Hazem Ramadan Ismael and Hany Kamel
This study aims to examine the association between internal audit quality and the involvement of UK companies in earnings management practices.
Abstract
Purpose
This study aims to examine the association between internal audit quality and the involvement of UK companies in earnings management practices.
Design/methodology/approach
To measure the internal audit quality, this study uses 115 responses for a postal questionnaire that was addressed to the heads of internal audit departments in a sample of non-financial listed companies in the UK context. The other financial and governance data for the respondent companies were collected from the Datastream and the companies’ annual reports. The present study uses the signed abnormal accruals as a proxy for earnings management and uses both logistic and ordinary least squares regression models to test the research hypothesis.
Findings
This study finds a negative relationship between the internal audit quality and the abnormal accruals, implying the prominent role of internal audit in reducing the upwards earnings management. The study also finds a significant impact of the internal audit competence on reducing the engagement of UK companies in income-increasing earnings management compared to the internal audit independence. This remarkable result suggests the companies need to focus more on enhancing the internal audit competence to reduce the opportunistic management’s behaviour.
Practical implications
This study has important implications for the internal audit’s practice, regulation and research.
Originality/value
This is the first study that investigates the relationship between internal audit quality and earnings management in the UK context. Furthermore, it uses a comprehensive measure for the internal audit function (IAF) quality covering different aspects of IAF quality based on the global Institute of Internal Auditor standards and prior internal audit literature.
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Nader Elsayed, Hazem Ramadan Ismael and Shahriar M. Saadullah
Drawing on experiential learning theory (ELT), this study aims to examine students’ performance and perceptions after performing an experiential learning activity (ELA) by…
Abstract
Purpose
Drawing on experiential learning theory (ELT), this study aims to examine students’ performance and perceptions after performing an experiential learning activity (ELA) by completing a mini-audit simulation (AS) on the purchase and cash disbursement processes in a distance-learning environment at a Gulf Cooperation Council (GCC) university.
Design/methodology/approach
Adopting a mixed-methods approach, we collected quantitative and qualitative data from 176 students using the grade centre on Blackboard and their responses to a semi-structured questionnaire.
Findings
The pre-and post-simulation tests indicate significant improvement in students’ understanding and performance after performing the mini-AS. The students’ responses also provide robust evidence of student engagement, active participation and positive recognition of the AS’s value.
Practical implications
This study has several implications: for the accounting education literature, how AS strengthens in-depth learning through the lens of ELT; for professional accounting bodies, informing the need to maximise the awareness and benefits of adopting simulations in accounting education and examination; and for educators, considering simulations in their ELAs to enhance student learning.
Originality/value
This study introduces a new authentic mini-AS instrument that can be adapted to a distance-learning setting, adds to the very limited studies in AS using ELT, uses a mixed-methods approach and explores students who learn in an Arabic-speaking country.
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Mostafa Kamal Hassan, Mustafa Elkasih Abdulkarim and Hazem Ramadan Ismael
This study aims to investigate the association between organisational culture (OC) and the extent to which risk governance (RG) practices are implemented in Qatar.
Abstract
Purpose
This study aims to investigate the association between organisational culture (OC) and the extent to which risk governance (RG) practices are implemented in Qatar.
Design/methodology/approach
It relies on the institutional theory and OC perspectives to generate testable hypotheses and explain the empirical findings, using data from 85 Qatari firms collected based on questionnaires. It also applies ordinary least squares regression to examine the associations between five OCs (innovation, outcome orientation, attention to detail, team orientation and tight versus loose control) and the level of implementing RG practices, whilst controlling for the presence of internal audit (IA), firm size, listing status, type (private/government) and sector (financial/non-financial).
Findings
An OC of “tight control”, the presence of an IA and being a private firm are significantly associated with implementing RG practices. An OC of teamwork is negatively associated with RG practices.
Practical implications
Policymakers and corporate managers are encouraged to set guidelines governing the formation of cohesive cooperative teams within organisations. They must develop strategies that promote the “risk culture” as a major component of OC. Policymakers should also monitor the culture and institutional forces behind the successful implementation of RG that involves the collaboration of employees at different organisational levels.
Originality/value
To the best of the authors’ knowledge, this study is novel because it empirically examines the OC–RG relationship in an emerging market economy (Qatar).
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Hazem Ramadan Ismael and Clare Roberts
This study aims to identify the factors that lead non-financial companies listed in the UK to use an internal audit function (IAF) as a monitoring mechanism. Although the use of…
Abstract
Purpose
This study aims to identify the factors that lead non-financial companies listed in the UK to use an internal audit function (IAF) as a monitoring mechanism. Although the use of an IAF in the UK is voluntary, no prior research has examined the drivers for using one.
Design/methodology/approach
Financial and non-financial data were collected from the annual reports of 332 UK non-financial companies listed on the London Stock Exchange (LSE) Main Market. Univariate tests and multivariate logistic regression tests were used to test the research hypotheses. A theoretical framework based on both agency theory and transaction cost economics (TCE) theory was used to explain the economic factors affecting the use of an IAF.
Findings
The study provides evidence that firm size, level of internal risks, agency problem between owners and managers and existence of an effective audit committee are associated with the existence of an IAF. Thus, the need to have strong internal control and risk management systems and to reduce both internal and external agency costs drives companies to have an IAF. These results suggest the importance of IAF as an internal corporate governance tool and the effectiveness of UK governance regulations in monitoring the effectiveness of internal control systems.
Practical implications
Given the importance of the IAF’s corporate governance role, the study provides some policy implications. Regulators should pay more attention to the issue of maintaining an IAF, especially by large companies, the relationship between the IAF and other governance parties, especially the audit committee, and the disclosure of more relevant information about the IAF’s characteristics and practices.
Originality/value
This is the first study to examine the factors affecting the existence of the IAF within the UK’s distinctive regulatory approach of “comply or disclose reasons”. Furthermore, it provides a theoretical framework that explains how both the agency theory and TCE theory can interpret the adoption of internal audit.