Pub Date : 2014-04-01DOI: 10.1504/IJAAPE.2014.060210
A. Krishnan, R. Ravindran, P. Joshi
The performance measurement system (PMS) has been a salient research topic for many prominent researchers in the accounting and management areas. The performance measures in PMS which have mainly concentrated on the financial dimension, are insufficient for today's competitive business environment to gauge the firm's success. As a result a firm incorporates non-financial measures to supplement the financial measures. Research work has been widely focused on variables that influence both the financial and non-financial performance measures and provided valuable information for the firm's strategic direction. Among the variables, the business strategy, environmental uncertainty and market position have some influence on performance measures. This study empirically explores the influence of these three research variables on the financial dimension using the structural equation modelling (SEM) approach. The SEM analysis has revealed that among the three independent variables, only two variables have influence on the dependent financial performance measure dimension. However, on the whole, the standard regression weight of all three latent variables is not very strong, indicating that other elements are influencing the financial dimension. A future study is recommended using a similar approach on other non-financial performance measures to identify the significance.
{"title":"An empirical study of the influence of business strategy, uncertainty and market position on financial measures using the SEM approach","authors":"A. Krishnan, R. Ravindran, P. Joshi","doi":"10.1504/IJAAPE.2014.060210","DOIUrl":"https://doi.org/10.1504/IJAAPE.2014.060210","url":null,"abstract":"The performance measurement system (PMS) has been a salient research topic for many prominent researchers in the accounting and management areas. The performance measures in PMS which have mainly concentrated on the financial dimension, are insufficient for today's competitive business environment to gauge the firm's success. As a result a firm incorporates non-financial measures to supplement the financial measures. Research work has been widely focused on variables that influence both the financial and non-financial performance measures and provided valuable information for the firm's strategic direction. Among the variables, the business strategy, environmental uncertainty and market position have some influence on performance measures. This study empirically explores the influence of these three research variables on the financial dimension using the structural equation modelling (SEM) approach. The SEM analysis has revealed that among the three independent variables, only two variables have influence on the dependent financial performance measure dimension. However, on the whole, the standard regression weight of all three latent variables is not very strong, indicating that other elements are influencing the financial dimension. A future study is recommended using a similar approach on other non-financial performance measures to identify the significance.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2014-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2014.060210","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767959","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2014-04-01DOI: 10.1504/IJAAPE.2014.060221
Marco Bisogno, F. Citro, A. Tommasetti
The paper investigates the financial condition of Italian universities, focusing on cash- and budget-level solvency as well as service-level solvency. Our model includes structural factors (which refer to both size and quality in structures), organisational factors (which refer to the performance evaluation of the strategic mission of universities, such as research and teaching activities as well as the so-called third mission) and hybrid factors (which essentially refer to the financial relationship between the central government and each university). Basing the analysis on these factors, we propose a model for evaluating the financial viability of Italian universities, characterised by high flexibility and feasibility. We found that neither structural nor organisational factors seem to affect financial distress, with only the hybrid factors being significant. These results are probably due to the troubled financial difficulties that are affecting several countries in current years; this means that central government is forced to pay attention only to the financial factors. Furthermore, our findings suggest that performance-funding policies can be ineffective if there is not a clear understanding of the mechanisms through which accountability operates.
