Mandatory Audit Research Articles

Formation and Positioning of New Legal Institutions in Financial Law: а Study on Their Characteristics

This article examines the formation and positioning of new and already-established financial and legal institutions. Emphasis is placed on the importance of establishing common financial and legal institutions. The article argues that there is currently an active process of shaping common financial and legal institutions, as exemplified by the emergence of the “emission law” and “offset and refund of fiscal payments” institutions. The institution of offset and refund of fiscal payments is modeled after the institution of “public financial control” and includes a complex set of financial and legal rules governing various types of financial relationships, unified by overarching characteristics. Furthermore, this article posits that the financial and legal institution of mandatory audits, which has gained prominence in the field of financial law in the 21st century, should be categorized not within the general but within the specialized field of financial law. It is argued that the formation of financial law institutions within the general framework follows the same pattern as the institution of “public financial control”.

Evaluation of Energy Performance Indicators and Energy Saving Opportunities for the Italian Rubber Manufacturing Industry

The objective of this work is the energy characterisation and evaluation of the energy efficiency potential of the rubber manufacturing industry in Italy, exploiting the detailed data included in energy audits by large and energy-intensive companies. This sector is divided into two sub-activities: the manufacture of rubber products and the production of tyres. Existing studies are focused mainly on tyre production, and there is a lack of quantitative evaluation of energy indicators that can provide guidance for improving process efficiency. In this work, updated global and specific energy performance indicators (EnPIs) related to the production process and to the auxiliary and general services are defined and evaluated. At the same time, targeted actions and interventions to improve the energy efficiency of the sector are analysed, showing the role of different intervention areas and their cost-effectiveness. The analysis is based on 100 Italian mandatory energy audits of the sector collected according to Art.8 EU Directive 27/2012. The applied methodology made it possible to calculate specific energy performance indicators by considering the overall and sub-process energy consumption of different production sites. Based on a detailed database containing real data from recent energy audits, this study provides an up-to-date and reliable benchmark for the rubber industry sector. In addition, the analysis of energy audits allows the identification of the most effective energy efficiency interventions for the rubber industry in terms of cost-effectiveness and payback time.

Outcomes of liver surgery: A decade of mandatory nationwide auditing in the Netherlands

BackgroundIn 2013, the nationwide Dutch Hepato Biliary Audit (DHBA) was initiated. The aim of this study was to evaluate changes in indications for and outcomes of liver surgery in the last decade. MethodsThis nationwide study included all patients who underwent liver surgery for four indications, including colorectal liver metastases (CRLM), hepatocellular carcinoma (HCC), and intrahepatic– and perihilar cholangiocarcinoma (iCCA – pCCA) between 2014 and 2022. Trends in postoperative outcomes were evaluated separately for each indication using multilevel multivariable logistic regression analyses. ResultsThis study included 8057 procedures for CRLM, 838 for HCC, 290 for iCCA, and 300 for pCCA. Over time, these patients had higher risk profiles (more ASA-III patients and more comorbidities). Adjusted mortality decreased over time for CRLM, HCC and iCCA, respectively aOR 0.83, 95%CI 0.75–0.92, P < 0.001; aOR 0.86, 95%CI 0.75–0.99, P = 0.045; aOR 0.40, 95%CI 0.20–0.73, P < 0.001. Failure to rescue (FTR) also decreased for these groups, respectively aOR 0.84, 95%CI 0.76–0.93, P = 0.001; aOR 0.81, 95%CI 0.68–0.97, P = 0.024; aOR 0.29, 95%CI 0.08–0.84, P = 0.021). For iCCA severe complications (aOR 0.65 95%CI 0.43–0.99, P = 0.043) also decreased. No significant outcome differences were observed in pCCA. The number of centres performing liver resections decreased from 26 to 22 between 2014 and 2022, while median annual volumes did not change (40–49, P = 0.66). ConclusionOver time, postoperative mortality and FTR decreased after liver surgery, despite treating higher-risk patients. The DHBA continues its focus on providing feedback and benchmark results to further enhance outcomes.

