Corporate Audit Research Articles

Proposal of a neutrosophic index to evaluate the management of internal control

Corporate auditing is part of the necessary mechanisms to evaluate and monitor the practices being carried out in enterprises. It also allows for the timely correction of future trends that will damage the company. Internal control is part of these audits, where the company is internally analyzed, and is a highly recommended practice for both state and private companies. Evaluation of internal control presents some challenges, such as the presence of incomplete or contradictory information, as well as the importance of properly understanding and communicating what it is wished to study. This is why in this paper we propose an index to evaluate the internal control of a company, based on Single-Valued Neutrosophic Numbers (SVNN) and natural language. The advantage of this tool is that linguistic terms can be more easily used for assessing and better understood by the evaluated; also the indeterminacy that exists in any evaluation can be incorporated. To illustrate the use of this index, a case study is carried out in the internal control of the municipa l public water company of Tulcan, Ecuador.

Corporate Social Responsibility Risk and Audit Opinion

This article studies the impact of corporate social responsibility on audit costs. Most of the previous studies are based on the social responsibility report level. This paper starts with the third party rating agency’s assessment of corporate social responsibility risk to carry out research on its impact on audit costs. It is found that corporate social responsibility risk will significantly increase the audit costs. At the same time, this paper finds that the audit of the company by the international big four accounting firms or the company’s social responsibility report may reduce the impact of social responsibility risk on audit costs.

Cost Stickiness, Corporate Future Losses and Audit Costs

Cost stickiness is one of the operating characteristics of enterprises. In the current research literature on the economic consequences of cost stickiness, there is little literature on the relationship between cost stickiness and the possibility of future losses and audit costs. Based on the sample data of Shanghai and Shenzhen A-share listed companies, this paper studies the correlation between cost stickiness and the possibility of future losses, cost stickiness and audit costs. The study found that the greater the cost stickiness of the enterprise, the greater the possibility that the enterprise will suffer losses in the future; and the audit costs will increase as the cost stickiness of the enterprise increases. Further research finds that, compared with non-state-owned enterprises, the cost stickiness of state-owned enterprises has a smaller impact on the possibility of future losses of the enterprise; under different ownership properties, the effect of cost stickiness on audit costs has no significant difference. After the robustness test, the conclusion still holds. This research conclusion helps companies to see more clearly the impact of cost stickiness on business performance, helps CPAs increase their awareness of the risk of cost stickiness, and helps policy regulators realize the importance and necessity of “cost reduction” in “reducing one supplement” and strengthening implementation.

CORPORATE POLITICAL CONNECTION AND AUDIT QUALITY

Abstract Indonesia offers attractive conditions to explore research on political connections, be­cause Indonesia is a developing market country with a history of strong political connec­tions in business. This study aims to investigate how the effect of the political connections held by board of commissioners and directors in the company on auditor quality and how earnings management moderate political connections and audit quality. This study used a sample of all companies from all sectors listed on the Indonesia Stock Exchange (IDX) in 2015-2017 except financial and insurance industry companies, thus a sample of 1213 firm-years was obtained. The analysis technique used is logistic regression analysis. The results revealed that companies with board of commissioners and directors who are politically connected have a positive and significant effect on auditor quality, it means that compa­nies with political connections tend to choose industry specialist auditors as the company's external auditors. The results also revealed that earnings management does not moderate the effect of corporate political connections on audit quality. This research provides new insights about the use of political connections in the business environment especially in audit quality decisions in Indonesia.

The Relationship between CEO Characteristics & External Auditing Quality: A Longitudinal Assessment

All publicly-traded companies are required by law to disclose their accurate financial information in order to reduce information asymmetries. This study focuses quantitatively on the impact of top management on the quality of corporate audits. Using company financial data, this study found that there is a positive correlation between highquality audits and company performance, as a higher quality audit can ensure rigorous follow-up to financial reports. This study also broadens the understanding of a higher-level manager in the presence of a quality audit.

