Public Interest Entities Research Articles

BOBİ FRS İLE KÜMİ FRS TASLAĞI ARASINDAKİ FARKLILIKLAR

Turkey Accounting Standards/ Turkey Financial Reporting Standards (TAS/TFRS) were implemented in 2005 by public enterprises and Public Interest Entities (PIE). In 2014, the Public Oversight, Accounting and Auditing Standards Authority (POA) separated the scope of the TAS/TFRS application from the scope of the independent audit and limited the scope of the TAS/TFRS application to the PIE, like other country applications. Small and micro enterprises, which are not subject to independent audit, have continued to apply the legislation in force until a determination is made by the POA. Financial Reporting Standard for Small and Micro Businesses (KUMI FRS) was published in Draft Text in February 2019. The purpose of this study is to determine the similar and different aspects between the BOBI FRS and the KUMI FRS Draft.

The determinants of business contribution to the 2030 Agenda: Introducing the SDG Reporting Score

AbstractWithin the 2030 Agenda, the United Nations have explicitly required that the Member States introduce within their jurisdictions new forms of regulations about non‐financial reporting practices. The aim of this paper is to investigate the effects related to the transposition of Directive 2014/95/EU by analyzing firm‐level, governance‐level, and report‐level determinants of business reporting on the Sustainable Development Goals (SDGs). To conduct such an analysis, this study defines and introduces the SDG Reporting Score (SRS)—a qualitative proxy representing a firm orientation toward SDG reporting. The study sample includes the non‐financial reports of 153 Italian Public Interest Entities. The results show a positive relationship between a firm's SRS and various determinants, such as the presence of independent directors on the board, expertise with non‐financial reporting, and length of the report. Finally, the highest levels of SRS are achieved by firms operating in environmental sensitive sectors.

Mandatory Audit Firm Rotation for Listed Companies: The Effects in the Netherlands

The Audit Regulation was adopted in 2014 to address many of the perceived failings in the market for statutory audits. It introduced mandatory audit firm rotation for public-interest entities, including listed companies, as of 17 June 2020/2023. Mandatory audit firm rotation was also considered by the Dutch legislator in 2012. Therefore, many Dutch listed companies had already switched audit firm in anticipation of the national requirement. In this article, we investigate the effects of mandatory audit firm rotation in the Netherlands by examining the financial reports of Dutch listed firms over the financial years 2012–2016 and by conducting a survey among stakeholders. We conclude that there is broad support for mandatory audit firm rotation in the Netherlands. Although mandatory audit firm rotation was seen as controversial at the time of adoption, it is now considered desirable by various stakeholders, including auditors themselves. However, mandatory audit firm rotation appears to have had some adverse effects. Most notably, our study shows a higher probability of errors in first year audits. The discount in audit fees provided by audit firms to lucrative larger public-interest entities for first year audits—the trophy client effect—may exacerbate the negative effect on audit quality. The Audit Regulation’s goals to improve the market for statutory audits have not been met so far.

Auditors’ Reporting to Those Charged with Governance

For audits of Public-Interest Entities (PIEs), the PIE Regulation introduced important new requirements regarding auditors’ reporting to those charged with governance – more specifically, auditors’ reporting to the audit committee in an additional report. However, for audits of both PIEs and non-PIEs, there are also requirements regarding auditors’ reporting to those charged with governance in the International Standards on Auditing (ISAs). This article starts by answering two important questions: (1) ‘Those charged with governance – who are they?’ and (2) ‘PIEs – which entities are they?’. Next, auditors’ reporting to those charged with governance in non-PIEs and PIEs, respectively, is discussed. The article closes with a discussion on signing of auditors’ reporting to those charged with governance. Auditing Directive, Public-Interest Entities (PIEs), International Standards on Auditing (ISAs), European Model Companies Act (EMCA), Audit Committee

Non-Financial Information Disclosure in Italian Public Interest Companies: A Sustainability Reporting Perspective