{"title":"The Financial Distress of Public Sector Entities: Evidence from Italian Public Universities","authors":"Marco Bisogno, F. Citro, A. Tommasetti","doi":"10.1504/IJAAPE.2014.060221","DOIUrl":"https://doi.org/10.1504/IJAAPE.2014.060221","url":null,"abstract":"The paper investigates the financial condition of Italian universities, focusing on cash- and budget-level solvency as well as service-level solvency. Our model includes structural factors (which refer to both size and quality in structures), organisational factors (which refer to the performance evaluation of the strategic mission of universities, such as research and teaching activities as well as the so-called third mission) and hybrid factors (which essentially refer to the financial relationship between the central government and each university). Basing the analysis on these factors, we propose a model for evaluating the financial viability of Italian universities, characterised by high flexibility and feasibility. We found that neither structural nor organisational factors seem to affect financial distress, with only the hybrid factors being significant. These results are probably due to the troubled financial difficulties that are affecting several countries in current years; this means that central government is forced to pay attention only to the financial factors. Furthermore, our findings suggest that performance-funding policies can be ineffective if there is not a clear understanding of the mechanisms through which accountability operates.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2014-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2014.060221","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767969","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2014-04-01DOI: 10.1504/IJAAPE.2014.060209
Winifred D. Scott, Willie. E. Gist
We examine the effect of a US Securities and Exchange Commission (SEC) investigation of the audit client on audit cost. Ordinary least-squares models along with a match-paired design and publicly available auditor fees data are used to analyse the relation between an SEC investigation event and audit fees. The finding of a positive and significant relation supports our hypothesis that the business risk of a client under investigation by this regulatory agency is perceived to be higher than that of a client not under investigation. This finding is important given that certain factors may work against observing an effect. This study contributes to the literature by determining that auditors charge a statistically and economically significant average audit fees premium that ranges from 49.9% to 56.2% to clients under SEC investigation. One implication is that client management has fee-related incentives to avoid regulatory misconduct/scrutiny and produce financial statements free of material misstatement.
{"title":"How audit fees are affected by a client under SEC investigation","authors":"Winifred D. Scott, Willie. E. Gist","doi":"10.1504/IJAAPE.2014.060209","DOIUrl":"https://doi.org/10.1504/IJAAPE.2014.060209","url":null,"abstract":"We examine the effect of a US Securities and Exchange Commission (SEC) investigation of the audit client on audit cost. Ordinary least-squares models along with a match-paired design and publicly available auditor fees data are used to analyse the relation between an SEC investigation event and audit fees. The finding of a positive and significant relation supports our hypothesis that the business risk of a client under investigation by this regulatory agency is perceived to be higher than that of a client not under investigation. This finding is important given that certain factors may work against observing an effect. This study contributes to the literature by determining that auditors charge a statistically and economically significant average audit fees premium that ranges from 49.9% to 56.2% to clients under SEC investigation. One implication is that client management has fee-related incentives to avoid regulatory misconduct/scrutiny and produce financial statements free of material misstatement.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2014-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2014.060209","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767952","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2014-02-10DOI: 10.1504/IJAAPE.2014.059181
Rasha Kassem
Fraud is a major concern for investors, regulators, and external auditors. Of particular concern is asset misappropriation because it was given less attention in prior audit literature as well as the audit practice though it is the most common type of occupational fraud. This motivated the current study to examine areas related to asset misappropriation that had never been examined before and alert external auditors in Egypt to a type of fraud which was given less attention. The current study also proposed a framework for external auditors that might help them properly assess and respond to fraud risk factors arising from asset misappropriation. This framework was designed after careful consideration of prior audit literature, Egyptian auditors’ perceptions of the most important red flags of asset misappropriation, and their experience on the most effective fraud risk response. Study data was gathered using prior literature, a questionnaire, and a semi-structured interview.
{"title":"Detecting asset misappropriation: a framework for external auditors","authors":"Rasha Kassem","doi":"10.1504/IJAAPE.2014.059181","DOIUrl":"https://doi.org/10.1504/IJAAPE.2014.059181","url":null,"abstract":"Fraud is a major concern for investors, regulators, and external auditors. Of particular concern is asset misappropriation because it was given less attention in prior audit literature as well as the audit practice though it is the most common type of occupational fraud. This motivated the current study to examine areas related to asset misappropriation that had never been examined before and alert external auditors in Egypt to a type of fraud which was given less attention. The current study also proposed a framework for external auditors that might help them properly assess and respond to fraud risk factors arising from asset misappropriation. This framework was designed after careful consideration of prior audit literature, Egyptian auditors’ perceptions of the most important red flags of asset misappropriation, and their experience on the most effective fraud risk response. Study data was gathered using prior literature, a questionnaire, and a semi-structured interview.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2014-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2014.059181","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767836","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2014-02-10DOI: 10.1504/IJAAPE.2014.059191
D. M. Lopez, M. Pitman
The purpose of this study is to investigate the impact of auditor workload compression on the likelihood of changes to the busy season client portfolio of an audit firm. We find evidence of a positive association between workload compression and the likelihood of changes to the constituents of the busy season client portfolio of a local office. We also find evidence of a positive association between auditor-client misalignment and the likelihood of such changes. The results for our auditor risk proxies are consistent with prior studies, in support that auditors with greater levels of risk in their portfolios are more likely to engage in busy season client turnover. By using alternative research methods and considering previously overlooked variables, this study sheds new light on the factors influencing the portfolio management decisions of auditors.
