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on Accounting and Auditing |
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Issue of 2022‒02‒07
seven papers chosen by |
| By: | Aase, Øivind André Strand (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | Many countries have introduced thresholds for mandatory audits, but empirical evaluations on how deregulation of audit markets affect reporting quality are scarce. I analyze a Norwegian audit reform in 2011, that introduced voluntary audit for small private limited liability firms. I find no consistent signs of negative effects on accounting quality for the firms that drop audit. Some firms around the size thresholds size down to avoid audit costs when the perceived benefits of audit are smaller than the costs. If such downsizing is done by manipulation of the accounts, one would expect lower accounting quality among firms just below the threshold. I find some indications of lower accounting quality among these firms, but the finding is not robust. I conclude that the reform has not had significant negative effects on accounting quality and that deregulating certain segments of the audit market – entrusting the audit decision to be taken by firms based on their individual cost-benefit assessments – increase economic efficiency. |
| Keywords: | Voluntary audit; private firms; size management; revenue threshold |
| JEL: | H20 M42 |
| Date: | 2022–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2022_001&r= |
| By: | Aase, Øivind André (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | Many countries have introduced thresholds for mandatory audits as a measure of reducing complexity and costs for private firms’ financial reporting. Firms around the size thresholds have incentives to size down in order to avoid audit costs when the perceived benefits of audit are smaller than the costs. Norway was the last country in the EU/EEA to have a fully regulated audit market for all limited liability firms. Using panel data from this institutional setting, I find clear evidence of change in the size distribution of firms around the revenue threshold after the audit reform. I find that the firms that avoid audit save external services fees by an amount comparable to their estimated lost profits. This suggests that also indirect audit costs, such as management time, play a part in the cost-benefit assessment of audits. I find no significant evidence of firms using real earnings management as a mechanism for size management. This implies that firms stay below the audit threshold through other forms of size management, such as foregoing short term growth opportunities. Total revenue lost due to revenue management in years affected by the audit-reform is, however, estimated to be immaterial. |
| Keywords: | Voluntary audit; private firms; size management; revenue threshold |
| JEL: | H20 M42 |
| Date: | 2022–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2022_002&r= |
| By: | Itay Kedmi (Bank of Israel) |
| Abstract: | In 2016, a new accounting standard for Leases (IFRS 16) was issued, which substantially changes the accounting treatment of operating leases. As a result, financial ratios of firms might change dramatically, especially the leverage ratio. Using the difference-in-differences approach, this paper examines the impact of the disclosure regarding this standard, and its implementation, on the risk-pricing of firms, as measured by the yield spreads of their bonds. The results indicate that the yield spreads of the treated firms rise in the first disclosure date, compared to the control group. Thereafter, in the implementation date, there is no impact. The results are stronger in firms that are expected to violate financial covenants following the new standard |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2021.13&r= |
| By: | Dikra Elmaguiri (UH2MC - Université Hassan II [Casablanca]); Saadia Elouanbi (UH2MC - Université Hassan II [Casablanca]); Amine El Ajimi (UH2MC - Université Hassan II [Casablanca]) |
| Abstract: | The implementation of IFRS 16 - Leases, on January 1, 2019, by introducing a unique model for accounting lease contracts for lessees, is supposed to meet the common objective of the international and the American accounting standard setters (IASB and FASB), to improve the method of accounting for leases (operating and financing) and provide accurate and relevant accounting information. In this context, this study aims to analyze the value relevance of the adoption of IFRS 16, in companies listed on Casablanca stock exchange, by employing the valuation framework developed by Ohlson (1995), widely used in the literature to assess the value relevance of accounting information by its ability to explain stock market prices. Results confirm those obtained by previous research on the value relevance of IFRS standards in Morocco, concluding that the transition to IFRS 16 did not lead to the production of more relevant financial information compared to the old standard (IAS 17). This study aims to enrich the current literature that is interested in the application of IFRS standards in the context of developing countries. Its results also help to inform accounting standard setters in these countries in their plans to modernize their accounting information systems. Our research nevertheless has limitations, including the size of the sample, given the optional application of IFRS in Morocco, as well as the relatively limited depth in terms of time since the transition to the standard in 2019. |