The paper aims at investigating the impact of UN Sustainable Development Goals (SDGs) 2030 on Italian “public interest entities” both in term of approaches to non-financial disclosure and on business strategies. The analysis focuses on the investigation of the relationships between the 17 SDGs and the set of non-financial information defined in bont the EU Directive 2014/95/EU and the related Italian L.D. n. 254 of 30 December 2016. SDGs has been significantly analysed in the literature, considering the effects on sustainability policies adopted by the States, but little attention has been paid to the policies adopted by companies. The awareness of companies towards the business implication connected to the achievemt of these goals translate into a new conscientious path, in compliance with sustainability standards. In this framework, the paper investigates the entire population of Italian companies subject to the publishing of non-financial information disclosure, with the exclusion of banks and insurance companies. For each company under investigation, two kinds of analysis are presented: (1) firstly, the company’s level of sustainability derived from the company website; (2) the approach in pursuing the 17 SDGs. The overall results are quite comforting in term of companies’ sustainability aptitude. Over the years, Italian public interest entities have implemented active policies linked to the achievement of some specific goals, in compliance with the Italian legislation, although divergences still emerge among the Italian areas, as a result of cultural differences that still exist and affect companies’ approaches to sustainability issues. In this regard, the results of the analysis are interesting for government authorities to regulat the pursuit of sustainability goals.

Human rights reporting under increasing institutional pressure

In 2014, the European Union (EU) passed Directive 2014/95/EU (The Directive), requiring Public Interest Entities (PIEs) to disclose specific non-financial information in their annual reports. This study investigates how The Directive influenced sustainability reporting—in particular human rights disclosure—by taking an institutional perspective. This implies that we refrain from viewing The Directive as an isolated event, but rather as a consequence of the ongoing interaction of different forces within the institutional context. Starting from this view, we investigate how human rights disclosure has developed over the years, focussing on the institutional context in which these developments took place. We use a longitudinal research design, using content analysis to observe human rights disclosure in annual and sustainability reports during the 2002–2018 period of the Dutch financial services companies listed on the three most important Dutch stock market indexes. We find that there appears to be an increase in the extensiveness of human rights reporting after the introduction of The Directive, but that these changes in disclosure are better explained by the increasing trend over time than by The Directive itself. Our analysis of 17 years of annual reporting shows a steady linear increase in the extensiveness of human rights disclosure, with no strong deviations during the introduction of The Directive. Notwithstanding an overall increase over the years, the proportion of human rights information in both annual and sustainability reports remains fairly low.

The revision of nonfinancial reporting directive: A critical lens on the comparability principle

AbstractThe launch of the European New Green Deal represents a strategic plan developed in Europe to favor the transition to more sustainable business models. One of the main initiative is represented by the revision of the Directive 95/2014/EU. This revision came in response to several criticisms of the directive's application to European Public Interest Entities, including the low degree of comparability that characterize the resulting nonfinancial declarations. This research paper analyzes how 70 Italian PIEs adhere to the comparability principle when preparing their nonfinancial declarations. Furthermore, a difference‐in‐differences analysis has been performed to assess the impacts of Directive 95/2014/EU on nonfinancial declarations' comparability. Our results highlight how the comparability of nonfinancial reports is an objective not yet achieved. In this regard, the revision of Directive 95/2014/EU will represent an opportunity for policymakers to address this critical issue.

The Effect of Gender Mainstreaming on Income of Turkish Independent Audit Organizations within the Scope of Sustainable Development

Purpose: This study focuses on gender mainstreaming that is one of the objectives set for sustainable development. The study aims to determine whether presence of directresses in senior management of independent audit organizations has any effect on income of such organizations. Approach/Methodology/Design: The study sample is formed by independent audit organizations that operate in Turkey and have authority of “KAYIK (public interest entities)”. The Year 2018 transparency reports of said independent audit organizations are reviewed in terms of date of establishment, total equity, capital ratios and numbers of male and female partners, number of key directors and directresses, presence of chairman or chairwoman, number of Public Interest Entities served, income arising out of audit services and total income of the audit organization. Resultant data is subjected to frequency analysis using SPSS statistics software. It is followed by univariate simple linear regression, unpaired t test and multivariate linear regression in line with the created study models. Findings: The findings revealed out that each gender-related independent variable had statistically significant effect on total income, but the significance level was not lost and its effect could be maintained only for the independent variable “number of key directresses”, when independent variables, such as time since date of establishment, number of clients (number of Public Interest Entities audited), total equity and being a member of International Audit Network, were also taken into consideration. Originality/Value It is obvious that, within the scope of the gender mainstreaming goals, women's leadership roles are gradually increasing and they are contributing to economic development in this direction. However, it is a fact that it is not yet at the desired level.

