Putting Audit Approaches in Context: The Case of Business Risk Audits in Jordan

International Journal of Auditing
Int. J. Audit. 14: 1–24 (2010)

AUTHORS:
Modar Abdullatif
Husam Aldeen Al-Khadash


ABSTRACT:

Large international audit firms are increasingly expanding their activities around the world and  increasingly promoting the concept of a similar quality audit to be performed by all their worldwide offices and member firms. This strategy includes developing and using a similar audit approach globally. This study surveys the views of Jordanian auditors, mainly from audit firms with international affiliations, about how such an international approach, with emphasis on the currently popular business risk approach, is applied in practice by Jordanian audit firms and how appropriate and practical the application of such an international approach to auditing is in different contexts.

The results of the study show that the business risk approach has been generally adopted by the larger Jordanian audit firms to varying extents, especially those which are full members of an international audit firm network. However, audit clients in Jordan face too many business risks, especially because of poor control systems, poor corporate governance structures, and unclear or non-existent corporate strategies and objectives.

These risks have to be addressed by the business risk approach under very low audit fees. Such  factors have led to the business risk approach not being applied in the way that the large international audit firms intended, and not achieving the approach’s main objectives, leaving the audit profession with the question of how appropriate it is to adopt an international audit approach in different  contexts.

Key words: Business risk approach, international audit firms, international audit approach, audit fees, Jordan

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Size and Determinants of Capital Structure in the Greek Manufacturing Sector

Diakses melalui http://www.eap.gr/programmes/deo/deo34/docs/IRAE.pdf.

AUTHORS:
F. Voulgaris
Dimitrios Asteriou
George Agiomirgianakis

ABSTRACT:

Increasing competition in the European Union (EU) and world markets affects the Greek manufacturing sector. Capital structure is essential for the survival, growth and performance of a firm. There has been a growing interest worldwide in identifying the factors associated with debt leverage. However, nothing has been done so far in contrasting small and medium sized enterprises (SMEs) and large sized enterprises (LSEs) on these aspects. SMEs are very important in the Greek manufacturing sector for employment and growth. Empirical studies show that capital structure and the factors affecting it differentiate with firm size. In this paper we investigate the determinants of capital structure of Greek manufacturing firms and formulate some policy implications that may improve the financial performance of the sector. Our study utilizes panel data of two random samples, one for SMEs and another for LSEs. The findings show that profitability is a major determinant of capital structure for both size groups. However,

efficient assets management and assets growth are found essential for the debt structure of LSEs as opposed to efficiency of current assets, size, sales growth and high fixed assets, which were found to affect substantially the credibility of SMEs. In an era of increasing globalization, the findings imply that Greek SMEs should focus their efforts on (a) increasing their cash flow capacity through better assets management and achievement of higher exports and (b) ensuring good bank relations, but at the same time, turn to alternative forms of financing. Greek LSEs should adopt strategies that will lead to the improvement of their competitiveness and in securing new forms of financing.

Government policy measures aiming at structural changes and economic efficiency should be designed clearly depending upon its targets: SMEs need policies that will encourage  information exchange and co-operation in local and foreign markets and use of e-business, as well as, financial assistance. On the other hand, LSEs should be supported by policies aiming at new high-technology investments, entrance of new firms and foreign investments in the country, tax alleviation and increase of R&D and training expenditures. The upgrading and transparency of the Capital Market in Greece is expected to improve the capital structure of Greek  manufacturing firms.

Keywords: Capital Structure; Industry Study: Manufacturing; Dynamic Panel Data; Nonlinear Regression Analysis.

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Global Value Chains, Local Collective Action and Corporate Social Responsibility: a Review of Empirical Evidence

Business Strategy and the Environment
Bus. Strat. Env. 19, 1–13 (2010)

AUTHORS:

Peter Lund-Thomsen1
Khalid Nadvi

ABSTRACT:

A key debate in the corporate social responsibility (CSR) literature is the tension between global pressures and local responses. Developing country suppliers often grumble that CSR compliance adds costs. Yet, local collective action, articulated through industry associations, can potentially reduce costs and promote local embeddedness of CSR initiatives.

Through case study analysis, this paper considers how demands for CSR compliance prompted collective action responses in selected developing country export industries. We argue that differences in collective responses can be partially explained by how local export industries are inserted into global value chains. We distinguish between ‘highly visible’ value chains, led by internationally well known brands as lead fi rms, and relatively ‘less visible’ chains, where external CSR pressures come from a variety of sources, including less dominant lead fi rms, international/national regulatory frameworks and national media. This differentiation suggests a possible trade-off between the independence and the embeddedness of collective CSR initiatives.

