PurposeThe purpose of this paper is to examine the impact of internal auditors' involvement i... more PurposeThe purpose of this paper is to examine the impact of internal auditors' involvement in enterprise risk management (ERM) on perceptions of their willingness to report a breakdown in risk procedures and whether a strong relationship with the audit committee affects such willingness to report. The study also investigates the use of ERM and the role of internal audit in ERM in Australian private and public sector entities.Design/methodology/approachThe study uses an experimental design, manipulating the internal auditor's involvement in ERM and the strength of the relationship between internal audit and the audit committee. Participants are 117 certified internal auditors. The study also gathers descriptive data on the use of ERM.FindingsThe study indicates that a high involvement in ERM impacts the perceptions of internal auditors' willingness to report a breakdown in risk procedures to the audit committee. However, a strong relationship with the audit committee doe...
This paper suggests and applies a method of optimally varying the external audit interval in resp... more This paper suggests and applies a method of optimally varying the external audit interval in response to variations in agency costs. Flexibility in the audit interval can be seen as a way of meeting the growing call to adapt the traditional attest service to meet a wider range of needs of decision makers. The study applies the model of optimal internal audit scheduling in Boritz and Broca (1986) to determine the optimal timing of financial statement audits for a sample of 53 private (and family-controlled) companies. The optimal interval between audits is the result of a trade-off between the audit cost and the losses that are expected to accrue in the absence of auditing. The rate at which losses accrue in the absence of auditing defines the riskiness of the firm. This study extends prior research on optimal audit scheduling in several ways: the audit units are external audit units, the audit cost is a function of the audit interval and actual rather than hypothetical data are used.
Purpose – Business advisory services are an emerging service category for external accountants in... more Purpose – Business advisory services are an emerging service category for external accountants in the small and medium-sized enterprise (SME) environment. The purpose of this study is to investigate determinants of SME demand for business advice, drawing on the agency theory, relational marketing and resource-based literatures. Design/methodology/approach – The study empirically tested theoretical predictions based on an Australia-wide survey of SMEs, in which 485 firms responded to a questionnaire. Findings – The results show that the purchase of business advice is significantly and positively associated with the perceived competence of the external accountant, but significantly and negatively associated with length of the relationship. However, the authors observe a significant positive interaction between tenure of the relationship and competence. A unique contribution of this study is the development of the understanding of the combined role of the external accountant’s competen...
ABSTRACT Accountants in public practice are the main advisors to small and medium-sized enterpris... more ABSTRACT Accountants in public practice are the main advisors to small and medium-sized enterprises (SMEs). SMEs use external accountants primarily to help fulfil regulatory requirements or satisfy contractual constraints (e.g., taxation, compilation and audit), but there is evidence that SMEs also rely on the business advice of their external accountant for support in managing the firm. This study provides empirical evidence as to the value of business advice by analysing whether SMEs buying advice from their external accountant demonstrate superior performance. This area of research is important because the accounting profession continues to promote the expertise of external accountants as business advisors in the absence of empirical support for this strategy. Data collected using a questionnaire survey of Australian SMEs confirms the predicted positive relation between the purchase of business advice and SME performance, where performance is measured using SME survey respondents’ rating of their own performance relative to competitors on a range of financial and non-financial success factors. SME performance is found to be further enhanced when business advice and auditing are jointly purchased, which suggests knowledge ‘spillovers’ from auditing to business advice. Additional analysis reveals that these relations are concentrated in the small businesses subgroup (5-49 employees), consistent with smaller firms having a narrower resource base and thus a greater need to source business advice from their external accountant.
Accounting and Management Information Systems, 2013
This study investigates voluntary demand for auditing by Australian farm businesses, a significan... more This study investigates voluntary demand for auditing by Australian farm businesses, a significant but relatively unexplored segment of the economy. Most farms operate as family partnerships or sole proprietors and we thus focus on incentives to audit arising from internal sources (owner-manager), controlling for traditional incentives arising from external contractual constraints (i.e., debt), organisational characteristics (i.e., size), and agency conflict. We hypothesise that an external audit assists management in enhancing internal control by complementing the process of profit planning and control (budgeting) and that increased family conflict provides an incentive to engage external audit. Of the 457 survey questionnaire respondents, 27% voluntarily engage an external auditor and 66% conduct some formal written planning. Results from logistic regression analyses support the predicted impact of both size and debt on audit, and further support the hypothesised impact of budgeting. The positive association between budgeting and audit confirms the complementary relationship. More importantly, this relationship is not confounded by the combined impact of size and budgeting and debt and budgeting on voluntary audit. In addition, family conflict has no impact on voluntary demand for auditing by farm business.