{"title":"Auditor workload compression and busy season portfolio changes: US evidence","authors":"D. M. Lopez, M. Pitman","doi":"10.1504/IJAAPE.2014.059191","DOIUrl":"https://doi.org/10.1504/IJAAPE.2014.059191","url":null,"abstract":"The purpose of this study is to investigate the impact of auditor workload compression on the likelihood of changes to the busy season client portfolio of an audit firm. We find evidence of a positive association between workload compression and the likelihood of changes to the constituents of the busy season client portfolio of a local office. We also find evidence of a positive association between auditor-client misalignment and the likelihood of such changes. The results for our auditor risk proxies are consistent with prior studies, in support that auditors with greater levels of risk in their portfolios are more likely to engage in busy season client turnover. By using alternative research methods and considering previously overlooked variables, this study sheds new light on the factors influencing the portfolio management decisions of auditors.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2014-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2014.059191","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767853","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2014-02-10DOI: 10.1504/IJAAPE.2014.059182
Monica Bartolini, S. Gardini, Giuseppe Savioli
The purpose of this paper is to investigate the potential impact of IFRS on SMEs' annual reporting, considering in particular: 1) the evaluation of their financial performance; 2) their creditworthiness and rating, according to Basel II. In the literature, little attention has been paid to the specific influence of IFRS on firm rating. The empirical evidence reported in this paper demonstrates the potentially important effect on the previous two issues. Accordingly, this research raises some strategic issues for individual firms and banks, as well as for the entire economic system. In fact, the current worldwide economic crisis highlights the perils of alternative sets of standards characterised by a different extent of conservatism. The paper describes the results of a multiple-case study, involving 11 firms and an Italian bank. The empirical evidence highlights the differences in these firms' ratings, implementing alternatively the Italian or the IFRS model.
{"title":"International financial reporting standards and SMEs: the effects on firm rating according to Basel II","authors":"Monica Bartolini, S. Gardini, Giuseppe Savioli","doi":"10.1504/IJAAPE.2014.059182","DOIUrl":"https://doi.org/10.1504/IJAAPE.2014.059182","url":null,"abstract":"The purpose of this paper is to investigate the potential impact of IFRS on SMEs' annual reporting, considering in particular: 1) the evaluation of their financial performance; 2) their creditworthiness and rating, according to Basel II. In the literature, little attention has been paid to the specific influence of IFRS on firm rating. The empirical evidence reported in this paper demonstrates the potentially important effect on the previous two issues. Accordingly, this research raises some strategic issues for individual firms and banks, as well as for the entire economic system. In fact, the current worldwide economic crisis highlights the perils of alternative sets of standards characterised by a different extent of conservatism. The paper describes the results of a multiple-case study, involving 11 firms and an Italian bank. The empirical evidence highlights the differences in these firms' ratings, implementing alternatively the Italian or the IFRS model.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2014-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2014.059182","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767844","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2014-02-10DOI: 10.1504/IJAAPE.2014.059183
Y. Shan
This paper examines whether the audit quality of Chinese listed companies is affected by internal governance mechanisms (IGMs). The dataset comprises 443 firm-year observations during 2002-2005. The results show that foreign ownership concentration and the number of professional supervisors are positively related to audit quality, but the size of the supervisory board shows a negative correlation. Other IGMs including state ownership concentration, the size of board of directors, the number of independent directors, the frequency of board meetings, and the frequency of supervisory board meetings are found to have no impact on audit quality. The contribution of this paper is threefold. First, according to Young et al. (2008), this paper develops hypotheses from the principal-principal agency problem perspective and examines the impact of IGMs of China's highly concentrated state ownership and two-tier board system on audit quality. Second, this paper employs the directors on the board of directors and the supervisory board as pairwise functional units and examines whether there is a level of functional redundancy proposed by Ding et al. (2010). Third, this paper adds to the extant literature by showing the relevance of the legal environment as one of external governance mechanisms.