Keywords: global value chains; collective action; industrial associations; industrial clusters; corporate social responsibility; developing countries

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CAN FINANCIAL RATIOS PREDICT THE MALAYSIAN STOCK RETURN?

INTEGRATION & DISSEMINATION
Vol. 2 • 2008

AUTHORS:
Lee Chin
Lee Weng Hong

INTRO:

The stock market is one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an  attractive feature of investing in stocks, compared to other less liquid investments such as real  estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity,

and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Investors usually invest in share traded on the stock market because they want  to earn a positive return on their investment. The returns to an investment in shares trade on the stock market usually come from two main sources- capital gains and dividends. It has often been said that short term investor or speculators are in the market for capital gain and long-term

investor for dividends.

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Do Economic Factors Influence Stock Returns? A Firm and Industry Level Analysis

African Journal of Business Management Vol. 4(5), pp. 583-593, May 2010

AUTHORS:
Babar Zaheer Butt
Kashif Ur Rehman
M. Aslam Khan
Nadeem Safwan

ABSTRACT:

The objective of this study is to examine the stock returns variation to specific economic variables by applying a multi-factor model. The firms relating to banking and textile sectors were selected for this study on the basis of data availability, profitability and performance on the Karachi Stock Exchange. The data for the selected firms and economic variables obtained for the period of 10 years. GARCH model used to analyze risk and returns relationship. The tests applied on the stock returns of each firm and on the data set of the entire industry to generalize the results. The results disclose that market return is mainly accounts variation in stock returns, however the inclusion of other macroeconomic and industry related variables has added additional explanatory power in describing the stock returns variation. It is found that economic exposure is higher at industry level than firm level stock returns.

Results also indicate that stock returns of different firms behave differently in similar economic conditions that acquaint investors about the risk diversification opportunity in the stock market.

Key words: Stock returns, multifactor model, macroeconomic variables.

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Internal Audit Professionalism and Section 404 Compliance: The View of Chief Audit Executives from Northeast Ohio

International Journal of Auditing
Int. J. Audit. 11: 41–49 (2007)

AUTHORS:
Albert L. Nagy
William J. Cenker

ABSTRACT:

This study explores the notion that the recently heightened regulation over United States public  company reporting limits the amount of professional judgment required by internal auditors, and in the long run may reduce the overall value and professionalism of the internal audit group. Our assessment is based on face-to-face interviews conducted with Chief Audit Executives (CAEs) from 17 publicly listed companies located in Northeast Ohio, United States, and is in general agreement with the extant literature on the topic. We find that despite several short-term benefits from the Section 404 work for the individual auditor (e.g., increased pay and job security), the compliance work may indeed be a threat to the long-term reputation of the internal audit profession. Based on the existing literature and the CAEs’ responses, the Section 404 work does appear to be driving the internal audit profession

down a new path.

Key words: Internal audit, Sarbanes-Oxley Act, professional judgment, professionalism, Section 404, regulation

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Fundamental analysis of stock price by artificial neural networks model based on rough set theory

World Journal of Modelling and Simulation
Vol. 2 (2006) No. 1, pp 36-44

AUTHORS:
Wei Wu
Jiuping Xu

ABSTRACT:
It has been widely accepted that predicting stock price is not a simple task since many market

factors are involved and their structural relationships are not fully known. In this study, we use both rough set theory and neural networks approach to get an effective model of stock price  movement for China’s young stock market. The model is modified and tested by the most recent 6 years of data collecting from China’s stock market to make sure it is updating and  withstanding in a long time. Consequently, a group of most important fundamental indicators are selected by rough set theory and these indicators are successful in detailing and predicting stock price movement in a long-term using neural networks approach. Results indicate that  neural networks approach based on rough set theory is efficient in modelling and more accurate

in prediction.

