External Users Of Financial Statements Research Articles

Inexperienced Component Auditors and the Internal Information Asymmetry of Multinational Corporations

With the global expansion of business operations, many U.S. corporations now operate internationally. While these multinational corporations (MNCs) rely on information about their operations to allocate resources, this information is likely dispersed within the firm, leading to internal information asymmetry between top executives and divisional managers. Meanwhile, audits of these geographically dispersed MNCs are challenging, and parts of these audits are sometimes outsourced to local foreign auditors who have no experience serving as opinion-issuing auditors for U.S. issuers (“inexperienced component auditors”). In this article, we examine whether involving such inexperienced component auditors is associated with MNCs’ internal information environment. We find that, relative to a matched control sample, Securities and Exchange Commission (SEC) issuers with the participation of inexperienced component auditors have higher internal information asymmetry and lower internal capital allocation efficiency. Our results suggest that audit quality matters not only to a firm’s external financial statement users but also to its internal users.

The Effect Of Deferred Tax Expense On Earnings Management

In PSAK No. 1 concerning the preparation of financial statements, the financial statements can then assess the size of the company's performance. As a basis for making business decisions, one of which is company profits. Therefore, company managers want to increase reported earnings for shareholders and external users of financial statements. This is called earnings management practice. This study aims to analyze the effect of deferred tax expense on earnings management, determine the amount of deferred tax expense and corporate earnings management. The data used in this study comes from audited financial statements at PT. Matahari Department Store, Tbk which are listed on the Indonesia Stock Exchange for the 2015-2019 period. This study uses a non-probability sampling technique, by means of saturated sampling. The data analysis used in this research is linear regression analysis, classical assumption test, t-test, f-test, and coefficient of determination. The results of this study indicate that deferred tax expense has no significant effect on earnings management with a coefficient of determination of 34.4%. Deferred tax expense cannot detect any earnings management at PT. Matahari Dept. Store,Tbk. As well as the magnitude of negative earnings management because the net profit per year is greater than cash inflows from operational activities.

Qualitative Characteristics of Financial Reporting: An Evaluation According to the Albanian Users’ Perception

The last 20 years’ changes in accounting has led to an essential review process of national accounting standards due to the main objective of improving financial reporting information for stakeholders. Financial reporting as a communication tool has become extremely important for appropriate decision making to economic reporting entities and also financial information users such as analysts, creditors, managers, auditors and government agencies in Albania and all over the world. The absence of a generally accepted definition for qualitative financial reporting has created a gap for continuous research on this matter. The main objective of this study is to examine users’ perception of qualitative financial reporting, toward their perceptions of some selected qualitative characteristics of financial statements. This study aims to determine the attitudes of financial statements’ users toward the importance of qualitative characteristics of financial information reported on these published financial statements. The chosen qualitative characteristics were relevance, faithful representation, comparability, timeliness, verifiability and understandability. An opinion survey was conducted on three hundred external users of financial statements, such as managers, bank officers, financial analysts, government officers and auditors. Each single characteristic has been operationalized using a structured questionnaire, and a five point Likert type scale was used. Selection process of qualitative characteristics of reported financial information will be based on the data taken from conceptual framework of international financial reporting standards published by the International Accounting Standards Board in a continuous process of improving financial reporting. This research examined primary data taken through an opinion survey directed to three hundred daily users of financial statements ‘information, reported by economic entities in Albania. Results of the study show a very strong positive correlation between users ‘perception and qualitative characteristic of faithful representation, a relatively strong positive correlation with relevance, comparability and understandability, and a moderate correlation with timeliness and verifiability. Users of financial reporting in Albania generally have a very positive attitude towards the qualitative characteristics of financial reporting.
 