{"title":"The impact of internal governance mechanisms on audit quality: a study of large listed companies in China","authors":"Y. Shan","doi":"10.1504/IJAAPE.2014.059183","DOIUrl":"https://doi.org/10.1504/IJAAPE.2014.059183","url":null,"abstract":"This paper examines whether the audit quality of Chinese listed companies is affected by internal governance mechanisms (IGMs). The dataset comprises 443 firm-year observations during 2002-2005. The results show that foreign ownership concentration and the number of professional supervisors are positively related to audit quality, but the size of the supervisory board shows a negative correlation. Other IGMs including state ownership concentration, the size of board of directors, the number of independent directors, the frequency of board meetings, and the frequency of supervisory board meetings are found to have no impact on audit quality. The contribution of this paper is threefold. First, according to Young et al. (2008), this paper develops hypotheses from the principal-principal agency problem perspective and examines the impact of IGMs of China's highly concentrated state ownership and two-tier board system on audit quality. Second, this paper employs the directors on the board of directors and the supervisory board as pairwise functional units and examines whether there is a level of functional redundancy proposed by Ding et al. (2010). Third, this paper adds to the extant literature by showing the relevance of the legal environment as one of external governance mechanisms.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2014-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2014.059183","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767848","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2013-11-11DOI: 10.1504/IJAAPE.2013.057523
Conor O'Leary, Pran Boolaky, D. Delaney
After the global financial crisis many jurisdictions adjusted or proposed to adjust their accounting regulations, to improve financial reporting frameworks. This study examines and then compares the attitudes of Australian directors and external auditors to proposed legislative changes impacting upon annual reporting requirements. Directors appear opposed to additional legislation and indicate they would be less comfortable in their current roles and may not seek additional board roles. Auditors appear in favour of proposals which increase the responsibilities of preparers and would be more comfortable in their current roles if implemented. However, they appear opposed to additional responsibilities for reviewers of those reports. Directors and auditors were unequivocal in their opposition to any proposals which could impact on audit appointment. This has audit independence implications. The significance of the study is that legislators should consider carefully the impact of proposed accounting regulation changes as the need to balance investors' rights and protections, with directors' and auditors' ability to effectively perform their duties, continues to be a complex balancing act.
{"title":"Accounting Regulation Changes: Differing Attitudes of Directors and Auditors","authors":"Conor O'Leary, Pran Boolaky, D. Delaney","doi":"10.1504/IJAAPE.2013.057523","DOIUrl":"https://doi.org/10.1504/IJAAPE.2013.057523","url":null,"abstract":"After the global financial crisis many jurisdictions adjusted or proposed to adjust their accounting regulations, to improve financial reporting frameworks. This study examines and then compares the attitudes of Australian directors and external auditors to proposed legislative changes impacting upon annual reporting requirements. Directors appear opposed to additional legislation and indicate they would be less comfortable in their current roles and may not seek additional board roles. Auditors appear in favour of proposals which increase the responsibilities of preparers and would be more comfortable in their current roles if implemented. However, they appear opposed to additional responsibilities for reviewers of those reports. Directors and auditors were unequivocal in their opposition to any proposals which could impact on audit appointment. This has audit independence implications. The significance of the study is that legislators should consider carefully the impact of proposed accounting regulation changes as the need to balance investors' rights and protections, with directors' and auditors' ability to effectively perform their duties, continues to be a complex balancing act.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2013-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2013.057523","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767611","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2013-11-11DOI: 10.1504/IJAAPE.2013.057527
Andrei Filip, Bernard Raffournier
Since 2005, all European listed companies must comply with IFRS in the preparation of their consolidated financial statements. Several studies have investigated the consequences of this political decision, comparing various dimensions of accounting quality before and after IFRS implementation. But they do not really address the following question: will the adoption of a common set of accounting standards result in a standardisation of accounting quality throughout Europe, or will national differences persist due to the influence of local characteristics? In order to provide evidence on this issue, we measure the value relevance of accounting earnings in 16 European countries over the period 2006–2007. The results show that country differences persist despite the use of common accounting standards, which is consistent with the idea that legal and regulatory country characteristics as well as market forces still impact the association between market returns and accounting data.
