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1 – 10 of 225The purpose of this paper is to analyze how “New Deal” regulatory initiatives, primarily the Securities Acts and the Securities and Exchange Commission (SEC), changed US auditors’…
Abstract
Purpose
The purpose of this paper is to analyze how “New Deal” regulatory initiatives, primarily the Securities Acts and the Securities and Exchange Commission (SEC), changed US auditors’ professional knowledge conception, culminating in the 1938 expansion of the Committee on Accounting Procedure (CAP), the first US body to set accounting principles.
Design/methodology/approach
The paper combines Halliday’s (1985) knowledge mandates with Hancher and Moran’s (1989) regulatory space to attain a theory-based understanding of auditors’ changing knowledge conceptions amid regulatory pressure. It draws on a range of primary and secondary sources to examine the period from 1929 to 1938.
Findings
Following the stock market crash, the newly created SEC aimed to engage auditors as a means to regulate companies’ accounting practices based on a set of codified principles. While entailing increased status, this new role conflicted with the auditors’ knowledge conception, which was based on professional judgment and personal integrity. Pressure from the SEC and academics eventually made auditors agree to a codification of their professional knowledge and create the CAP as a cooperative regulatory solution.
Originality/value
The paper explores the role of auditors’ knowledge conceptions in the emergence of today’s standard setting. It is suggested that auditors’ incomplete control of their professional knowledge made standard setting a form of co-regulation, located between the actors occupying the regulatory space of accounting.
Details
Keywords
The purpose of this paper is to present an overview of the flash crash, and explain why and how it happened.
Abstract
Purpose
The purpose of this paper is to present an overview of the flash crash, and explain why and how it happened.
Design/methodology/approach
The author summarizes several studies suggesting various perspectives on the flash crash and its causes. Furthermore, the author highlights recently proposed and introduced improvements and regulations to reduce the risk of having similar market collapses in the future.
Findings
It is an overview paper that highlights the state of the art on the subject.
Research limitations/implications
Paper does not report any research findings of the author.
Practical implications
High-frequency trading (HFT) along with its pros and cons is the new normal for most of the current electronic trading activity in the markets. It is well recognized by the experts that HFT may have its important shortcomings whenever the rules and regulations are not up to date to match the technological progress offering faster computational and execution capabilities.
Social implications
HFT has created a societal discussion about its benefits and potential deficiencies as the common practice for trading due to potentially unequal access to market data by various categories of participants. Such arguments help the regulators to develop improvements to reduce the market risk and nurture more robust and fair markets for all.
Originality/value
The paper has a tutorial value and summarizes the current state of HFT. The readers of more interest are guided to the most relevant literature for further reading.
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Keywords
Eileen Taylor and Jennifer Riley
The purpose of this paper is to explore how non-professional investors (NPIs) with varying levels of financial sophistication interpret and perceive corporate disclosures and…
Abstract
Purpose
The purpose of this paper is to explore how non-professional investors (NPIs) with varying levels of financial sophistication interpret and perceive corporate disclosures and management credibility, specifically risk factors, when those disclosures are presented in readable and less-readable formats.
Design/methodology/approach
The paper uses an online experiment to test hypotheses related to the effects of financial sophistication (measured) and readability (manipulated) on NPIs’ equity valuations and perceptions of management credibility (competence and trustworthiness).
Findings
Increased readability appears to counteract less-sophisticated NPIs’ conservatism in equity valuations, such that they are not statistically significantly different from more-sophisticated NPIs’ equity valuations. Further, less-sophisticated NPIs judge management as less competent when disclosures are less readable, while more-sophisticated NPIs judge management as more competent when disclosures are less readable.
Research limitations/implications
The paper has important implications for the SEC’s regulations related to plain English requirements for risk factor and other corporate disclosures. Financial sophistication varies among NPIs, and readability appears to influence these individuals in different ways.
Practical implications
The SEC’s Concept Release (April 13, 2016) acknowledges the need to update and improve risk factor disclosure regulations. This study provides evidence that contributes to those decisions.
Originality/value
The paper extends the research on processing fluency, by examining readability of disclosures with a consistent tone (negative). The NPIs surveyed are directly representative of the population of interest for risk factor disclosure regulations.
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Md Jahidur Rahman, Mo Lai Lan Phllis and Lam Mo
The purpose of this paper is to study the impact of the prohibition of certain non-audit services by the Securities and Exchange Commission (SEC) of Bangladesh on the…
Abstract
The purpose of this paper is to study the impact of the prohibition of certain non-audit services by the Securities and Exchange Commission (SEC) of Bangladesh on the profitability of the audit firms which are affiliated with Big-4 international audit firms. This paper is based on personal in-depth interviews with the Big-4-affiliated audit firms. A qualitative approach, in a way which is descriptive and illustrative, is adopted in this research. This research provides evidence for the fact that audit services are the most significant and stable source of income for an audit firm. Although respondents generally admit that non-audit services might be more profitable, they all agree that audit services are indeed the core operations of an audit firm. Findings in this paper reveal a contemporary picture of the auditing profession in Bangladesh and elucidate the impact that the implementation of Corporate Governance Order 2006 has on an audit firm's profitability. This research is the first in-depth study of the impact of the prohibition of non-audit services on the profitability of the Big-4-affiliated audit firms in Bangladesh. Financial reporting regulatory authorities in Bangladesh or other developing countries may find the findings in this paper useful.
Noel Murray, Ajay K. Manrai and Lalita Ajay Manrai
This paper aims to present an analysis of the role of financial incentives, moral hazard and conflicts of interests leading up to the 2008 financial crisis.
Abstract
Purpose
This paper aims to present an analysis of the role of financial incentives, moral hazard and conflicts of interests leading up to the 2008 financial crisis.
Design/methodology/approach
The study’s analysis has identified common structural flaws throughout the securitization food chain. These structural flaws include inappropriate incentives, the absence of punishment, moral hazard and conflicts of interest. This research sees the full impact of these structural flaws when considering their co-occurrence throughout the financial system. The authors address systemic defects in the securitization food chain and examine the inter-relationships among homeowners, mortgage originators, investment banks and investors. The authors also address the role of exogenous factors, including the SEC, AIG, the credit rating agencies, Congress, business academia and the business media.
Findings
The study argues that the lack of criminal prosecutions of key financial executives has been a key factor in creating moral hazard. Eight years after the Great Recession ended in the USA, the financial services industry continues to suffer from a crisis of trust with society.
Practical implications
An overwhelming majority of Americans, 89 per cent, believe that the federal government does a poor job of regulating the financial services industry (Puzzanghera, 2014). A study argues that the current corporate lobbying framework undermines societal expectations of political equality and consent (Alzola, 2013). The authors believe the Singapore model may be a useful starting point to restructure regulatory agencies so that they are more responsive to societal concerns and less responsive to special interests. Finally, the widespread perception is that the financial services sector, in particular, is ethically challenged (Ferguson, 2012); perhaps there would be some benefit from the implementation of ethical climate monitoring in firms that have been subject to deferred prosecution agreements for serious ethical violations (Arnaud, 2010).
Originality/value
The authors believe the paper makes a truly original contribution. They provide new insights via their analysis of the role of financial incentives, moral hazard and conflicts of interests leading up to the 2008 financial crisis.
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