Asymmetric Investor Materiality and the Effects of Disclosure

SUMMARYWe broaden our understanding of investor materiality, finding it to be asymmetrical for good and bad news. Motivated by legal and standards-based materiality definitions, we consider both participants' stated materiality limits and investment judgments, as well as the effect of auditors' materiality disclosures on those judgments. The study employs a 3 × 2 experiment manipulating materiality disclosure (high or low materiality number or no disclosure) and gain or loss subsequent events of equal magnitude. Absent disclosure, non-professional investors report lower materiality thresholds than typical auditor limits, and they exhibit lower materiality levels for bad news relative to good news both in their stated preferences and investment decisions. We find that disclosure reduces the distance between user and auditor materiality and eliminates the asymmetry in investors' stated materiality levels. However, disclosure fails to attenuate asymmetry in investment decisions, suggesting materiality preferences are “sticky” and difficult to affect through disclosure.

In the Quest of Protecting Financial Investors

Financial investors remain exposed to investment, financial, and accounting fraud as well as loss of profitability, despite the dictates of the SOX Act of 2002. The most challenging aspect of corporate management is the unexpected nature of an emerging, existing, or an inherent investment or financial risk. Guided by the evolution of fraud theory, this exploratory case study’s purpose was to identify and explore the financial management strategies that corporate financial managers need to adequately protect investors. Twenty participants from a population group of corporate auditors of Fortune 1000 corporations provided input for this study. Data from the interviews were analyzed through coding, reviewing, categorizing, and combining common statements. The research findings included themes of knowledge and types of risks; the impact of financial fraud and risks on investment; the impact of accounting, auditing, and financial reporting standards; as well as financial management training to minimize audit expectations. These themes formed the focus of exploring the financial management strategies that corporate financial managers need to adequately protect investors and investments.

Materiality Level Considerations in The Audit Reporting Process

The purpose of this study is to explain that the consideration of the auditor's materiality level is influenced by experience, professional ethics and task complexity. Materiality level considerations are relative rather than absolute concepts, so the determination of materiality levels can vary for each entity. The respondents used were auditors who worked at the Public Accountant Firm in the Bali Region, which had registered with the Indonesian Institute of Certified Public Accountants in 2018 totaling 73 people in 10 Public Accounting Firms. Sampling in this study is to use the nonprobability sampling method. To answer the research hypothesis using multiple linear regression analysis techniques with the results of the study is the experience and professional ethics have a positive effect on the consideration of the level of materiality, while the complexity of the task does not affect the consideration of the level of materiality. This is due to the fact that the auditors, especially the auditors at the Public Accountant Office in Bali, have been working professionally so that they are able to manage the time in carrying out their auditing duties.

Percepção de gestores sobre a auditoria ONA em um compounding center em processo de acreditação

The management and quality certification are subjects observed, discussed and studied in health. The aim of the study was to describe the perceptions of five managers, responsible for quality control in relation to the audit process for obtaining the quality label ONA in an institution characterized as a Compounding Center, specialized in the preparation of parenteral nutrition, and chemotherapy preparations. This is a case study of qualitative, exploratory and descriptive approach that was elaborated with data collection performed through documental research, structured interviews and participant observation. For managers, the audit was different compared to those carried out by national regulators or the corporate audits, as this encompasses every step of the work process in all areas, focusing on the safety of the patient or client. The creation of the called process sheet enabled the integration of processes and comprehensive analysis of the company by managers.

Auditors’ Quantitative Materiality Judgments: Properties and Implications for Financial Reporting Reliability

ABSTRACTWe analyze data made available through the PCAOB (Public Company Accounting Oversight Board) to provide descriptive evidence on the properties of auditors’ actual quantitative materiality judgments and the implications of those judgments for financial reporting. Auditors’ quantitative materiality judgments do not appear to result simply from applying conventional rules of thumb (e.g., 5% of pretax income), but instead are associated with size‐related financial statement outcomes (income, revenues, and assets), where the relative importance of the size‐related outcomes varies with client characteristics such as financial performance. Using the distribution of actual materiality amounts reported by auditors to the PCAOB as part of the audit‐inspection process, we construct a materiality‐judgment measure that locates a specific materiality amount within a normal range that is both comparable across varying client characteristics and supported by guidance in audit firm internal policy manuals. We find that looser materiality (an amount closer to the high end of a normal materiality range) is associated with fewer audit hours and lower audit fees, supporting the construct validity of this measure. We also find that looser materiality is associated with lower amounts of proposed audit adjustments and, in extreme cases, with a greater incidence of restatements, highlighting the importance of auditor materiality assessments for financial reporting reliability.