Preoperative chemoradiotherapy but not chemotherapy is associated with reduced risk of postoperative pancreatic fistula after pancreatoduodenectomy for pancreatic ductal adenocarcinoma: a nationwide analysis

BackgroundPostoperative pancreatic fistula remains the leading cause of significant morbidity after pancreatoduodenectomy for pancreatic ductal adenocarcinoma. Preoperative chemoradiotherapy has been described to reduce the risk of postoperative pancreatic fistula, but randomized trials on neoadjuvant treatment in pancreatic ductal adenocarcinoma focus increasingly on preoperative chemotherapy rather than preoperative chemoradiotherapy. This study aimed to investigate the impact of preoperative chemotherapy and preoperative chemoradiotherapy on postoperative pancreatic fistula and other pancreatic-specific surgery related complications on a nationwide level. MethodsAll patients after pancreatoduodenectomy for pancreatic ductal adenocarcinoma were included in the mandatory nationwide prospective Dutch Pancreatic Cancer Audit (2014–2020). Baseline and treatment characteristics were compared between immediate surgery, preoperative chemotherapy, and preoperative chemoradiotherapy. The relationship between preoperative chemotherapy, chemoradiotherapy, and clinically relevant postoperative pancreatic fistula (International Study Group of Pancreatic Surgery grade B/C) was investigated using multivariable logistic regression analyses. ResultsOverall, 2,019 patients after pancreatoduodenectomy for pancreatic ductal adenocarcinoma were included, of whom 1,678 underwent immediate surgery (83.1%), 192 (9.5%) received preoperative chemotherapy, and 149 (7.4%) received preoperative chemoradiotherapy. Postoperative pancreatic fistula occurred in 8.3% of patients after immediate surgery, 4.2% after preoperative chemotherapy, and 2.0% after preoperative chemoradiotherapy (P = .004). In multivariable analysis, the use of preoperative chemoradiotherapy was associated with reduced risk of postoperative pancreatic fistula (odds ratio, 0.21; 95% confidence interval, 0.03–0.69; P = .033) compared with immediate surgery, whereas preoperative chemotherapy was not (odds ratio, 0.59; 95% confidence interval, 0.25–1.25; P = .199). Intraoperatively hard, or fibrotic pancreatic texture was most frequently observed after preoperative chemoradiotherapy (53% immediate surgery, 62% preoperative chemotherapy, 77% preoperative chemoradiotherapy, P < .001). ConclusionThis nationwide analysis demonstrated that in patients undergoing pancreatoduodenectomy for pancreatic ductal adenocarcinoma, only preoperative chemoradiotherapy, but not preoperative chemotherapy, was associated with a reduced risk of postoperative pancreatic fistula.

The impact Dodd Frank's Act on audit firm tenure

AbstractThis study examines the effect of Dodd Frank's Act of 2010 (Dodd's Act) on the duration of the auditor‐client relationship. One of the provisions of Dodd's Act was to permanently exempt nonaccelerated filers from mandatory internal control audits and to maintain the internal control requirement for accelerated filers. The results indicate that average audit firm tenure has increased significantly in the post‐Dodd period, and there is a post‐Dodd increase (decrease) in long and medium (short) tenure. Furthermore, the increase is more pronounced for nonaccelerated filers on average, and varies across big4 and non‐big4 auditors. The inferences are robust to the inclusion of various controls, and to the exclusion of the financial crisis period (2008–2010). Collectively, the findings suggest that Dodd's Act permanent exemption has resulted in lower margins for auditors, and thus motivated audit firms, particularly non‐big4 auditors, to extend their tenure with clients.

Do different cooling-off modes affect audit quality? A study based on the audit rotation system in China

ABSTRACT Using a sample from China’s regime, we find that, longitudinally, whether auditors treat former clients favorably after rotation-back depends on the cooling-off modes. Relative to the year before rotation, audit quality after rotation-back is higher if the auditors use the ‘substantive’ cooling-off mode, whereas the audit quality decreases if the auditors use the ‘non-substantive’ cooling-off mode. Horizontally, audit quality in the initial year after auditor rotation-back increases with increased length of the cooling-off period. These effects vary based on the audit firm quality control system. Furthermore, our analysis reveals that auditors exhibit a greater propensity to employ ‘non-substantive’ cooling-off strategies in instances where the client – auditor relationship is more intimate, clients have fewer business risks, and audit firms/auditors contend with constrained audit resources. We further find some evidence of client – auditor collusion under ‘non-substantive’ cooling-off modes. Our findings carry implications for application of mandatory auditor rotation requirements.