| Abstract: | L'entrée en vigueur la norme IFRS 16 – Contrat de location, le 1er janvier 2019, en introduisant un modèle unique de comptabilisation des contrats de location pour les locataires, est censée répondre à l'objectif commun du normalisateur comptable international (IASB) et américain, à améliorer le mode de comptabilisation des contrats de location (simple et de financement) et fournir une information comptable fidèle et pertinente. Dans ce contexte, cette étude vise à analyser la « value relevance » de l'adoption de la norme IFRS 16, dans les sociétés cotées dans la bourse de Casablanca en mobilisant le modèle introduit par Ohlson (1995) largement utilisé dans la littérature pour évaluer la pertinence « value relevance » de l'information comptable par sa capacité à expliquer les cours boursiers. Les résultats obtenus confirment ceux obtenus par les recherches antérieures sur la « value relevance » des normes IFRS au Maroc, en concluant que la transition à la norme IFRS 16 n'a pas conduit à la production d'une information financière plus pertinente par rapport à l'ancienne norme (IAS 17). Le présent travail se propose d'enrichir la littérature actuelle qui s'intéresse à l'application des normes IFRS dans le contexte des pays en voie de développement. Ses résultats permettent également d'éclairer les normalisateurs comptables de ces pays dans leurs projets de modernisation de leurs systèmes d'information comptable. Notre recherche présente néanmoins des limites, dont notamment la taille de l'échantillon, étant donné l'application optionnelle des IFRS au Maroc, ainsi que la profondeur non encore grande en termes de temps depuis la transition à la norme en 2019. |
| Keywords: | Value relevance,IAS 17,IFRS 16,Leases,Pertinence informationnelle,: Contrat de location |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03464030&r= |
| By: | Capalbo, Francesco; Galati, Luca; Lupi, Claudio; Smarra, Margherita |
| Abstract: | Misleading financial reports are generally considered damaging events for corporations and society at large. Drawing on Cooper, Dacin and Palmer (2013), this paper complements existing research with an example in which context, intended as distribution of power, concurred to explain accounting data manipulation. By applying Benford's Law to look for signs of manipulated financial statements published by Italian Municipally Owned Entities operating in utility industries, this study reveals red flags of financial misstatements concentrated during election periods. This implies that internal/external auditors need to pay more attention to the quality of accounting data in these crucial periods and specific environments. |
| Keywords: | Quality of financial statements, elections, public sector accounting, power, Benford's Law |
| JEL: | C12 M41 D72 |
| Date: | 2022–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp22078&r= |
| By: | Sultan Altass (King Abdulaziz University, Rabigh Campus, Saudi Arabia) |
| Abstract: | The main aim of this study is to investigate the relationship between the effectiveness of audit committee (AC) of transportation firms listed on TASI and firm performance (FP) for the period 2010-2019. Employing Pooled OLS multiple regression analysis, the results indicate that the AC independence is negatively associated with FP. Therefore, the results contradict previous research which found that such relationship is significantly positive. Moreover, the results of two Pooled OLS regression analysis models reveal that frequent annual AC meetings do not have statistical association with FP. The findings of this study are relevant to investors and policy makers in Saudi Arabia regarding the reliability of AC in today’s competitive markets. |
| Keywords: | Corporate governance, Audit committee, Firm performance, Return on Equity, Earnings per share |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:smo:lpaper:0118&r= |
| By: | Emanuele Colonnelli; Spyridon Lagaras; Jacopo Ponticelli; Mounu Prem; Margarita Tsoutsoura |
| Abstract: | We study how the disclosure of corrupt practices affects the growth of firms involved in illegal interactions with the government using randomized audits of public procurement in Brazil. On average, firms exposed by the anti-corruption program grow larger after the audits, despite experiencing a decrease in procurement contracts. We manually collect new data on the details of thousands of corruption cases, through which we uncover a large heterogeneity in our firm-level effects depending on the degree of involvement in corruption cases. Using investment-, loan-, and worker- level data, we show that the average exposed firms adapt to the loss of government contracts by changing their investment strategy. They increase capital investment and borrow more to finance such investment, while there is no change in their internal organization. We provide qualitative support to our results by conducting new face-to-face surveys with business owners of government-dependent firms. |
| JEL: | D73 G30 H57 O10 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29627&r= |