How do IRS Resources Affect the Corporate Audit Process?

ABSTRACT This study investigates how Internal Revenue Service resources affect the IRS audit process for publicly traded corporations. Using confidential IRS audit data, we examine the effect of IRS resources on the incidence and magnitude of proposed deficiencies and settlement outcomes. We find that IRS resources are positively associated with both the likelihood and magnitude of proposed deficiencies, but negatively associated with the proportion of proposed deficiencies collected. These results are consistent with the IRS focusing on fewer positions, but targeting positions supported by weaker taxpayer facts when resources are more limited. Based on our findings, we estimate the loss in tax collections from audits of LB&I corporate tax returns alone exceeds the savings from reductions in the IRS enforcement budget. This study contributes to the literature examining the strategic game between tax authorities and corporate taxpayers and has important implications for policymakers, particularly in light of recent IRS budget cuts.

Effect of corporate governance on financial performance of listed deposit money banks in Nigeria

This study examined corporate governance and financial performance of listed deposit money banks (DMBs) in Nigeria. The study covered listed DMBs listed in the Nigerian Stock Exchange (NSE) for a ten year period from 2007–2016 and data were obtained from their annual financial reports. Data were presented using tables and analyzed using panel data regression. The corporate governance mechanisms of board size (BSIZE), board composition (BCOM) and audit committee (ACOM) were used as independent variables. Performance of the listed DMBs was measured by return on asset (ROA) which is the dependent variable while the bank size (FSIZE) was used as a control variable.The findings of this study revealed that board size had a positive but insignificant relationship with performance. It was also observed that audit committee, board composition and bank size all had positive and significant relationships with return on asset. The study therefore concludes that board composition and audit committee are good predictors of performance as measured by return on assets (ROA). The study recommended that DMBs listed in the Nigerian Stock Exchange should strive to have an average of fourteen members in their boards to avoid decision-making problems which are characterized by larger board of directors and should therefore comprise a mix of executive and nonexecutive directors with the relevant credentials, competence, and experience to serve on the board of banks. Additionally, the audit committee of banks should meet often to enable them review the financial reports of the banks and make appropriate recommendations that will help to improve the performance of the banks. Keywords: corporate governance, financial performance, board size, board composition and audit committee

How Do Auditors Respond to FCPA Risk?

SUMMARY This article summarizes “How Do Auditors Respond to FCPA Risk?” (Lawson, Martin, Muriel, and Wilkins 2019), which investigates the pricing of audits for clients that violate the Foreign Corrupt Practices Act (FCPA). FCPA compliance has become a top priority for regulators who rely heavily on accountants as they combat illegal activity. We find that auditors charge higher fees for violators both before and during formal FCPA investigations. We also find that fees are more sensitive to accounts that are more susceptible to FCPA risk. Our findings are stronger (weaker) for clients with high (low) foreign sales. While this may seem intuitive from an audit materiality perspective, regulators are not required to prove materiality as they pursue FCPA violations (Ebright 2016). Our study should be of interest to practitioners and auditors, as the Public Company Accounting Oversight Board (PCAOB) is considering whether updates should be made to PCAOB AS 2405

PENGARUH KODE ETIK, MATERIALITAS AUDIT DAN RISIKO AUDIT TERHADAP OPINI AUDITOR

This research aims to make case analyze the impact of business ethics, level of audit materiality and audit risk towards auditor opinion. For public accountant engaged in assurance services. The result expected to contribute to the audit process of the client's financial statements in order to improve the performance of public accountants and achieve the goals of public accountants. The respondents that used in this research are the public accountant who works in public accountant firms. Data was collected using a questionnaire. Method verification analysis was used to test hypothesis and structural modeling with Partial Least Square application that is SmartPLS 3rd version. Result of this research reveals that of the three variables; business ethics, audit materiality, and audit risk, only audit risk that does not have a significant effect on auditor opinion. Audit risk does not have a significant effect on auditor opinion because the public accountant feels a lot and complexity of the data that the auditor must examine and the component influences audit risk. Keywords: ethics, materiality, risk, auditor opinion.