Mandatory internal control audit and corporate financialization

This paper empirically examines the impact of mandatory internal control auditing systems on the financialization of enterprises based on China's A-share listed companies from 2007 to 2021 using a difference-in-differences model for empirical analysis. The findings indicate that mandatory internal control auditing has an inhibitory effect on corporate financialization. The heterogeneity analysis reveals that the mandatory internal control auditing system has a more significant inhibitory effect on the degree of financialization of non-state-owned enterprises, enterprises in the eastern region, and enterprises in the region with weaker financial regulation.

Early experience with robotic pancreatoduodenectomy versus open pancreatoduodenectomy: nationwide propensity-score-matched analysis.

Although robotic pancreatoduodenectomy has shown promising outcomes in experienced high-volume centres, it is unclear whether implementation on a nationwide scale is safe and beneficial. The aim of this study was to compare the outcomes of the early experience with robotic pancreatoduodenectomy versus open pancreatoduodenectomy in the Netherlands. This was a nationwide retrospective cohort study of all consecutive patients who underwent robotic pancreatoduodenectomy or open pancreatoduodenectomy who were registered in the mandatory Dutch Pancreatic Cancer Audit (18 centres, 2014-2021), starting from the first robotic pancreatoduodenectomy procedure per centre. The main endpoints were major complications (Clavien-Dindo grade greater than or equal to III) and in-hospital/30-day mortality. Propensity-score matching (1 : 1) was used to minimize selection bias. Overall, 701 patients who underwent robotic pancreatoduodenectomy and 4447 patients who underwent open pancreatoduodenectomy were included. Among the eight centres that performed robotic pancreatoduodenectomy, the median robotic pancreatoduodenectomy experience was 86 (range 48-149), with a 7.3% conversion rate. After matching (698 robotic pancreatoduodenectomy patients versus 698 open pancreatoduodenectomy control patients), no significant differences were found in major complications (40.3% versus 36.2% respectively; P = 0.186), in-hospital/30-day mortality (4.0% versus 3.1% respectively; P = 0.326), and postoperative pancreatic fistula grade B/C (24.9% versus 23.5% respectively; P = 0.578). Robotic pancreatoduodenectomy was associated with a longer operating time (359 min versus 301 min; P < 0.001), less intraoperative blood loss (200 ml versus 500 ml; P < 0.001), fewer wound infections (7.4% versus 12.2%; P = 0.008), and a shorter hospital stay (11 days versus 12 days; P < 0.001). Centres performing greater than or equal to 20 robotic pancreatoduodenectomies annually had a lower mortality rate (2.9% versus 7.3%; P = 0.009) and a lower conversion rate (6.3% versus 11.2%; P = 0.032). This study indicates that robotic pancreatoduodenectomy was safely implemented nationwide, without significant differences in major morbidity and mortality compared with matched open pancreatoduodenectomy patients. Randomized trials should be carried out to verify these findings and confirm the observed benefits of robotic pancreatoduodenectomy versus open pancreatoduodenectomy.

Features of audits in banks

The paper demonstrates some features of audits in banks. The topic is relevant as the difficult economic situation has damaged the country's economy. Entrepreneurs are trying to save on many processes, including mandatory audits. Meanwhile, the external audit of the bank is extremely important for the entire national economy; there should not be any inaccuracies in it. The article concludes by pointing out the need to study the presented prospects and proposals for implementation in practice.

