Kinsun Tam, Qiao Xu, Guy Fernando and Richard A. Schneible
This paper aims to investigate whether the managers’ emphasis on audit in the management’s discussion and analysis (MD&A) section of the 10-K filing, as part of the firm’s “tone…
Abstract
Purpose
This paper aims to investigate whether the managers’ emphasis on audit in the management’s discussion and analysis (MD&A) section of the 10-K filing, as part of the firm’s “tone at the top,” is linked to audit quality.
Design/methodology/approach
Adopting a computational linguistics approach, the authors measure the manager’s audit emphasis as the frequency of audit-related words in the MD&A. The authors then assess the relationship between audit emphasis and audit quality with ordinary least squares and probit regression models.
Findings
This study finds that the manager’s audit emphasis, proxied by the count of audit-related words, is positively associated with audit fees, audit delay, the appointment and retention of Big 4 and industry-specialist auditors, and the probability of switching to Big 4 auditors, while negatively linked to abnormal accruals and the possibility of financial misstatements.
Research limitations/implications
The audit emphasis measure suffers from limitations. The computer program determining audit emphasis may misinterpret words in the MD&A. Researchers need to consider procedures to minimize misinterpretations.
Practical implications
Frequency of audit words in the MD&A reflects the firm’s aspiration for audit quality. Auditors, regulators and investors could ascertain such aspiration from past and current MD&As.
Originality/value
This study associates the manager’s emphasis on audit, measured with computational linguistics from the MD&A, with realized audit quality.
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Qiao Xu, Guy Fernando, Kinsun Tam and Wei Zhang
This paper aims to investigate whether audit fees and financial report readability are bi-directionally related.
Abstract
Purpose
This paper aims to investigate whether audit fees and financial report readability are bi-directionally related.
Design/methodology/approach
The authors test their hypotheses with empirical data. Specifically, they adopt a two-stage simultaneous equation regression model to assess the bi-directional relationship between audit fees and financial report readability.
Findings
While poor readability increases the fees charged by the auditor, higher audit fees improve the readability of the financial reports.
Research limitations/implications
This study is based on US data. Future research may extend this study to other countries.
Practical implications
Poor financial report readability encumbers stakeholders of the firms. Understanding the interaction between financial report readability and audit fees will help both auditors and firm managers.
Social implications
Audit committees aggressively negotiating for lower audit fees should be aware of the link of low audit fees, potentially indicative of poor quality, to less readable reports. Investors and regulators too should be concerned about this relationship, especially in instances when auditors low-ball audit fees or when firms aggressively negotiate for lower audit fees.
Originality/value
To the best of authors’ knowledge, this study is the first to document the bi-directional relationship between financial report readability and audit fees and assess the positive impact of audit fees on financial report readability.
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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…
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.
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Kinsun Tam, James L. Bierstaker and Inshik Seol
To investigate the nature of investment expertise and factors affecting the information processing and performance of investment experts, this paper hypothesizes normative…
Abstract
To investigate the nature of investment expertise and factors affecting the information processing and performance of investment experts, this paper hypothesizes normative characteristics of investment expertise and compares such characteristics with actual characteristics documented in prior literature on the investment expert. Based on collective evidence from these sources, a model of investment expertise is proposed.
Results support the existence of investment expertise in (1) the nature of knowledge, (2) problem solving and information search, and (3) performance. A variety of factors that could influence the information processing and performance of the investment expert, including personal, cognitive, and contextual elements, are also discussed in the paper and included in the proposed model of investment expertise.
Talal H. Hayale and Husam A. Abu Khadra
The objective of this study is to investigate perceived security threats of Computerized Accounting Information Systems (CAIS) that face Jordanian domestic banks. An empirical…
Abstract
The objective of this study is to investigate perceived security threats of Computerized Accounting Information Systems (CAIS) that face Jordanian domestic banks. An empirical survey using self‐administrated questionnaire has been carried out to achieve the above‐mentioned objective. The study results reveal that accidental entry of “bad” data by employees, accidental destruction of data by employees; intentional entry of “bad” data by employees and employees’ sharing passwords are the top four security threats that face domestic banks. The paper concludes that most security threats that face domestic banks are internally generated and unintentional.
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Alexandra L. Ferrentino, Meghan L. Maliga, Richard A. Bernardi and Susan M. Bosco
This research provides accounting-ethics authors and administrators with a benchmark for accounting-ethics research. While Bernardi and Bean (2010) considered publications in…
Abstract
This research provides accounting-ethics authors and administrators with a benchmark for accounting-ethics research. While Bernardi and Bean (2010) considered publications in business-ethics and accounting’s top-40 journals this study considers research in eight accounting-ethics and public-interest journals, as well as, 34 business-ethics journals. We analyzed the contents of our 42 journals for the 25-year period between 1991 through 2015. This research documents the continued growth (Bernardi & Bean, 2007) of accounting-ethics research in both accounting-ethics and business-ethics journals. We provide data on the top-10 ethics authors in each doctoral year group, the top-50 ethics authors over the most recent 10, 20, and 25 years, and a distribution among ethics scholars for these periods. For the 25-year timeframe, our data indicate that only 665 (274) of the 5,125 accounting PhDs/DBAs (13.0% and 5.4% respectively) in Canada and the United States had authored or co-authored one (more than one) ethics article.
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Xiaoshuai Yang and Joseph H. Zhang
The purpose of this study is to analyze comment letters on Docket 034, which proposes reforms to audit reports, to shed light on the actions of various stakeholder groups in the…
Abstract
Purpose
The purpose of this study is to analyze comment letters on Docket 034, which proposes reforms to audit reports, to shed light on the actions of various stakeholder groups in the Public Company Accounting Oversight Board (PCAOB)’s standard-setting process. The study identifies stakeholder groups, examines the timing of their involvement, and evaluates their arguments and lobbying efforts to influence regulatory outcomes.
Design/methodology/approach
This paper examines stakeholders’ behaviors in submitting comment letters during the PCAOB’s public consultation period for its rulemaking and their influence on regulatory outcomes. Stakeholder participation in the PCAOB’s rulemaking process is analyzed through a content analysis of 489 comment letters submitted to PCAOB’s Docket 034, using manual content analysis. Stakeholder groups are identified, including accounting professionals, financial statement preparers, financial statement users, regulators and academics. Argument strategies, such as economic, conceptual or a combination of both approaches, are also identified.
Findings
This paper finds that accounting professionals and preparers submit more comment letters than the other stakeholder groups. There is a significant association between stakeholder groups and their lobbying position across issues. Preparers take negative positions on all issues except independence, whereas users support all issues. There is also a significant association between stakeholder groups and their argument strategies, and the significant differences lie in preparers and accounting professionals. Preparers primarily rely on economic arguments, such as costs or time. At the same time, accounting professionals use economic and conceptual arguments (such as violating the FASB conceptual framework) to justify their positions.
Originality/value
To the best of the authors’ knowledge, this is the first study to examine lobbying in the PCAOB’s due process, including all stakeholder groups. The PCAOB’s audit standard-setting process and public consultation via the online docket system promote transparency and the effectiveness of public participation. This study analyzes the nature and impact of stakeholder participation in this due process. Understanding lobbying in an audit standard setting enables the PCAOB and stakeholder groups to work more efficiently on regulatory reforms. This assessment of lobbying efforts in the USA complements and enriches the growing body of literature on lobbying efforts and audit policy reforms across countries. Second, by extending the current literature, this study examines the complexities of lobbying through a detailed content analysis of comment letters. This approach provides insights into the properties of lobbying about stakeholder groups, the scope of lobbying, argument strategies, opinions and consultation periods.