 Received: 3 July 2021 / Accepted: 23 August 2021 / Published: 5 November 2021

ПРОБЛЕМИ ФОРМУВАННЯ ТА ОБЛІКУ РЕЗЕРВНОГО КАПІТАЛУ ПІДПРИЄМСТВА

The main problems of formation and accounting of the reserve capital of the enterprise are considered in the article. At present, there are a number of inconsistencies in the methodology of accounting for reserve capital. The article discusses issues regarding the accounting for the formation and use of reserve capital. The characteristic of the reserve capital as a component of equity capital from the point of view of domestic and global accounting practices .. Observed that the accounting for the formation of reserve capital, it is purely calculated in nature unsecured assets. The article presents possible options for improving the accounting of reserve capital in order to increase the financial stability of the enterprise in the long run. The main promising aspects are the improvement of the legal framework and relevant information and methodological support. One of the advantages of the chosen research topic is that it is currently relevant, because the formed reserve capital is the financial basis of each enterprise. Reserve capital characterizes the degree of financial independence, financial capacity, as well as the degree of creditworthiness of the enterprise. The size or availability of reserve capital allows you to assess the efficiency of the enterprise, its effectiveness. Sound management of reserve capital contributes to the efficient operation of the enterprise, increase profits and increase the competitive advantages of the enterprise. The issues of accounting and reporting of reserve capital at the present stage of market economy are among the most important economic problems, allowing internal and external users of financial statements to determine the financial capabilities of the enterprise in the short term and long term. The relevance of the research topic is that for each enterprise reserve capital is the basis for the initiation and implementation of economic activity of any enterprise, one of the most important and important indicators. The economic importance of reserve capital and the versatility of its structure necessitate proper and reliable accounting. Reserve capital is a kind of result of redistribution of retained earnings as part of the company's equity.

Modelling of growth factors of coffee processing companies

In this paper, the growth factors of coffee processing companies in the Republic of Serbia were analyzed by panel data technique. The growth was measured by changes in sales, while as explanatory variables were defined the following: export, size, capital turnover, revenue cycle, current ratio (liquidity ratio), debt ratio and return on assets. The empirical examination was conducted on the basis of 160 observations of financial statements of companies in coffee market. The results show that coffee processing companies in the Republic of Serbia have an average positive growth rate (1.08) during period 2015-2018. Growth of coffee processing companies is significant negatively related to size, revenue cycle and current ratio. On the other side, profitability measured as return on assets has positive significant impact on firm growth. The results show the performances of coffee processing companies during period 2015-2018 and the profile of growth factors as a prerequisite for company's development. This information can be useful for the large number of internal and external users of financial statements in the process of decision making.

Kesulitan Keuangan, Integritas Manajemen, Profesionalisme, dan Ketergantungan Pengguna Eksternal Laporan Keuangan terhadap Risiko Audit

This study aims to examine the effect of financial difficulties, management integrity, professionalism, and the dependence of external users of financial statements on audit risk. The researcher uses a sample of auditors working at public accounting firms in the Central Java and Yogyakarta regions. selected based on purposive sampling method with criteria, namely, auditors who have a minimum of a bachelor's degree and have a working period of more than one year. Hypothesis testing in this study uses multiple linear regression. The results show that financial difficulties have a positive effect on audit risk, while management integrity, professionalism and dependency of external users of financial statements are proven to have no effect on audit risk.

Audit certification, earnings management and risk governance: a moderated-mediation analysis

PurposeThe purpose of this study is to document the mediating effect of earnings management on the relation between the components of audit certification. The study is performed under different levels of corporate governance effectiveness in the Tunisian context. The main objective is to empirically examine the ability of discretionary accruals to mediate the relationship between the audit reporting quality and audit risk and to define how the levels of risk governance moderate this relation.Design/methodology/approachStructural equation modeling (SEM) approach is applied for a panel data set of 28 Tunisian companies listed in the Tunis Stock Exchange (TSE) between 2006 and 2013. Furthermore, a moderated-mediation model is developed to examine the mediating role of earnings management. This model is considered to emphasize the moderating role of corporate governance on the relationship between audit-reporting quality and audit risk.FindingsThe results of this study show that earnings management mediates the moderating role of corporate governance on the relationship between timely disclosure and audit risk. Thus, this investigation empirically demonstrates that risk governance moderates both the relationship between the timely disclosure and earnings management, and the relationship between earnings management and audit risk, i.e., the mediating role of earnings management varies depending on the level of risk governance.Practical implicationsInvestors and other external users of financial statements need to care about the audit risk by the audit-reporting quality (audit accuracy and timely disclosure). Moreover, all factors that may influence the audit risk should be identified. This identification can help guide the reforms to improve the functioning of the financial market.Originality/valueThis study can enhance knowledge and understanding on how motivational and environment factors influence the audit risk. Using data from the Tunisian market, this work fills a research gap by examining the audit risk and identifies a new governance risk index. The specificity of the country where the study is elaborated refers to its accurate “revolutionary” transitional phase. Tunisia aims to enhance economic growth and to establish general strategic governance of the country, particularly strategic governance of companies.

