Abstract
Purpose - The purpose of this paper is to address the impact of ethical culture on audit quality under conditions of time budget pressure. The study also tests the relationship between ethical culture and time budget pressure.Design/methodology/approach - The study is based on a field survey of financial auditors employed by audit firms operating in Sweden.Findings - The study finds relationships between three ethical culture factors and reduced audit quality acts. The ethical environment and the use of penalties to enforce ethical norms are negatively related to reduced audit quality acts, whereas the demand for obedience to authorities is positively related to reduced audit quality acts. Underreporting of time is not related to ethical culture, but is positively related to time budget pressure. Finally, the study finds a relationship between two ethical culture factors and time budget pressure, indicating a possible causal relationship, but ethical culture does not mediate an indirect effect of time budget pressure on reduced audit quality acts.Originality/value - This is the first study to report the effect of ethical culture on dysfunctional auditor behavior using actual self-reported frequencies of reduced audit quality acts and underreporting of time as data.
Abstract
Purpose - The purpose of this study is to introduce the continuous auditing system based on continuous monitoring and its implementation methodology, and to present a systematic case study of actual continuous auditing systems implemented in the financial and manufacturing industries.Design/methodology/approach - This study examines the method of implementing the continuous auditing system in the ERP (Enterprise Resource Planning) environment, and suggests how the continuous auditing system can become accepted by looking at the successful introduction of the continuous auditing system in the financial and manufacturing industries.Findings - The proposed method of implementing the continuous auditing system has the two stage approaches which can be applied to various kinds of companies in the ERP-based environment. In addition, the proposed cases have the important practical implications acquired in the process of implementing the continuous auditing system in the financial industry and the manufacturing industry.Practical implications - This study will help many corporations facing various types of corruption or circumvention of internal control, with their internal auditing function using the continuous auditing system to reinforce internal control. Also, it will help the independent auditor understand an audited company’s continuous monitoring system and to use the infrastructure for efficient and effective external auditing.Originality/value - The proposed method and cases of implementing the continuous auditing system offer an innovative approach to auditing in the ERP-based environment because it facilitates both the internal auditor and external auditor achieving their audit objectives efficiently and effectively.
Abstract
Purpose - This paper examines the association between audit quality and value relevance of representative accounting measures, such as earnings and book value of equity.Design/methodology/approach - We estimate the standard value relevance equations and our modified equations by ordinary least square regressions. We use two ways to compare the difference in the value relevance of earnings and book value of equity audited by Big 4 auditors and non-Big 4 auditors, as characterized by the coefficient of determination, R2 based on prior research by Collins, Maydew, and Weiss (1997), Barth, Beaver, and Landsman, (1998), Brown, Lo, and Lys (1999), Francis and Schipper (1999), and Collins, Pincus, and Xie (1999), and Lev and Zarowin (1999), respectively.Findings - We find some evidence that, in the Taiwan capital market, in general, the earnings and book value of equity audited by Big 4 auditors explain more variations in stock return than those audited by non-Big 4 auditors. The results are robust to different empirical models and measurements of value relevance and control for risk and growth factors. Consequently, both earnings and book value audited by Big 4 audit firms are generally more relevant than those audited by non-Big 4 audit firms.Originality/value - Assuming that the Big 4 audit firms provide a higher level of assurance and credibility, the overall results are generally consistent with our prediction that audit quality, as captured by size of audit firms, improves the value relevance of earnings and book value of equity.
Abstract
Purpose - The purpose of this study is to examine corporate social responsibility (CSR) disclosures over a period of time when the business environment, particularly the Malaysian environment, experienced several significant changes including the recent financial crises and regulatory changes. The study also examines factors influencing the CSR disclosures before and after the aforementioned changes.Design/methodology/approach - A self-constructed CSR checklist was used to measure the extent and quality of CSR disclosures in the annual reports of 85 companies listed on Bursa Malaysia for the years 2006 and 2009. A number of statistical techniques were employed to assess the CSR disclosures over time as well as factors influencing the CSR disclosures.Findings - Results revealed a significant overall increase in both the extent and quality of CSR disclosures between the two years covered in the study. In terms of factors influencing the CSR disclosures, director ownership, government ownership and company size were found to be significant in explaining both the extent and quality of CSR disclosures in the year 2006. Board size was found to have a significant relationship with only the extent of CSR disclosures in 2006. However, the results in the year 2009, a period following the policy changes, revealed an improved significant association between board size and CSR disclosures.Research limitations/implications - The results, which showed a significant increasing trend in CSR disclosures following changes in the market place of an emerging economy, lend some support to legitimacy theory’s conjecture that CSR disclosures are used to reduce exposure arising from the public. Hence, this study suggests corporate legitimation practices, which were previously renowned in the economically developed countries, also exist in the emerging economies. The empirical observations asserted in this study, however, were only drawn from the Malaysian context. Therefore, future research involving several emerging countries is needed to ascertain the existence of corporate legitimation exercises in the developing countries.Practical implications - In terms of practical implications, the dominance of narrative CSR disclosures in the annual reports as opposed to verifiable information even after the CSR mandatory requirement, could be due to the absence of a detailed CSR framework for Malaysian public listed companies. Policy makers in Malaysia may therefore want to devise a detailed and specific CSR disclosure requirements rather the current general mandatory requirement to enhance the quality of CSR disclosures.Originality/value - This study can be considered one of limited empirical studies to have assessed CSR disclosures following changes in the market place.