Corporate Governance Application, Audit Quality and Audit Report Lag: The Moderating Role of Law Compliance

This study aims to examine the effect of corporate governance application and audit quality on audit report lag. Special attention is paid to investigate the moderating role of law compliance in the relationships. 180 manufacturing companies are observed during the three years of observation (2013-2015). Data are analyzed using moderated regression analysis (MRA). The results show that corporate governance application and audit quality have no effect on audit report lag. While law compliance moderates the relationship between corporate governance application and audit report lag.

Risk Management System in PT. Unilever Indonesia, Tbk

Unilever is a multinational company produced various products which are foods, beverages, cleaning agents and personal care. One most important BoD duty are responsible for identifying and evaluating the company’s exposure to risks, and ensuring that potential risks are effectively mitigated. Effective risk management is fundamental for great business management, and Unilever Indonesia’s success as an organization depends on company ability to identify and exploit the key risks and opportunities for the business. Internal assurance and compliance monitoring are in place to review the strategy risk setting. Internal independent re-assurance (internal audit and corporate audit) and external re-assurance play a key role in ensuring that operational risks and business execution risks are properly addressed and managed. This research aims to describe the Unilever business risk matrix in the recent risk environment and concerned were assigned to manage the risks within their respective streams. The result show, the highest risk that Unilever faced is high competition because competitors have more differentiated products and declining demand for the company product. The mitigation must be implemented to reduce the loss. The company should monitor external market trends and collect feedback from consumer, Implemented research and development function to translate the trends, Regularly update business forecast of business results and cash flows and rebalance investment priorities, and also Flexible business model allows the company to adapt all portfolio and respond to develop new offerings.

Foreign residency rights and companies’ auditor choice

Recently, with the migration of wealthy Chinese elites becoming increasingly prevalent, the market has come to believe that firms with controlling persons with foreign residency rights have serious agency problems. We study the impact of controlling persons with foreign residency rights on corporate audit perspective. We find that firms whose controlling persons have foreign residency rights are more likely to use high-quality auditing services, and that this behavior is more obvious in regions with lower marketization and in firms with higher separation of ownership and control. We further study the effect of firms whose controlling persons have foreign residency rights that use high-quality Big 4 auditors and find that such firms have better corporate governance and accounting performance.

Impact of Corporate Board and Audit Committee Characteristics on Voluntary Disclosures: A Case Study of Listed Manufacturing Companies in Sri Lanka

Impact of Corporate Board and Audit Committee Characteristics on Voluntary Disclosures: A Case Study of Listed Manufacturing Companies in Sri Lanka

The Importance of Quantifying Uncertainty: Examining the Effects of Sensitivity Analysis and Audit Materiality Disclosures on Investors’ Judgments and Decisions

The Importance of Quantifying Uncertainty: Examining the Effects of Sensitivity Analysis and Audit Materiality Disclosures on Investors’ Judgments and Decisions

ОРГАНІЗАЦІЯ ВНУТРІШНЬОГО АУДИТУ СУБ’ЄКТІВ ГОСПОДАРЮВАННЯ ЯК СКЛАДОВА КОРПОРАТИВНОГО УПРАВЛІННЯ

Formulation of the problem. The article analyzes the organizational concepts of internal audit of business entities by the example of transnational corporations. Modern requirements of the corporate governance system require the single most effective approach to organizing the internal audit of transnational corporations. Therefore, the the aim of the research is to propose the only most effective approach to organizing the internal audit of business entities, for example, of transnational corporations. The object of the research is the process of organizing the internal audit of business entities. The research was conducted on the basis of the following methods: induction, comparison, expert evaluation. The hypothesis of the research is that the peculiarities of the functioning of transnational corporations and their business processes are taken into account when developing an approach to organizing internal audit. The statement of basic materials. Consequently, the results of the study suggested the stages of internal audit. Originality and practical significance of the research is that the recommended sequence of internal audit takes into account the peculiarities of the functioning of transnational corporations and the state of their business processes. It is advisable to apply the proposed areas of internal audit in the practical work of transnational corporations in developing a plan and program. Conclusions of the research. As a result of the studies, effective international experience in assessing the risks of internal audit was considered. Prospects for further research are solution the problems of improving the quality of assessing the effectiveness of systems of internal control and risk management of transnational corporations.