Research on the Signal Effect of Performance Compensation Commitment on the Impairment of Goodwill in China

This study using empirical research method and taking 1233 samples of A-share listed companies in China that completed major asset restructuring from 2007 to 2017, examines the signal effect of performance compensation commitment on goodwill impairment, and the impact of agency motivations on the signal effect based on the proportion of the performance compensation commitment that M&A targets achieve. I find evidence suggesting that the higher the proportion of the unfulfilled performance compensation commitment is, the higher the probability of goodwill impairment and the greater the amount of goodwill impairment. In addition, agency motivations affect the signal effect of performance compensation commitment on the impairment of goodwill. Specifically, for companies facing market return pressure and debt contracting pressure, the signal effect of the performance compensation commitment on the impairment of goodwill will be weakened. Furthermore, companies with performance loss have the incentive to use goodwill impairment to carry out a “big bath” and the loss motivation will lead to the overexpression of the signal effect of performance compensation commitment on goodwill impairment. The findings of this paper provide a new perspective for external users of financial statements to observe goodwill impairment and help them better understand managers’ opportunistic motivations to accrue goodwill impairment.

DETECTION MODELS FOR UNINTENTIONAL FINANCIAL RESTATEMENTS

The aim of manuscript is to analyze and identify determinants of honest accounting errors leading to financial restatements based on data from SEC database and from annual reports. Reason for this study is that accounting errors are expensive for companies that need to change already published financial statements and have impact on company reputation and stock price. Most of authors focus on prediction of accounting frauds and financial restatements remain in the background of research. This study initially tests existing accounting fraud detection model of Beneish on a sample of 40 financial restatement companies over 10 years and develops two new pioneer prediction models, one based on linear discriminant analysis (LDA) and another based on logistic regression. In testing dataset, LDA model has achieved accuracy 70.96%, specificity 25.00% and sensitivity 79.83% and logistic regression model has achieved accuracy 62.22%, specificity 41.66% and sensitivity 66.67%, performance of both models is better than existing Beneish model or other studies in this field. Developed models can be widely used by both internal and external users of financial statements, who would like to determine if financial statements of analyzed company include accounting errors or not, thanks to easily interpretable results in equation form.

FEATURES OF THE ORGANIZATION OF FINANCIAL ACCOUNTING AT THE PRESENT STAGE

The article addresses the issues of goals, objectives and place of the financial accounting system of a commercial organization at the present stage. It is assumed that financial accounting is a subsystem of business accounting and is governed by the current legislation of the Russian Federation on accounting. The main purpose of organizing a financial accounting system is to provide sufficient and reliable information to external users of financial statements. Each external user of the information received from the financial statements of a commercial organization solves specific problems, and each representative from the designated circle of external users should be provided with comprehensive characteristics of the state of financial and economic activities of the commercial organization. These issues are resolved in the framework of reforming the entire accounting system. The feature of the modern stage of economic relations development is that, firstly, the reform processes both of the accounting system in general and of financial accounting system are accelerated, and secondly, the general public, represented by legal entities and all interested individuals is involved in the development of normative legislative acts.

The Effects of Supervisor Coaching and Workplace Mindfulness on Audit Quality-Threatening Behavior among Staff Auditors

SUMMARY This article summarizes a recent academic study (Herda, Cannon, and Young 2019) that investigates the effects of supervisor coaching and staff auditors' workplace mindfulness on premature sign-off—a serious audit quality-threatening behavior that can go undetected through the review process. Our study predicts and finds that staff auditors who are coached by supervisors to consider the impact of their work on external financial statement users are more mindful (i.e., more attentive and aware) during an audit and less likely to engage in premature sign-off. The results highlight the importance of workplace mindfulness in an audit environment and suggest that supervisor coaching is a practical technique to elicit workplace mindfulness among staff-level auditors.

The Effect of Audit Quality on a Firm’s Internal Information Environment: Evidence From Group Audits

Many U.S. corporations operate internationally. For instance, S&P 500 firms generate approximately 29 percent of their sales in foreign markets (Brzenk 2018). Multinational corporations (MNCs) rely on information about their operations to allocate resources. This information is dispersed within the firm, which could lead to internal information asymmetry (IIA) between executives and divisional managers. Meanwhile, audits of MNCs are challenging and parts of these audits are sometimes outsourced to local foreign auditors who have no experience serving as opinion-issuing auditors for U.S. issuers. We examine whether involving such auditors affects MNCs’ internal information environments. We find that, relative to a matched control sample, SEC issuers employing inexperienced auditors have higher IIA and lower internal capital allocation efficiency. Together, the associations we document extend prior literature by providing some evidence that audit quality matters not only to a firm’s external financial statement users but also its internal users.