{"title":"The value relevance of earnings in Europe after IFRS implementation: why do national differences persist?","authors":"Andrei Filip, Bernard Raffournier","doi":"10.1504/IJAAPE.2013.057527","DOIUrl":"https://doi.org/10.1504/IJAAPE.2013.057527","url":null,"abstract":"Since 2005, all European listed companies must comply with IFRS in the preparation of their consolidated financial statements. Several studies have investigated the consequences of this political decision, comparing various dimensions of accounting quality before and after IFRS implementation. But they do not really address the following question: will the adoption of a common set of accounting standards result in a standardisation of accounting quality throughout Europe, or will national differences persist due to the influence of local characteristics? In order to provide evidence on this issue, we measure the value relevance of accounting earnings in 16 European countries over the period 2006–2007. The results show that country differences persist despite the use of common accounting standards, which is consistent with the idea that legal and regulatory country characteristics as well as market forces still impact the association between market returns and accounting data.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2013-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2013.057527","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767649","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2013-11-11DOI: 10.1504/IJAAPE.2013.057522
Hui Chen, Debra C. Jeter, Ya‐wen Yang
The purpose of this paper is to investigate the impact on pay-performance sensitivity of a commitment by regulatory bodies to monitor the auditing of managers’ financial reporting. Executive incentive pay is often analysed in isolation of the regulatory environment of auditing and financial reporting; this omission implies an assumption of no significant relation between the two. In this paper, we show that the effects of an imposed mandatory audit of the auditor could reach the incentive pay of executives in the firms being audited. We construct a model to depict two distinct regulatory environments: a pre-commitment economy in which the regulator checks auditors on a random basis; and a post-commitment economy in which the regulator commits to the inspection of auditors’ work. The model predicts that a more rigorous audit environment leads to more reliable auditing and reporting, and to an increase in pay-performance sensitivity for executives. Consequently, the corresponding managerial effort under higher pay-performance sensitivity will also increase. The study provides insight into some positive aspect of the changes resulting from the passage of Sarbanes-Oxley.
{"title":"Do regulatory policies on auditing affect executive pay","authors":"Hui Chen, Debra C. Jeter, Ya‐wen Yang","doi":"10.1504/IJAAPE.2013.057522","DOIUrl":"https://doi.org/10.1504/IJAAPE.2013.057522","url":null,"abstract":"The purpose of this paper is to investigate the impact on pay-performance sensitivity of a commitment by regulatory bodies to monitor the auditing of managers’ financial reporting. Executive incentive pay is often analysed in isolation of the regulatory environment of auditing and financial reporting; this omission implies an assumption of no significant relation between the two. In this paper, we show that the effects of an imposed mandatory audit of the auditor could reach the incentive pay of executives in the firms being audited. We construct a model to depict two distinct regulatory environments: a pre-commitment economy in which the regulator checks auditors on a random basis; and a post-commitment economy in which the regulator commits to the inspection of auditors’ work. The model predicts that a more rigorous audit environment leads to more reliable auditing and reporting, and to an increase in pay-performance sensitivity for executives. Consequently, the corresponding managerial effort under higher pay-performance sensitivity will also increase. The study provides insight into some positive aspect of the changes resulting from the passage of Sarbanes-Oxley.","PeriodicalId":35413,"journal":{"name":"International Journal of Accounting, Auditing and Performance Evaluation","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2013-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1504/IJAAPE.2013.057522","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66767594","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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