The Effect of Analyst-Auditor Connections on Analysts’ Performance

Using Chinese data, we find that analysts’ earnings forecasts are more accurate and less biased when analysts are socially connected with the company’s signatory auditor. We also find that forecast performance improves following mandatory auditor rotations that result in new analyst-auditor connections and declines following mandatory rotations that terminate existing connections. We further find that our results become stronger when the information that auditors possess is likely to be more useful to analysts, that connected analysts have better career outcomes than unconnected analysts, and that investors and other analysts are more responsive to forecast revisions issued by connected analysts. Finally, we find that connected auditors provide higher quality audits to their connected clients and are more likely to retain those clients. Overall, our findings are consistent with connected analysts benefitting from private information obtained from their social connections with auditors by providing better earnings forecasts, and in turn, with auditors benefitting from information they receive from connected analysts by delivering higher quality audits that improve client retention.

Антикорупційний аудит: визначення, інваріантність підходів та форсайт розвитку

The aim of the article is to define the concept of anti-corruption audit, taking into account the invariance of the approaches of different scholars, and to present a forecast for its further development. Ukraine is confidently moving in the European integration direction, so the issue of economic security of our country is crucial, and it is the anti-corruption audit that contributes to the identification, prevention and elimination of corruption risks and practices, verification of compliance with the requirements of national and international legislation in the field of prevention of corruption, and the formation of a culture of rejection of corruption. The article substantiates the need to introduce a single, generally accepted definition of this concept and the introduction of anti-corruption audit in all areas of business and at all levels in government agencies, which will create obstacles to bribery and fraudulent actions of business or government representatives and will help significantly reduce the level of corruption in our country. Thus, it will contribute to the improvement of the investment climate, increase the confidence of foreign investors and the level of economic security of the country. The necessity of introducing additional opportunities to combat corruption, a system of control measures to counter corruption, and the implementation of audit procedures to assess the corruption risks of business processes is also substantiated. The authors emphasize that, despite the fairly wide application of this concept in the business environment and in the public sector, there is no single definition of the concept of «anti-corruption audit», as well as an understanding of the peculiarities of the methodology of its implementation. As a result of the study, an analysis of the existing definitions, their comparison and generalization has been carried out, and the introduction of an improved unified definition of the concept of «anti-corruption audit» has been proposed. It is proved that a systematic increase in the level of public consciousness, ensuring transparency and simplification of business procedures, increasing the efficiency of economic mechanisms of State supervision, control over entrepreneurial activity and the introduction of mandatory anti-corruption audit of companies will allow the country to significantly reduce corruption and minimize the shadow economy in our country.

Effect of Mandatory Auditing of Internal Control over Financial Reporting on Preventing Fraud in the Korean Capital Market

Effect of Mandatory Auditing of Internal Control over Financial Reporting on Preventing Fraud in the Korean Capital Market

Implementing mandatory audit firm rotation: Effects on audit and non-audit fees

The 2014 reform of the European Union (EU) regulation on auditing includes mandatory audit firm rotation and a significant limitation of the provision of non-audit services by the audit firm to their existing clients. This paper analyses the changes in audit fees, and non-audit fees, as well as in their proportion, when there is a switch of audit firms, before and after the new regulation. The analysis is carried out for the Spanish-listed companies from 2011 to 2018 using two types of analyses, descriptive/comparative and multivariate, panel data, and regressions. As expected, the new EU regulation has resulted in a significant increase in audit firm switches. The results show that, when there is a change of audit firm, the incoming firm offers a significant discount to the new client with the outgoing firm. This is the case before and after the reform, and for both voluntary and mandatory switches after the reform. In addition, the reform has led to a reduction of non-audit fees, which is especially evident after a voluntary audit firm switch. We conclude that audit firms seem to be willing to take on the additional cost of auditing a new company to gain clients. La reforma de la normativa de la Unión Europea sobre auditoria de 2014 incluye la rotación obligatoria de la firma de auditoría y una importante limitación de trabajos distintos de auditoria por parte del auditor. Este trabajo analiza los cambios en los honorarios de auditoría, honorarios por otros servicios, así como la proporción entre ambos, cuando se produce un cambio de firma de auditoría, antes y tras la nueva normativa europea. El análisis se realiza para las entidades cotizadas en España durante los años 2011 a 2018 mediante de dos tipos de análisis, descriptivo/estadísticos y de regresiones de datos panel. La nueva regulación ha supuesto un aumento en los cambios de firmas de auditoría. Los resultados muestran que, cuando hay un cambio de firma de auditoría, la firma entrante ofrece un descuento significativo al nuevo cliente en comparación con la firma saliente. Esto es así antes y después de la reforma y, en este último caso, tanto para cambios voluntarios como obligatorios tras la misma. La reforma ha supuesto una reducción de los honorarios por servicios distintos de auditoría, que se manifiesta especialmente después de un cambio voluntario de firma de auditoría tras la reforma. Las firmas de auditoría parecen dispuestas a asumir el coste adicional de auditar a una nueva empresa con el objetivo de ganar clientes.