Non-financial Reporting of Corporations – a Czech Case Study

Although reporting on the responsibility and beneficial effect of a corporation is becoming standard practice, it is traditionally considered as part of the annual financial performance report in the Czech region. A change to the new form and content was to be ensured by an amendment to the legislation with effect from 1 January 2017. The perception of new approaches has not been investigated or published to date so the aim of the research was to ascertain how the new quality of reporting is applied in Czech corporations. Data for empirical research was excerpted from reports published by large public interest entities in 2018. To verify the generally perceived assumption of a positive correlation between the size of corporations and the quality of their reports, or more precisely between the quality of reports and the satisfaction of users' needs, the methods of quantitative and qualitative financial analysis were applied. The analyzes have yielded comparable results to global developments in the publication of non-financial information in terms of form and content. Lower representation has been reported in the fight against corruption and environmental protection. The model for measuring the quality of non-financial reports based on a point score confirmed a higher medium to high degree of quality.

Auditing in the Public Interest: Reforming the Profession by Building on the Strengths of the Existing Accounting Firms

Due to audit quality concerns on the part of regulators and investors, accounting firms may need to re-evaluate their business model. Rethinking the current structure is important because it is difficult to observe audit quality and to differentiate between functional and dysfunctional commercial incentives of accounting firms. Consequently, it is hard for regulators to determine, and for auditors to demonstrate, whether the profession is acting in the public interest. In this essay, we argue why the current model may be suboptimal and offer thoughts on what may be a more sustainable alternative – from a public interest perspective – to the status quo: An Audit Board. This Audit Board is conceived as a quasi-governmental organization that would conduct financial statement audits for public interest entities. We envision an organization consisting of a core permanent staff of experienced audit experts that is complemented by fellows drawn from the existing accounting firms who take a job at the Board for a certain time period. We presented our proposal to various stakeholders (19 sessions with 108 attendees) to promote debate and to refine our thinking. Our proposal is relevant for regulators in their efforts of motivating auditors to act in the public interest. It would create an entity that is expert in auditing but avoids many of the independence problems faced by for-profit accounting firms. While this proposal certainly deviates from the current model, we hope that it will spark good conversations that may lead to rethinking of the status quo.

Scoring Nonfinancial Information Reporting in Italian Listed Companies: A Comparison of before and after the Legislative Decree 254/2016

Directive 2014/95/EU requires EU Member States to mandate nonfinancial disclosures for large public interest entities. The adoption of the Legislative Decree 254/2016, transposing into Italian law the EU Directive, has opened up new perspectives for research on the effects produced by regulatory requirements on nonfinancial information (NFI) in the Italian context. This paper aims to examine how the new regulation is influencing the quantity of NFI disclosed by Italian companies concerning sustainability matters required by the Directive. Content analysis is used to verify the sustainability indicators disclosed by Italian companies before and after the implementation of the Decree. A composite indicator of disclosure performance is then constructed using Principal Component Analysis (PCA). The results highlight a generalized reduction of indicators disclosed by companies belonging to the sample. Over the three years analysed, most companies have improved their disclosure ranking. Nevertheless, a comparison among companies having the same ranking showed a decrease in the disclosure index for the majority of them. Despite the growing attention paid by academics to Directive 95/2014/EU and its implementation in Italy, this is one of the few studies that has evaluated the effects of the Decree over three years, considering what happened after the first year of its implementation.

Auditing in the public interest: Reforming the profession by building on the strengths of the existing accounting firms

Due to audit quality concerns on the part of regulators and investors, accounting firms may need to re-evaluate their business model. Rethinking the current structure is important because it is difficult to observe audit quality and to differentiate between functional and dysfunctional commercial incentives of accounting firms. Consequently, it is hard for regulators to determine, and for auditors to demonstrate, whether the profession is acting in the public interest. In this essay, we argue why the current model may be suboptimal and offer thoughts on what may be a more sustainable alternative – from a public interest perspective – to the status quo: An Audit Board. This Audit Board is conceived as a quasi-governmental organization that would conduct financial statement audits for public interest entities. We envision an organization consisting of a core permanent staff of experienced audit experts that is complemented by fellows drawn from the existing accounting firms who take a job at the Board for a certain time period. We presented our proposal to various stakeholders (19 sessions with 108 attendees) to promote debate and to refine our thinking. Our proposal is relevant for regulators in their efforts of motivating auditors to act in the public interest. It would create an entity that is expert in auditing but avoids many of the independence problems faced by for-profit accounting firms. While this proposal certainly deviates from the current model, we hope that it will spark good conversations that may lead to rethinking of the status quo.