Workplace Mindfulness and its Effect on Staff Auditors' Audit Quality-Threatening Behavior

ABSTRACTThis study investigates the effect of staff auditors' workplace mindfulness on premature sign-off—a serious audit quality-threatening behavior that can go undetected through the review process. We also examine whether supervisor coaching is an effective means to engender workplace mindfulness. Using a sample of 115 auditors, we predict and find that (1) auditors who are coached by supervisors to appreciate the importance of their work to external financial statement users are more likely to be mindful in their work setting, and (2) greater workplace mindfulness about financial statement user considerations is associated with a reduced likelihood of auditor sign-off on an audit procedure not completed. We also find that supervisor coaching has an indirect effect on premature sign-off through workplace mindfulness. The results underscore the importance of workplace mindfulness in reducing audit quality-threatening behavior and indicate that supervisor coaching may be an effective technique in eliciting mindfulness among staff-level auditors.Data Availability: Contact the authors.

EBITDA, EBITA, or EBIT?

Over the last thirty years there has been a strong positive trend in the magnitude of amortization charges, due to both economic and accounting changes. This trend has accelerated over the last decade, following the implementation of a revised accounting standard for business combinations. Concurrent with the recent trend, managers and external users of financial statements increasingly discuss operating performance focusing on earnings metrics that exclude amortization but include depreciation. This study compares earnings before interest, taxes and amortization (EBITA) with its two more common alternatives—EBIT and EBITDA. Consistent with the amortization trend, EBITA’s advantage over EBIT in explaining market values has gradually increased over time. However, throughout the sample period, EBITDA performed substantially better than both EBITA and EBIT. In terms of predicting stock returns, the three operating income measures performed well in the 1990s and 2000s, but not over the last decade.

Earnings Management, Timeliness, and Corporate Information Systems

Does information system (IS) quality limit earnings management and contribute to financial reporting timeliness? While prior work has studied causes and constraints of earnings management and timeliness, the role of IS quality has not been considered. However, IS quality may facilitate and thus expedite financial statement preparation, and limit earnings management by, among other things, enabling the use of sophisticated software to more effectively prevent earnings manipulations and detect fraud indicators. Still, IS quality may also improve managers’ ability to manage and time the financial statement information due, for example, to increased information asymmetry between managers and external financial statement users. Using a broad sample that spans the 14-year period, 2001-2014, our primary findings demonstrate that IS quality is associated with reduced earnings management activities and improved financial reporting timeliness. These findings hold even after controlling for a multitude of variables demonstrated by prior research to explain earnings management and timeliness, and are robust to alternative definitions of the dependent and independent variables and estimation methods. Our findings may help financial statement users — outsiders (investors, financial analysts, and external auditors) and insiders (audit committees) — in assessing a firm’s earnings quality, and regulators in their effort to improve financial reporting quality and timeliness.

Improvement of accounting of financial results for urban transport enterprises

The features of accounting of financial results in the accounts, according to the methodological requirements are investigated. It is outlined that now accounting of the financial results for urban transport enterprises in Ukraine is carried out strictly on common regulatory rules, not taking into account the specifics of transport enterprises. It is proven the necessity of developing and implementing of guidelines for completing the financial statements at legislatively level that would take into account the peculiarities of financial reporting enterprises of different industries both in national and international standards. It is shown the need for differentiation of accounting of the financial results for the kinds of operations. It is given an own vision of the order of accounting of financial results by activities in the urban transport enterprises and made proposals to improve the structure of the income statement (the statement of comprehensive income). Using the proposed guidelines will increase the reliability of the information for each main and additional items the income statement (the statement of comprehensive income) formation and transparency of the financial results of the various activities of urban transport. Implementation of the results in practice of urban transport enterprises, on the one hand, greatly facilitating drafting this report by accounting department, on the other, provide better meet the needs of external users of financial statements in the information about financial results.