Keywords: stock price, rough set, artificial neural networks

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Determinants of market price of stock: A study on bank leasing and insurance companies of Bangladesh

Journal of Modern Accounting and Auditing
Jul. 2009, Vol.5, No.7 (Serial No.50)

AUTHOR:
Mohammed Belal Uddin

ABSTRACT:

Financial firms make up a substantial fraction of the domestic equity market. A number of studies subsequently used different conceptual and methodological approaches to model equity return of financial services firms. Movement of the stock price as the consequence of the movement of the micro and macroeconomic factors is strongly supported by the literature review. Dhaka Stock Exchange in Bangladesh is inefficient in weak form. Multiple regression analysis is conducted to find out the relationship microeconomic factors with the stock price. In this study found a significant linear relationship among market return and some microeconomic factors such as net asset value per share, dividend percentage, earning per share of bank  leasing and insurance companies. Also found non-linear relationship among the variables is insignificant at 95 percent level of significance.

Key words: market price of stock; earning per share; dividend percentage; net asset value per share

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Board Supervision Capability and Information Transparency

Corporate Governance: An International Review, 2010, 18(1): 18–31

AUTHORS:
Hsiang-Tsai Chiang
Li-Jen He

ABSTRACT:
Manuscript Type: Empirical

Research Question/Issue: Board members are charged with the responsibility of supervising  company operation and firm value cannot only be influenced by managers’ actions, but also by those of boards of directors. Furthermore, transparency has always played an important role in corporate governance, but few studies related it to the capacity of boards of directors. Consequently, this study focuses on the capacity, compensation, and structure of boards of directors and how they relate to company transparency.

Research Findings/Insights: Using both primary and archival data from Taiwan, we find that  compensation can encourage company board of directors to act in the best interests of shareholders when there is greater board independence. Among all board supervision capabilities, continuing education is the most important factor in enhancing the transparency of a firm.

Theoretical/Academic Implications: This study considers the importance of directors’ compensation in corporate governance while the majority of prior studies only consider the role of management compensation. Further, the results provide additional evidence to demonstrate that board supervision capabilities may complement strong governance.

Practitioner/Policy Implications: This study offers deeper insights for policy makers to understand the influence of board of directors’ impact on corporate governance. In addition, it provides evidence to recommend further consideration of director compensation and continuing education to enhance board effectiveness.

Keywords: Corporate Governance, Board Compensation, Independent Director, Transparency

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Approaches and Perspectives in Social and Environmental Accounting: an Overview of the Conceptual Landscape

Business Strategy and the Environment
Bus. Strat. Env. 15, 103–117 (2006)

AUTHORS:
Judy Brown
Michael Fraser

ABSTRACT:

In recent years there has been a marked resurgence of interest in the areas of corporate social responsibility (CSR) and social and environmental accounting (SEA) among business, governments, public policymakers, investors, unions, environmentalists and others. While at one level there appears to be widespread agreement that CSR and SEA are worthy topics of attention, different groups have very different understandings of these fields. This article provides an analysis of these differences by comparing three broad approaches to SEA: the business case, stakeholder-accountability and critical theory approaches. It also responds to concerns a number of commentators have expressed regarding the current dominance of ‘business case’ perspectives.

While not seeking to impose on readers a ‘correct’ way of viewing SEA and CSR, exposure to competing perspectives is viewed as one way of challenging us to think more reflectively about the frames available to us and their implications for the social realities we construct, embed or seek to change.

Keywords: corporate social responsibility; environmental accounting; government; social

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The Implementation of Socially Responsible Purchasing

Corporate Social Responsibility and Environmental Management
Corp. Soc. Responsib. Environ. Mgmt. 17, 27–39 (2010)

AUTHORS:

ABSTRACT:

Social and ethical issues in the supply chain are gaining importance in all types of organizations. Therefore some public and private organizations have already started to introduce socially responsible purchasing practices. However, current practices are limited and seem unsystematic. There is also a difference between few front-running organizations and the rest. It is therefore useful at this early stage to disseminate the knowledge and experiences based on the best-performing organizations. This paper does that by developing a model of the socially responsible purchasing process that is based on the empirical and secondary data. The model reveals the fi ve elementary steps that are necessary in the implementation of systematic socially responsible purchasing practices: developing internal policies; setting purchasing criteria that regard social issues; applying assurance practices; managing supplier relations; and building internal capacity. The model also points to the different activities in the process and their associated challenges.