Audit Reports – Balancing Harmonisation, Standardisation, and Customisation

The purpose of this article is to discuss the increased harmonisation of the rules on audit reports across Member States caused both by EU legislation, i.e. the Auditing Directive and the PIE Regulation, and the International Standards on Auditing (ISAs). All things being equal, this harmonisation of the rules on audit reports across Member States, of course, entails increased standardisation of audit reports across companies but, interestingly, for PIEs both the PIE Regulation and the new and revised audit report ISAs also entail increased customisation of audit reports between companies. At first sight, this customisation of PIE audit reports between companies seems incompatible or inconsistent with the general standardisation of audit reports across companies. However, the article shows that this, in fact, is not the case. Pursuing this purpose, the article identifies and discusses three overall audit report trends: (1) increased harmonisation of the rules on audit reports across Member States; (2) increased standardisation of audit reports across companies; and, for PIEs, (3) increased customisation of audit reports between companies. Auditing, Audit Reports, Audit Legislation, Auditing Directive, PIE Regulation, Public-Interest Entities (PIEs), International Standards on Auditing (ISAs), Key Audit Matters (KAMs)

The “comply-or-explain” principle in directive 95/2014/EU. A rhetorical analysis of Italian PIEs

PurposeThe purpose of this paper is to evaluate the effectiveness of the comply-or-explain principle in the Italian context. In particular, the analysis will evaluate, which factor impact on firms' voluntary adoption of this tool to adequate their non-financial reports to the legal requirements of Directive 95/2014/EU.Design/methodology/approachThe methodology consists of two different levels of analysis. The first part is statistical descriptive, and it consists of a rhetorical analysis on the justifications provided by the firms about their omissions to comply with Directive 95/2014/EU. The second part is inferential and its aim is to evaluate, which factors impact on comply-or-explains adoption.FindingsThe findings reveal how the comply-or-explain application in Italy has been characterized by several criticisms. The result highlight how the justifications adopted by the firms is influenced by their sector of activity and omission's type. Moreover, the analysis suggests how the sector of activity and the level of adherence to global reporting initiative influenced the average number of omissions.Research limitations/implicationsThe limitations of the research are represented by the focuses on a single country and by the short period of analysis. In this sense, future research could be addressed to the analysis of countries different from Italy. Moreover, accounting scholars could provide further contributions to the political debate through the evolution of the “comply-or-explain” principle’s strategies over the years.Practical implicationsThe practical implications connected to the present research are twofold. The first one is represented by the possibility for policymakers to increase the degree of attention about the use of comply-or-explain as legitimization's tool. The second one is represented by the possibility for practitioners to identify a new reporting framework.Social implicationsThe social implications are represented by the possibility for stakeholders to evaluate the reliability's degree of the disclosure produced by Italian public interest entities after the implementation of Directive 95/2014/EU.Originality/valueDespite the growing attention paid by academics regard Directive 95/2014/EU, this is the first attempt to analyze the comply-or-explain from a rhetorical perspective.

Crime victims’ rights commissioners: public interest entities in a regulatory regime

ABSTRACT The legal force of crime victims’ rights is ambiguous: are they service standards or legal rights? This question has created confusion about the nature of compliance and bifurcates the enforcement mechanism as administrative or legal. Regulatory analysis creates a wider lens to this debate. In this article, we conceive victims’ rights charters as part of a regulatory regime designed to influence the conduct of state agencies in discharging their functions. Rights compliance and enforcement as a regulatory challenge provides a framework for systematic analysis of regulatory instruments, tools and strategies chosen by key actors. We use a case study of statutory crime victims' rights commissioners in Australia to illustrate the implications of these choices. We suggest that clearer articulation of the techniques of compliance show the coexistence of administrative and legal sanctioning. Our argument turns attention to the duties imposed on public institutions of criminal justice and their accountability.

Management of financial statements auditing in the Visegrad Group countries

This paper aims at comparing the management perspectives with the audit conditions in the Visegrad Group (V4) countries (the Czech Republic, the Slovak Republic, Poland, and Hungary) in the following areas: legislation governing the auditing, statutory duty of auditing, mandatory rotation of auditors in public interest entities, requirements on auditors and professional activities, and audit supervision organizations. The paper also tests the hypothesis whether there is a relationship between the size of the accounting entity and the auditor’s opinion.The methodology is based on the statistical analysis of the data using the Chi-square test of independence applied to a sample of 800 randomly selected accounting entities from all V4 countries (200 per each country in question).The results demonstrated significant differences in the management approaches to financial reporting, especially in the area of the statutory duty of auditing. In addition, quantitative research was conducted to determine whether there is a relationship between the size of the accounting entity and the auditor’s opinion. At the 5% significance level, no such dependence has been found for any of the V4 countries, but at the 10% significance level, the dependence has already been proved in case of the Republic of Poland and Hungary. The practical value of the obtained results is the knowledge of how to manage accounting standards for business entities in the V4 countries, as well as to determine the statutory duty to audit financial statements. These results might be of a special practical importance for business managers, tax authorities, and auditors operating in the EU countries.