Purpose – This study aims to investigate whether “small- and medium-sized enterprises” (SMEs) ben... more Purpose – This study aims to investigate whether “small- and medium-sized enterprises” (SMEs) benefit from their external accountants’ business advice through enhanced firm performance. Most SMEs draw on external support, and their main advisors are external accountants (Bennett and Robson, 1999). The resource-based view of the firm suggests that firms will seek external support if they perceive a gap in their internal resources. Design/methodology/approach – Data were collected from a questionnaire mailed to a random sample of Australian SMEs, defined as businesses having between 5 and 200 full-time employees. Findings – An analysis of 380 survey respondents confirms a positive relationship between the voluntary purchase of business advice and SME performance, and that SME performance is further enhanced when business advice is purchased jointly with auditing. These relationships apply to the small (5-49 employees) but not to the medium-sized (50-200 employees) businesses. Findings...
Purpose – The purpose of this paper is to investigate the association between corporate governanc... more Purpose – The purpose of this paper is to investigate the association between corporate governance mechanisms and quality of forward-looking information in the Chinese stock market which presents a mandatory disclosure environment for forward-looking information. Design/methodology/approach – Using sales forecasts to proxy forward-looking information and using precision and accuracy to measure the quality of information disclosure, the authors investigate the impact of corporate governance attributes on the precision and accuracy of sales forecasts made by listed Chinese firms in their 2010 annual reports, using logistics and ordinary least squares regressions. Findings – The authors find good corporate governance has a positive and significant impact on the precision choice of sales forecasts disclosure. Firms with good corporate governance are more likely to disclose more precise sales forecasts than providing qualitative discussions on firms’ sales trend. In addition, good corpor...
The purpose of this paper is to examine whether anonymous reporting channels (ARCs) are effective... more The purpose of this paper is to examine whether anonymous reporting channels (ARCs) are effective in detecting fraud against companies. Fraud, which comprises predominantly asset misappropriation, represents a key operational risk and a major cost to organisations (ACFE, http://www.acfe.com/uploadedFiles/ACFE_Website/Content/rttn/2012-report-to-nations.pdf, 2012; KPMG, http://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Fraud-Survey/Documents/fraud-bribery-corruption-survey-2012v2.pdf, 2012). The fraud triangle (incentives, opportunities and attitudes) provides a framework for developing our understanding of how ARCs can increase detection of fraud. Using publicly listed company survey data collected by KPMG in Australia—where ARCs are not mandated—we find a positive association between ARCs and reported fraud. These results indicate that ARCs are effective in detecting fraud. Additional analysis reveals that small firms derive the greatest benefit from adopting ARCs. We also find that independent boards do not directly influence the detection of fraud, but companies with independent boards detect more fraud because they implement ARCs.
ABSTRACT Accountants in public practice are the main advisors to small and medium-sized enterpris... more ABSTRACT Accountants in public practice are the main advisors to small and medium-sized enterprises (SMEs). SMEs use external accountants primarily to help fulfil regulatory requirements or satisfy contractual constraints (e.g., taxation, compilation and audit), but there is evidence that SMEs also rely on the business advice of their external accountant for support in managing the firm. This study provides empirical evidence as to the value of business advice by analysing whether SMEs buying advice from their external accountant demonstrate superior performance. This area of research is important because the accounting profession continues to promote the expertise of external accountants as business advisors in the absence of empirical support for this strategy. Data collected using a questionnaire survey of Australian SMEs confirms the predicted positive relation between the purchase of business advice and SME performance, where performance is measured using SME survey respondents’ rating of their own performance relative to competitors on a range of financial and non-financial success factors. SME performance is found to be further enhanced when business advice and auditing are jointly purchased, which suggests knowledge ‘spillovers’ from auditing to business advice. Additional analysis reveals that these relations are concentrated in the small businesses subgroup (5-49 employees), consistent with smaller firms having a narrower resource base and thus a greater need to source business advice from their external accountant.
