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Article
Publication date: 1 March 2002

Kam C. Chan, Gim S. Seow and Kinsun Tam

Reviews previous research on the impact of changes in exchange rates on firm value and develops hypotheses on the effect of exchange rate exposure on US pharmaceutical firms…

1833

Abstract

Reviews previous research on the impact of changes in exchange rates on firm value and develops hypotheses on the effect of exchange rate exposure on US pharmaceutical firms 1990‐1999. Tests them using data from 523 firms (21 producing proprietary drugs and 32 generic) splite into two sub‐periods (1990‐1994 and 1995‐1999) and explains the methodology. Finds that the proprietary drug producers were negatively affected by the rising US dollar value during the first sub‐period, but positively affected in the second; and that both generic and proprietary companies suffered a one‐month lagged negative effect. Considers the underlying reasons for this and consistency with other research; and calls for more research on the lagged relationship between stock returns and exchange rate risk.

Details

Managerial Finance, vol. 28 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 31 October 2008

Kam C. Chan, Picheng Lee and Gim S. Seow

The purpose of this paper is to investigate the rationale for the failure of management and auditors to identify material internal control weaknesses (ICWs) in their initial…

2058

Abstract

Purpose

The purpose of this paper is to investigate the rationale for the failure of management and auditors to identify material internal control weaknesses (ICWs) in their initial Sarbanes‐Oxley Act of 2002 (SOX) 404 reviews, resulting in subsequent restatement of their opinions.

Design/methodology/approach

The paper focuses on the factors associated with the failure of management and auditor to identify material internal controls weaknesses in their initial SOX 404 reports. Logistic regression is run on a sample of 56 firms that reported material internal controls weaknesses in their amended internal control reports and a control group of 344 firms that reported material internal controls weaknesses (i.e. ineffective internal controls) in their initial internal control reports for 2004.

Findings

The results show that firm size, the use of a Big 4 auditor, the ratio of non‐audit to total fees, and the need for accounting restatements are positively associated with the probability to file an amended internal control report. The number of ICWs and the number of audit committee meetings are negatively associated with the probability to file an amended internal control report.

Practical implications

The paper's findings suggest that regulators and corporate boards should consider providing more guidelines on audit committee practices in addition to the audit committee structure. For example, more guidance by the board is needed to ensure that the audit committee is active in overseeing the company's auditor–client relationship and its internal audit function.

Originality/value

Empirical findings on factors associated with the failure of management and auditor to identify material ICWs in their SOX 404 review can contribute to an understanding of factors affecting the efficiency of the SOX 404 review by attributing such failure to either inherent factors such as operational complexity and industry membership or to managerial choices in auditor‐client relationship and corporate governance issues. An understanding of these factors can help companies and the Public Company Accounting Oversight Board and the Securities and Exchange Commission in their efforts to improve the effectiveness and the efficiency of the current SOX 404 process.

Details

Review of Accounting and Finance, vol. 7 no. 4
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 3 August 2012

Kam C. Chan, Rudolph A. Jacob, Picheng Lee and Gim S. Seow

The purpose of this study is to examine the change in audit fees for US‐listed foreign firms in their first year of providing Section 404 auditor attestation reports for fiscal…

733

Abstract

Purpose

The purpose of this study is to examine the change in audit fees for US‐listed foreign firms in their first year of providing Section 404 auditor attestation reports for fiscal years ending between July 15, 2006 and July 14, 2007.

Design/methodology/approach

During the sampling time period, foreign large accelerated filers had to provide both auditor and management Section 404 reports while the foreign accelerated filers only had to provide management Section 404 reports without the auditor attestation reports. Foreign non‐accelerated filers did not have to provide any Section 404 report. This research design and sample allows the authors to control for the general market‐wide increases in audit fees. The paper examines the annual change in audit fees from the preceding year to the first year of Section 404 compliance.

Findings

It is found that foreign large accelerated filers have an average increase of 74 percent in audit fees in this first year of Section 404 compliance, while the foreign accelerated filers and non‐accelerated filers only have increases in audit fees of 33 percent and 42 percent, respectively. Since this research design and sample allow the authors to control for the general market‐wide increases in audit fees, the authors are able to conclude that foreign large accelerated filers incurred, on average, a 30 percent increase in audit fees just to comply with Section 404. It is also found that the increase in audit fees among foreign large accelerated filers is negatively associated with the strength of their home countries' legal environment.

Originality/value

Arguably, Section 404 is perhaps the most controversial aspect of Sarbanes‐Oxley Act due to its high audit fees. The results of this study would provide interesting findings to regulators and researchers.

Details

Review of Accounting and Finance, vol. 11 no. 3
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 April 2003

Mahendra R. Gujarathi and Robert E. Hoskin

This study investigates whether management's choices of adoption timing and transition method are associated with factors influencing their economic incentives in the case of…

95

Abstract

This study investigates whether management's choices of adoption timing and transition method are associated with factors influencing their economic incentives in the case of early adoption of Statement of Financial Accounting Standards No. 96 (SFAS 96), Accounting for Income Taxes. SFAS 96 provides an interesting setting for this model because firms needed to make a choice of not only whether to adopt the standard earlier than required, but also of the transition method (cumulative effect versus retroactive restatement). The results support the political cost hypothesis and the debt and compensation contract hypotheses for both the early adoption decision as well as the transition method choice decision. The results also indicate the superiority of the interactive effects models thus confirming the results of Ali and Kumar (1994).

Details

Review of Accounting and Finance, vol. 2 no. 4
Type: Research Article
ISSN: 1475-7702

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