Public interest entities in the context of accounting and auditing legislation in the wake of the globalization process

Public interest entities are understood to be accounting units that are governed by the accounting legislation as well as auditing legislation. Both regulations, however, define differently the public interest entities. Part of the public interest entities are treated equally in both legislations and are considered to be public interest entities and some of them do not. this is different depending on the specific legal regulation. While accounting and auditing are separate areas of research, there is a link between them and auditing is significantly dependent on accounting because its role is to examine and analyze the accounting of a particular entity. Due to their interconnection as well as to the area of investigation itself, it would be appropriate for both legislation to treat the same group of entities as public interest entities as the individual regulations have specific requirements for this group of entities, which are public interest entities. Our aim is to clarify and present the issues in question in terms of accounting and auditing with emphasis to express its own conclusions. In order to fulfill our stated goal, we apply a method of comparison, analysis, deduction, through which we present the definitions of public interest entities in terms of accounting and auditing legislation, compare and analyze them. Finally, we formulate our own view of which entities should be considered public interest entities.

Crime Victims’ Rights Commissioners: Public Interest Entities in a Regulatory Regime

The legal force of crime victims’ rights is ambiguous: are they service standards or legal rights? This question has created confusion about the nature of compliance and bifurcates the enforcement mechanism as administrative or legal. Regulatory analysis creates a wider lens to this debate. In this article, we conceive victims’ rights charters as part of a regulatory regime designed to influence the conduct of state agencies in discharging their functions. Rights compliance and enforcement as a regulatory challenge provides a framework for systematic analysis of regulatory instruments, tools and strategies chosen by key actors. We use a case study of statutory Australian crime victims’ rights commissioners to illustrate the implications of these choices. We suggest that clearer articulation of the techniques of compliance show the coexistence of administrative and legal sanctioning. Our argument turns attention to the duties imposed on public institutions of criminal justice and their accountability.

Early Adopters of Mandatory Auditor Rotation and Audit Quality

Researchers and regulators have continuously debated whether mandatory audit firm rotation impacts audit quality. Theoretically, rotation might improve auditor independence but impair auditor competence. In 2014, the European Commission mandated audit firm rotation for public-interest entities, starting from 2020 for non-financial firms. However, in the transition period, any auditor change could already be interpreted in light of the upcoming mandatory regime, consistent with anecdotal evidence on such interpretations. These changes provide a unique setting because auditors have strong incentives to build a reputation for high-quality audits when choosing to participate in the market for rotations in the transition period. Using a balanced panel of 287 German firms and data from 2014 to 2019, we hypothesize and find lower discretionary accruals, abnormal working capital accruals, and total accruals in the first year after rotation. This effect is restricted to smaller public companies and does not persist in the following years.

The impact of digitalization on the audit profession: a review of Turkish independent audit firms

Purpose - The aim of exploratory study is to increase the understanding of the effects digitalization has on the tools and working methods of the audit profession. Methodology - Websites of 235 audit firms authorized by POA (Public Oversight, Accounting and Auditing Standards Authority) were examined. In addition, transparency reports of 64 companies authorized for Public Interest Entity (PIE) Audit were investigated as well. The status of the services provided by the audit companies after the technological developments were analyzed. In addition, infrastructure and continuous education investments of audit firms related to digitalization have been determined. Findings- It has been found that almost all audit companies provide services for independent audit and tax audit. (Respectively 95% and 85%). These are followed by financial services and internal audit issues. (Respectively 61% and 45%). Only Big Four invest the necessary infrastructure and human resources in addition to providing services in these matters. In spite of all these technological developments, only 24 companies provide education to their employees for IT / IT audits. Only Big Four provide education for digital technologies to their employees. Conclusion- As a result, with the effect of digitalization, Information technologies have gained importance. But the audit firms have not yet made the necessary investment in these areas. 90% of audit firms do not provide services in these areas and do not make infrastructure and human resources investments.