... argues that the advent of new technology or a productivity shock creates information asymmetr... more ... argues that the advent of new technology or a productivity shock creates information asymmetry which results in clusters of firms from particular industries or geographic areas being associated with greater underpricing during 'hot' markets (Ritter, 1984, Maksimovic and Pichler ...
0 ver the past decade, the Australian public sector has undergone significant changes as a result... more 0 ver the past decade, the Australian public sector has undergone significant changes as a result of budgetary pressures and trends associated with technological development, moderni-sation and globalisation. In particular, the growing practice of outsourcing, or contracting-out of ...
ABSTRACT An important change in auditors’ reporting behaviour in the period after the high‐profil... more ABSTRACT An important change in auditors’ reporting behaviour in the period after the high‐profile corporate collapses in 2001 is that auditors were more likely to issue going‐concern (GC)‐modified audit opinions. Comparing company failure rates subsequent to receiving a first‐time going‐concern (FTGC)‐modified audit opinion in the pre‐ and post‐2001 periods, we find a consistent type 1 error (misclassification) rate (the rate of survival among companies issued an FTGC opinion). Results are indicative of auditors maintaining GC reporting accuracy when comparing the 1995–1996 and 2004–2005 periods. This conclusion is supported after considering the impact of mitigating circumstances surrounding companies that received an FTGC‐modified audit report and survived.
ABSTRACT For decades, the reporting entity concept has been the foundation of differential report... more ABSTRACT For decades, the reporting entity concept has been the foundation of differential reporting in Australia. Those entities classified as ‘reporting entities’ are, prima facie, required to produce full GAAP-based financial reports while other (non-reporting) entities are generally able to produce less complex and shorter ‘special purpose’ financial reports. In recent years, the application of the concept, as originally set out in the Statement of Accounting Concepts (SAC) 1 Definition of the Reporting Entity, has been criticized on several grounds—particularly, that it does not yield the reporting outcomes originally intended by regulators. Our analysis of 1,546 companies lodging financial statements with the corporate regulator in Australia (ASIC) shows the principles-based criteria in SAC 1, designed to indicate the existence of a reporting entity, do not systematically explain its application by entities. Our findings are relevant for policy makers, researchers, and regulators concerned with how these choices might be more effectively regulated in future and whether this is best done through principles-based or rules-based approaches.
PurposeThe purpose of this paper is to examine the impact of internal auditors' involvement i... more PurposeThe purpose of this paper is to examine the impact of internal auditors' involvement in enterprise risk management (ERM) on perceptions of their willingness to report a breakdown in risk procedures and whether a strong relationship with the audit committee affects such willingness to report. The study also investigates the use of ERM and the role of internal audit in ERM in Australian private and public sector entities.Design/methodology/approachThe study uses an experimental design, manipulating the internal auditor's involvement in ERM and the strength of the relationship between internal audit and the audit committee. Participants are 117 certified internal auditors. The study also gathers descriptive data on the use of ERM.FindingsThe study indicates that a high involvement in ERM impacts the perceptions of internal auditors' willingness to report a breakdown in risk procedures to the audit committee. However, a strong relationship with the audit committee doe...
This paper suggests and applies a method of optimally varying the external audit interval in resp... more This paper suggests and applies a method of optimally varying the external audit interval in response to variations in agency costs. Flexibility in the audit interval can be seen as a way of meeting the growing call to adapt the traditional attest service to meet a wider range of needs of decision makers. The study applies the model of optimal internal audit scheduling in Boritz and Broca (1986) to determine the optimal timing of financial statement audits for a sample of 53 private (and family-controlled) companies. The optimal interval between audits is the result of a trade-off between the audit cost and the losses that are expected to accrue in the absence of auditing. The rate at which losses accrue in the absence of auditing defines the riskiness of the firm. This study extends prior research on optimal audit scheduling in several ways: the audit units are external audit units, the audit cost is a function of the audit interval and actual rather than hypothetical data are used.
Purpose – Business advisory services are an emerging service category for external accountants in... more Purpose – Business advisory services are an emerging service category for external accountants in the small and medium-sized enterprise (SME) environment. The purpose of this study is to investigate determinants of SME demand for business advice, drawing on the agency theory, relational marketing and resource-based literatures. Design/methodology/approach – The study empirically tested theoretical predictions based on an Australia-wide survey of SMEs, in which 485 firms responded to a questionnaire. Findings – The results show that the purchase of business advice is significantly and positively associated with the perceived competence of the external accountant, but significantly and negatively associated with length of the relationship. However, the authors observe a significant positive interaction between tenure of the relationship and competence. A unique contribution of this study is the development of the understanding of the combined role of the external accountant’s competen...
