM has emerged as an important business topic in Switzerland. As major challenges still pose a threat to successful ERM implementation, this study provides some causes for reflection on how to implement ERM model in order to gain a comprehensive view on all risks, opportunities and their respective interdependencies. Moreover, this study suggests policy makers to think about how to strengthen risk-based disclosures in the future.

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Enterprise Risk Management in Europe
Type: Book
ISBN: 978-1-83867-245-4

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Abstract

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Understanding the Investor: A Maltese Study of Risk and Behavior in Financial Investment Decisions
Type: Book
ISBN: 978-1-78973-705-9

Abstract

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Understanding the Investor: A Maltese Study of Risk and Behavior in Financial Investment Decisions
Type: Book
ISBN: 978-1-78973-705-9

Book part
Publication date: 18 January 2021

Clint Zammit, Simon Grima and Y. Murat Kizilkaya

The Public Sector is usually assumed to have a risk avoidance culture, with a reactive rather than proactive approach towards the management. However, an improved holistic…

Abstract

The Public Sector is usually assumed to have a risk avoidance culture, with a reactive rather than proactive approach towards the management. However, an improved holistic approach seems to be required, especially when considering the complexity and size of the Public Sector, and the challenges it faces to connect the services, clients and the different levels of governance.

Within this chapter, the authors lay out a maturity level evaluation of Governance, Risk Management and Compliance (GRC) within the Maltese Public Sector. Through documentation analysis of the available literature on the subject, the authors determine the principal themes required to develop an effective GRC practice across the Public Sector. The authors then design statements based on the identified GRC themes and administer it using an online survey tool to Public employees across different Ministries, Departments, Agencies and Entities, in order to obtain their perception. This is in order to determine gaps, weaknesses or limiting factors towards the implementation of an effective GRC.

The results show that, although, there is a substantial percentage of scepticism and few disagreements towards some of the statements, especially those which related to Risk Management (RM) and Internal Auditing (IA), the majority of Public Sector bodies do in fact show high standards of GRC practices integrated and present in their day-to-day operations and internal environment, showing that there is a well-developed Governance, Compliance and Control structure and Internal Audit function across the Sector.

However, the perception of participants is that the RM function is the least developed area. IA needs some improvement especially where trust on advice is involved.

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Contemporary Issues in Public Sector Accounting and Auditing
Type: Book
ISBN: 978-1-83909-508-5

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Book part
Publication date: 4 October 2018

Darja Peljhan, Danijela Miloš Sprčić and Mojca Marc

Our study investigates the relationships between risk management systems (RMS), strategy and organizational performance. The existing research has extensively studied the effect…

Abstract

Our study investigates the relationships between risk management systems (RMS), strategy and organizational performance. The existing research has extensively studied the effect of strategy on organizational performance. There is also a growing body of literature suggesting that RMS positively influence the achievement of organizational objectives. However, there are only a few conceptual papers (and no empirical evidence) on the relationship between strategy and RMS. We investigate whether different strategy types (defender, analyzer, prospector, and reactor) induce different levels of RMS development and, hence, affect performance indirectly, as well as directly. We use regression analysis and survey data to test the proposed relationships. Our results confirm the direct effects of strategy type and RMS development on performance. We confirm that prospectors perform better than defenders, analyzers, and reactors across five measures of performance (profitability, sales growth, market share, new product development, and customer satisfaction). We also find that companies with more developed RMS perform better in terms of non-financial performance (measured by new product development). Contrary to the prevailing evidence, we do not find significant results for financial performance. Moreover, our findings show that there is no mediating effect of RMS development in the relationship between strategy type and performance. This implies that RMS and strategy act as independent variables, each individually affecting organizational performance.

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Performance Measurement and Management Control: The Relevance of Performance Measurement and Management Control Research
Type: Book
ISBN: 978-1-78756-469-5

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