The Effect of Mandatory Auditor Rotation on the Cost of Capital and Credit Ratings: Evidence from Periodic Auditor Designation (PAD) Policy in South Korea

The Effect of Mandatory Auditor Rotation on the Cost of Capital and Credit Ratings: Evidence from Periodic Auditor Designation (PAD) Policy in South Korea

BAĞIMSIZ DENETİMİ TALEP EDEN HALKA AÇIK OLMAYAN KOBİ'LERİN KARAKTERİSTİK ÖZELLİKLERİ: TÜRKİYE ÖRNEĞİ

The necessity and scope of mandatory audit is an issue discussed alongside benefit-cost evaluations. The characteristics of companies demanding audits are noteworthy in this respect. This study aims to contribute to the discussions on audit demand and mandatory audit, with evidence from Turkey. A non-experimental research approach is employed to identify the distinctive characteristics of SMEs that demand audit. Evidence supporting previous studies is obtained on the relationship between audit demand and size, financing relationships and ownership structure. Furthermore, the results also significantly support the hypothesized association between audit demand and internationalization, R&amp;D, and legal system perception.

ENVIRONMENTAL AUDIT IN THE ENTERPRISE MANAGEMENT SYSTEM

The purpose of the article is to study the organizational and methodological principles of conducting an environmental audit in order to develop directions for increasing the effectiveness of the environmental management system at the enterprise. The relevance of conducting an environmental audit as a component of the enterprise's environmental management system is determined. The important role of organizing an environmental audit and determining existing environmental risks in the company's activities is indicated. The historical aspects of the formation of environmental audit are highlighted. The description of the environmental management system (EMAS) and the specific features of its activity are given. The regulatory and legal framework, which is guided by the auditor when conducting an audit, is defined. The purpose and tasks of conducting an environmental audit are revealed. The functions of environmental audit are defined. The essence of mandatory and voluntary environmental audit is considered. The types of environmental audit are characterized from the point of view of the purposes of its implementation: verification of compliance with legal requirements, audit within the scope of environmental insurance, audit during the passage of environmental certification, audit for the purpose of investment evaluation, audit of enterprises that cause damage to the environment. The requirements for an environmental audit are determined (independence, comprehensiveness, documentation, practical orientation) and the characteristics of the principles of its conduct are given. The peculiarities of the formation of an information array for conducting an environmental audit, which is grouped by the components of sustainable development (economic, ecological and social), are highlighted. The stages of the audit of the environmental sphere of the enterprise's activity have been established (preparatory, main, final). Emphasis is placed on drawing up an audit opinion, which provides the results of an audit on the compliance of the enterprise's environmental policy with current legislation and other issues that provide information on the effectiveness of the environmental activities of the business entity. Environmental audit methods used by auditors during an environmental audit are specified. The advantages provided to the business entity by conducting an environmental audit are determined.