ABSTRACT Accountants in public practice are the main advisors to small and medium-sized enterpris... more ABSTRACT Accountants in public practice are the main advisors to small and medium-sized enterprises (SMEs). SMEs use external accountants primarily to help fulfil regulatory requirements or satisfy contractual constraints (e.g., taxation, compilation and audit), but there is evidence that SMEs also rely on the business advice of their external accountant for support in managing the firm. This study provides empirical evidence as to the value of business advice by analysing whether SMEs buying advice from their external accountant demonstrate superior performance. This area of research is important because the accounting profession continues to promote the expertise of external accountants as business advisors in the absence of empirical support for this strategy. Data collected using a questionnaire survey of Australian SMEs confirms the predicted positive relation between the purchase of business advice and SME performance, where performance is measured using SME survey respondents’ rating of their own performance relative to competitors on a range of financial and non-financial success factors. SME performance is found to be further enhanced when business advice and auditing are jointly purchased, which suggests knowledge ‘spillovers’ from auditing to business advice. Additional analysis reveals that these relations are concentrated in the small businesses subgroup (5-49 employees), consistent with smaller firms having a narrower resource base and thus a greater need to source business advice from their external accountant.
Accounting and Management Information Systems, 2013
This study investigates voluntary demand for auditing by Australian farm businesses, a significan... more This study investigates voluntary demand for auditing by Australian farm businesses, a significant but relatively unexplored segment of the economy. Most farms operate as family partnerships or sole proprietors and we thus focus on incentives to audit arising from internal sources (owner-manager), controlling for traditional incentives arising from external contractual constraints (i.e., debt), organisational characteristics (i.e., size), and agency conflict. We hypothesise that an external audit assists management in enhancing internal control by complementing the process of profit planning and control (budgeting) and that increased family conflict provides an incentive to engage external audit. Of the 457 survey questionnaire respondents, 27% voluntarily engage an external auditor and 66% conduct some formal written planning. Results from logistic regression analyses support the predicted impact of both size and debt on audit, and further support the hypothesised impact of budgeting. The positive association between budgeting and audit confirms the complementary relationship. More importantly, this relationship is not confounded by the combined impact of size and budgeting and debt and budgeting on voluntary audit. In addition, family conflict has no impact on voluntary demand for auditing by farm business.
Purpose – This study aims to investigate whether “small- and medium-sized enterprises” (SMEs) ben... more Purpose – This study aims to investigate whether “small- and medium-sized enterprises” (SMEs) benefit from their external accountants’ business advice through enhanced firm performance. Most SMEs draw on external support, and their main advisors are external accountants (Bennett and Robson, 1999). The resource-based view of the firm suggests that firms will seek external support if they perceive a gap in their internal resources. Design/methodology/approach – Data were collected from a questionnaire mailed to a random sample of Australian SMEs, defined as businesses having between 5 and 200 full-time employees. Findings – An analysis of 380 survey respondents confirms a positive relationship between the voluntary purchase of business advice and SME performance, and that SME performance is further enhanced when business advice is purchased jointly with auditing. These relationships apply to the small (5-49 employees) but not to the medium-sized (50-200 employees) businesses. Findings...
Purpose – The purpose of this paper is to investigate the association between corporate governanc... more Purpose – The purpose of this paper is to investigate the association between corporate governance mechanisms and quality of forward-looking information in the Chinese stock market which presents a mandatory disclosure environment for forward-looking information. Design/methodology/approach – Using sales forecasts to proxy forward-looking information and using precision and accuracy to measure the quality of information disclosure, the authors investigate the impact of corporate governance attributes on the precision and accuracy of sales forecasts made by listed Chinese firms in their 2010 annual reports, using logistics and ordinary least squares regressions. Findings – The authors find good corporate governance has a positive and significant impact on the precision choice of sales forecasts disclosure. Firms with good corporate governance are more likely to disclose more precise sales forecasts than providing qualitative discussions on firms’ sales trend. In addition, good corpor...