Keywords: socially responsible purchasing; implementation process; supply chain; purchasing criteria; assurance practices; private and public organizations

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Environmental Disclosures of Palm Oil Plantation Companies in Malaysia: A Tool for Stakeholder Engagement

Corporate Social Responsibility and Environmental Management
Corp. Soc. Responsib. Environ. Mgmt. 17, 52–62 (2010)

AUTHORS:
Radiah Othman
Rashid Ameer

ABSTRACT:

This paper examines annual environmental protection disclosures of palm oil companies in Malaysia that have signifi cant implications for the preservation of earth, water and air quality. We found that the location of the environmental disclosures vary among the sample companies. We found that the extent of the disclosures on four key items – environmental policy, measurement systems, targets for improvements and impact on biodiversity – has been very low among the sample companies. The paper concludes that unless the gaps in the knowledge of both palm-oil-producing companies and stakeholders regarding environmental protection are addressed, environmental degradation is likely to continue and the corporate ‘tick-boxing’ trickery would carry on concealing the real picture from stakeholders.

Keywords: corporate environmental responsibility; disclosure; palm oil plantation; Malaysia; annual report

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Innate and Discretionary Accruals Quality and Corporate Governance

Accounting and Finance 50 (2010) 171–195

AUTHORS:
Pamela Kenta
James Routledgea
Jenny Stewart

ABSTRACT:

This paper extends previous research on the association between corporate governance mechanisms and accruals quality. We derive measures of the discretionary and innate components of accruals quality and regress them against corporate governance characteristics. For discretionary accruals, we find use of a Big 4 audit firm and a larger audit committee as the primary governance mechanisms associated with higher accruals quality. For innate accruals quality, we find that higher quality is associated with an independent board of directors, a larger, more independent and more active audit committee, and use of a Big 4 audit firm. Our findings suggest a stronger relation between sound governance mechanisms and innate accruals quality than discretionary accruals quality.

Key words: Innate; Discretionary; Accruals quality; Corporate governance.

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Empirical Study of Capital Structure on Agency Costs in Chinese Listed Firms

Nature and Science, 1(1), 2003

AUTHORS:
Hongxia Li
Liming Cui

ABSTRACT:

This study examines the impact of capital structure on agency costs in 211 non-financial Chinese listed firms for the period 1999-2001. There are two main findings. (1) Firms with high debt to asset ratio have high ratio of annual sales to total assets and high ratio of return-on-equity. If a firm has a high debt to asset ratio, creditors are much more concerned about the payment of interest and repayment of principal and will have incentives to monitor the firm. Thus, a capital structure with high debt decreases agency costs. (2) Positive and significant correlation is identified between ownership concentration and the return-on-equity ratio. This is because the largest shareholders have a strong interest in firm performance and therefore a high ability to reduce agency costs. Our empirical results further illustrate that firms have inclination of refinancing through stock market and harm small shareholders’ interest. 

Keywords: capital structure; agency costs; corporate governance

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Crossing Cultural Bridges: EHS Auditing in Mexico

Environmental Quality Management / DOI 10.1002/tqem / Autumn 2009

AUTHOR:
Walt Platkus

ABSTRACT:

Auditing environmental, health, and safety (EHS) management systems is always a challenge, no  matter where the audit is conducted. But the experience can be particularly demanding for a  professional who is auditing a facility located in another country with different legal and cultural traditions.

When foreign nationals (especially from the United States) conduct EHS audits in the Republic of Mexico, the cultural setting may require them to make adjustments to their auditing practices and methods. This article reviews some key issues that foreign nationals may encounter when auditing in Mexico, and offers recommendations on how to successfully address them in connection with the audit process.

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Determining whether there are any Effects of Incentive Compensation and Stock Ownership on Internal Audit Procedures

International Journal of Auditing
Int. J. Audit. 14: 101–110 (2010)

AUTHOR:
Arnold Schneider

ABSTRACT:

This study examines whether internal auditor incentive compensation and stock ownership affect internal auditors’ decisions to extend audit procedures when warranted. Internal auditors may be reluctant to extend audit procedures in situations that could adversely impact the company’s earnings, as this could have a negative impact on the internal auditor’s compensation and/or stock value. Since this involves a sensitive issue, the randomized response technique is used to elicit responses. The results indicate that while a sizeable proportion of internal auditors were    reluctant to extend audit procedures when warranted, neither incentive compensation nor stock ownership affected the audit planning decisions.

Key words: Internal audit, incentive compensation, stock ownership, objectivity, audit procedures

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Determinants of Auditor Choice: Evidence from a Small Client Market

International Journal of Auditing
Int. J. Audit. 12: 65–88 (2008)

AUTHORS:
W. Robert Knechel
Lasse Niemi
Stefan Sundgren

ABSTRACT:

This paper analyzes the auditor choices for a sample of 2,333 predominantly small and  mid-sized Finnish firms. Finland requires virtually all commercial enterprises to have a financial statement audit, but allows the smallest firms to choose from four types of audit firms: first tier  international firms, first tier national firms, second tier local auditors and non-certified auditors. 