RE-THINKING MANDATORY AUDITOR ROTATION: A COMPARATIVE ANALYSIS

Since formation of the European Union, there has been a worldwide upsurge in regulation of the auditing profession, which has included mandatory auditor rotation and this has also found its way into South African company law, regardless of the many arguments against it. The number of corporate scandals or company failures justifies an evaluation of the effectiveness of such regulation and a re-thinking of the concept of auditor rotation. Revisiting the arguments against and in favour of mandatory auditor rotation confirms the rational arguments against mandatory auditor rotation. These arguments are opposed to the main reason for its implementation – namely, that rotation will serve as a publicly acceptable band-aid on damaged investor confidence. Overshadowed by corporate scandals, regulators face constant pressure to enhance auditors’ independence and to amend and improve regulations. To inform the South African stance, developments regarding auditor rotation in Germany and Australia are examined. An assessment of the significance of mandatory auditor rotation in the current corporate-law environment reveals that Steinhoff (Steinhoff International Holdings N.V.) failed in 2018, despite the fact that auditor-rotation legislation was in place. This supports arguments against auditor rotation and suggests that South Africa too hastily followed international trends. Mandatory auditor rotation regulations in South Africa also discourage potential candidates from entering the auditing work environment. It is submitted that the current provisions do not contribute effectively to auditor independence and are merely desperate attempts to curb the public’s lack of confidence in the auditing profession. Section 92 of the Companies Act 71 of 2008, dealing with mandatory auditor rotation, should therefore be repealed.

Administrative Responsibility for Violations of the Legislation of the Russian Federation on Audit

The norms of the Federal Law of the Russian Federation no. 307-FZ of December 30, 2008 On Auditing Activities provide for the obligation of organizations that belong to the category established by law to conduct an audit annually. In case of refusal to conduct an audit, or in case of violation of the terms of the audit, liability is provided. For the absence of a mandatory audit, the provisions of the Federal Law On Auditing Activities provide for penalties.

Nationwide Outcome after Pancreatoduodenectomy in Patients at very High Risk (ISGPS-D) for Postoperative Pancreatic Fistula.

To assess nationwide surgical outcome after pancreatoduodenectomy (PD) in patients at very high risk for postoperative pancreatic fistula (POPF), categorized as ISGPS-D. Morbidity and mortality after ISGPS-D PD is perceived so high that a recent randomized trial advocated prophylactic total pancreatectomy (TP) as alternative aiming to lower this risk. However, current outcomes of ISGPS-D PD remain unknown as large nationwide series are lacking. Nationwide retrospective analysis including consecutive patients undergoing ISGPS-D PD (i.e., soft texture and pancreatic duct ≤3 mm), using the mandatory Dutch Pancreatic Cancer Audit (2014-2021). Primary outcome was in-hospital mortality and secondary outcomes included major morbidity (i.e., Clavien-Dindo grade ≥IIIa) and POPF (ISGPS grade B/C). The use of prophylactic TP to avoid POPF during the study period was assessed. Overall, 1402 patients were included. In-hospital mortality was 4.1% (n=57), which decreased to 3.7% (n=20/536) in the last 2 years. Major morbidity occurred in 642 patients (45.9%) and POPF in 410 (30.0%), which corresponded with failure to rescue in 8.9% (n=57/642). Patients with POPF had increased rates of major morbidity (88.0% vs. 28.3%; P<0.001) and mortality (6.3% vs. 3.5%; P=0.016), compared to patients without POPF. Among 190 patients undergoing TP, prophylactic TP to prevent POPF was performed in 4 (2.1%). This nationwide series found a 4.1% in-hospital mortality after ISGPS-D PD with 45.9% major morbidity, leaving little room for improvement through prophylactic TP. Nevertheless, given the outcomes in 30% of patients who develop POPF, future randomized trials should aim to prevent and mitigate POPF in this high-risk category.

Accounting reporting complexity, audit engagement partner mandatory rotation, and audit quality

AbstractThis paper investigates the influence of a firm's accounting reporting complexity (ARC) on financial statement audit quality. We predict and find that there is a non‐linear relationship between a firm's ARC and audit quality. Specifically, a more complex accounting environment—measured by ARC—leads to higher quality audits, but this effect diminishes when ARC continues to increase. Further analyses reveal that the effect is more salient among client firms that do not purchase non‐audit services (NAS). We also examine whether ARC affects audit quality in the circumstance of mandatory audit partner rotation. Empirical results show a moderating effect of ARC on the negative influence of audit partner rotation on audit quality. Our study extends the literature by illustrating how a firm's ARC influences audit quality in a special manner.