Asset revaluations, future firm performance and firm-level corporate governance arrangements: New evidence from Brazil

Using a sample of Brazilian listed firms for the period 1998–2004 we find evidence that revaluations of fixed assets are negatively related to future firm performance, prices and returns. We also find that the decision to revalue is negatively associated with scores on a Brazilian Corporate Governance Index (BCGI) and positively associated with indebtedness and illiquidity. Our results suggest that revaluations of fixed assets in Brazil are not designed to convey information to external users of financial statements but rather to improve equity positions – opportunistic motivations. Our evidence also corroborates the idea that firms that adopt superior voluntary governance arrangements are less likely to engage in actions designed to manipulate their financial statements. These results lend support to the recent amendment to the Company law which eliminated the revaluation option for Brazilian firms despite the current process of IFRS convergence.

Studi Earning Management Dari Waktu Ke Waktu

Prior studies suggests that earnings management can be distinguished on beneficial earning management or efficient earning management and opportunistic earning management. Although there is a positive motivation of earning management activity, that is the attempt manager to convey private information to shareholders and debtholders in order to reduce the informationgap that occurs in asymmetric information (beneficial or efficient earnings management , but the overall motivation of earnings management tends to be viewed negatively and is triggered by the interests of managers to maximize the interests of himself or the interests of business entities in order to maintain the market price of the stock at a specified value or the particular provisions ofa contract that is likely to prejudice the interests of external users of financial statements (opportunistic earnings management). Various manipulations of accounting scandals such as the case of Enron, WorldCom and others have influenced the way the public thinks, so begin to form the opinion that all the earnings management activities is a negative activity intended to defraud and must be fought. Earnings management can be performed with accrual oraccounting earnings management and real earnings management. Accrual or accounting earnings management have only a consequence of the accruals and will not affect cash flow. While real earnings management will affect cash flow and in some cases also affect accruals. There are some things you can do to reduce the practice of earnings management, which stricter accounting standards, the employment of an external auditor of a public accounting firm that has high integrity with long history and implementing good corporate governance practices. To detect accrual or accounting earnings management can be used several models in which one is best according to Dechow et al. (1995) is amodified Jones models. But Aminul Islam et al. (2011)stated that the Jones model of modification is not effective when applied in Korea and Bangladesh. Meanwhile, to detect the presence of real earnings management can use such a model of Roychowdhury (2006).

PENGARUH PENYAJIAN DAN AKSESIBILITAS LAPORAN KEUANGAN TERHADAP AKUNTABILITAS PENGELOLAAN KEUANGAN KABUPATEN PEMALANG

This study aims to test empirically the effect of financial statement presentation and accessibility of financial statements to the accountability of financial management by the users of financial statements. The population in this study are external users of financial statements in Pemalang by the method of data collection through survey questionnaires. Sampling in this study used purposive sampling method, and then determined a sample of 100 respondents from external users of financial statements that include the Parlaiment, NGOs, taxpayers, and society. Analysis methods used in testing the hypothesis in this study a number of statistical tests.The results of hypothesis testing in this study shows that the financial statement presentation significant negative effect on financial management accountability, accessibility of financial statements have a positive and significant impact on local financial management accountability.as well as regional financial statement presentation and accessibility of financial statements together influential and significant impact on local financial management accountability. Advice can be given is to improve the presentation of financial statements in full andmore relaxed access to the financial statements to the public, so it could create afinancial management accountability better.

Accounting For Convertible Bonds: An Alternative Approach

<span>Accounting for convertible bonds (CBs) has been a source of controversy for more than two decades. The main question relates to the nature of CBs. Should they be defined as: 1) debt; 2) equity; or 3) hybrid securities having both debt and equity characteristics? The disagreements revolve around the definition of several financial statement elements and fundamental concepts of accounting measurement. We believe that current procedures in accounting for CBs are flawed and alternative measures of reporting and recognizing CBs are required in order to provide useful information to external users of financial statements. After a review of alternative methods of accounting for CBs, we conclude that a CB is a partially executed contract which has equity characteristics. The purchaser has committed to buy stock at a fixed price in a future time period. The seller is committed to issue stock in the future and is committed to provide a cash dividend at a fixed rate (i.e. interest) until the stock is issued. The issuance allows the buyer to receive a return of the subscription price in the future if he fails to exercise his right or if the issue is called by the seller. Our approach of accounting for CBs emphasizes the economics reality of the situation rather than accounting by recording a liability which is replaced by equity when the issue is converted.</span>