We find that among the smallest firms, the choice to hire a certified auditor relates to the level of complexity in the organization as measured by size and extent of workforce. For firms that must use a certified auditor, we find that the choice between a first tier and second tier firm is related to size, the extent of debt financing, and complexity associated with being a member of an  associated group. Finally, in the upper end of the market, the decision to hire a large  international firm relates to size, the need for financing, be it equity or debt, and complexity due to a broad labour force. This pattern is interesting because it indicates that the need for a higher

quality auditor is driven first by complexity, then as the firm grows, it is supplemented by the use of debt financing and ultimately by the need to raise equity as well as debt financing.

Key words: Auditor choice, auditor quality

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Introduction: Auditing in Regulatory Perspective

LAW & POLICY, Vol. 25, No. 3, July 2003

AUTHORS:
SASHA COURVILLE
CHRISTINE PARKER
HELEN WATCHIRS


ABSTRACT:

In his book, The Audit Society, Michael Power (1997) argued that there had been an “audit explosion” since the late 1980s. The word audit is now used in a variety of contexts to refer to new or more intense account-giving and verification requirements. At the same time, audit of corporate financial statements (traditionally the paradigmatic case of audit) is paradoxically increasingly criticized and increasingly relied upon in the wake of corporate collapses and financial scandals. It appears that ours is a society in which the audit is seen as a particularly important tool of regulation, accountability, and governance.

In February 2003, the Regulatory Institutions Network (RegNet) and the National Institute of Government and Law at the Australian National University convened a workshop, “Auditing in Perspective: Regulatory Tool, Moribund Remedy or Democratic Champion?” to explore the relationship between regulation and audit. The audit explosion had reached RegNet, with members’ work and research covering types of “audit” as diverse as corporate compliance, democratic governance, environmental responsibility, human rights and HIV/AIDS, public sector, social accountability, and tax. The six papers in this collection were all presented and discussed at the workshop and revised for publication on the basis of discussion at the workshop and referees’ comments. 

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Auditing Global Logistics Operations—A Process Safety Focus

Process Safety Progress (Vol.29, No.2) June 2010

AUTHORS:
Michael R. Green
Rick Lide

ABSTRACT:

This article discusses an approach for auditing logistics operations using the principles encompassed within BP’s Safety and Operations (S&O) Audit Program and will feature an emphasis on process safety.

The article concludes with a hypothetical case study to help illustrate portions of the process. This is a general audit process overview that includes sampling strategy, sampling and testing plan, daily audit schedule, field audit, and verification. This detailed description will help anyone to utilize this logistics audit process effectively.

Keywords: logistics; audit; DOT and PSM requirements; logistics safety audit

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Audit Committee Compliance with Kuala Lumpur Stock Exchange Listing Requirements

International Journal of Auditing
Int. J. Audit. 9: 187–200 (2005)


AUTHORS:
Hasnah Haron
Muhamad Jantan
Eow Gaik Pheng

ABSTRACT:

This research investigated the extent of companies’ compliance with the Kuala Lumpur Stock Exchange (KLSE) listing requirements in relation to audit committees. Additionally, the research set out to identify any significant differences in compliance between PN4 companies, that is companies that fall under Practice Notes 4 of KLSE’s revamped listing requirements and are required to regularize their financial condition in a timely manner, and non-PN4 companies. One

hundred and twenty companies were selected from 852 public listed companies on the KLSE.

Year 2002 annual reports were the source of data for this study. The study investigated the ten listing criteria related to the five core KLSE disclosures to be complied with, which are with respect to: (1) audit committee composition, (2) written terms of reference, (3) audit committee meetings and attendance, (4) audit committee activities and (5) internal audit activities. Only 45% of the sample population complied with all ten listing criteria. This comprised 40.3% for companies listed on the main board, 57.1% for those listed on the second board and 38.5% for PN4 companies. The percentage of independent directors present at meetings ranged from 0% to 100%, with an average attendance of 78%. This indicated a deviation in practice from the KLSE listing requirement that requires 100% of all the meetings to have a majority of independent directors present. No significant difference between PN4 companies and non-PN4 companies with regard to audit committee compliance was found. 

Key words: corporate governance, audit committee, compliance level.

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