The purpose of this paper is to examine whether anonymous reporting channels (ARCs) are effective... more The purpose of this paper is to examine whether anonymous reporting channels (ARCs) are effective in detecting fraud against companies. Fraud, which comprises predominantly asset misappropriation, represents a key operational risk and a major cost to organisations (ACFE, http://www.acfe.com/uploadedFiles/ACFE_Website/Content/rttn/2012-report-to-nations.pdf, 2012; KPMG, http://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Fraud-Survey/Documents/fraud-bribery-corruption-survey-2012v2.pdf, 2012). The fraud triangle (incentives, opportunities and attitudes) provides a framework for developing our understanding of how ARCs can increase detection of fraud. Using publicly listed company survey data collected by KPMG in Australia—where ARCs are not mandated—we find a positive association between ARCs and reported fraud. These results indicate that ARCs are effective in detecting fraud. Additional analysis reveals that small firms derive the greatest benefit from adopting ARCs. We also find that independent boards do not directly influence the detection of fraud, but companies with independent boards detect more fraud because they implement ARCs.
ABSTRACT Accountants in public practice are the main advisors to small and medium-sized enterpris... more ABSTRACT Accountants in public practice are the main advisors to small and medium-sized enterprises (SMEs). SMEs use external accountants primarily to help fulfil regulatory requirements or satisfy contractual constraints (e.g., taxation, compilation and audit), but there is evidence that SMEs also rely on the business advice of their external accountant for support in managing the firm. This study provides empirical evidence as to the value of business advice by analysing whether SMEs buying advice from their external accountant demonstrate superior performance. This area of research is important because the accounting profession continues to promote the expertise of external accountants as business advisors in the absence of empirical support for this strategy. Data collected using a questionnaire survey of Australian SMEs confirms the predicted positive relation between the purchase of business advice and SME performance, where performance is measured using SME survey respondents’ rating of their own performance relative to competitors on a range of financial and non-financial success factors. SME performance is found to be further enhanced when business advice and auditing are jointly purchased, which suggests knowledge ‘spillovers’ from auditing to business advice. Additional analysis reveals that these relations are concentrated in the small businesses subgroup (5-49 employees), consistent with smaller firms having a narrower resource base and thus a greater need to source business advice from their external accountant.
... argues that the advent of new technology or a productivity shock creates information asymmetr... more ... argues that the advent of new technology or a productivity shock creates information asymmetry which results in clusters of firms from particular industries or geographic areas being associated with greater underpricing during 'hot' markets (Ritter, 1984, Maksimovic and Pichler ...
0 ver the past decade, the Australian public sector has undergone significant changes as a result... more 0 ver the past decade, the Australian public sector has undergone significant changes as a result of budgetary pressures and trends associated with technological development, moderni-sation and globalisation. In particular, the growing practice of outsourcing, or contracting-out of ...
ABSTRACT An important change in auditors’ reporting behaviour in the period after the high‐profil... more ABSTRACT An important change in auditors’ reporting behaviour in the period after the high‐profile corporate collapses in 2001 is that auditors were more likely to issue going‐concern (GC)‐modified audit opinions. Comparing company failure rates subsequent to receiving a first‐time going‐concern (FTGC)‐modified audit opinion in the pre‐ and post‐2001 periods, we find a consistent type 1 error (misclassification) rate (the rate of survival among companies issued an FTGC opinion). Results are indicative of auditors maintaining GC reporting accuracy when comparing the 1995–1996 and 2004–2005 periods. This conclusion is supported after considering the impact of mitigating circumstances surrounding companies that received an FTGC‐modified audit report and survived.
ABSTRACT For decades, the reporting entity concept has been the foundation of differential report... more ABSTRACT For decades, the reporting entity concept has been the foundation of differential reporting in Australia. Those entities classified as ‘reporting entities’ are, prima facie, required to produce full GAAP-based financial reports while other (non-reporting) entities are generally able to produce less complex and shorter ‘special purpose’ financial reports. In recent years, the application of the concept, as originally set out in the Statement of Accounting Concepts (SAC) 1 Definition of the Reporting Entity, has been criticized on several grounds—particularly, that it does not yield the reporting outcomes originally intended by regulators. Our analysis of 1,546 companies lodging financial statements with the corporate regulator in Australia (ASIC) shows the principles-based criteria in SAC 1, designed to indicate the existence of a reporting entity, do not systematically explain its application by entities. Our findings are relevant for policy makers, researchers, and regulators concerned with how these choices might be more effectively regulated in future and whether this is best done through principles-based or rules-based approaches.
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