scholarly journals Do Auditors and Audit Committees Lower Fraud Risk by Constraining Inconsistencies between Financial and Nonfinancial Measures?

2018 ◽  
Vol 12 (2) ◽  
pp. P7-P15
Author(s):  
Joseph F. Brazel
Keyword(s):  
Audit Committee ◽  
Audit Committees ◽  
Audit Process ◽  
Revenue Growth ◽  
Fraud Risk ◽  
Nonfinancial Measures ◽  
Industry Expert ◽  
Industry Expertise

SUMMARY Prior research finds that companies committing fraud exhibit large inconsistencies between reported revenue growth and growth in revenue-related nonfinancial measures (e.g., number of stores, employees, patents). Prior research also suggests that auditors, on average, are not adept at identifying and constraining these differences. This article summarizes a recent study by Brazel and Schmidt (2018) that examines whether certain auditors and audit committees are able to lower fraud risk by constraining inconsistencies between financial and related nonfinancial measures (NFMs). This practitioner summary first summarizes the motivation for the study, then discusses the methods used, explains the results, and concludes with a discussion of the study's implications. Brazel and Schmidt (2018) find that auditors with greater industry expertise and tenure, and audit committee chairs with greater tenure are less likely to be associated with companies that exhibit large inconsistencies between their reported revenue growth and related NFMs (higher fraud risk). Surprisingly, they observe that audit committees with industry expert chairs are more likely to be associated with large inconsistencies than audit committees without industry expert chairs. Overall, Brazel and Schmidt (2018) conclude that the audit process can constrain fraud risk, but not all forms of audit committee expertise may be beneficial.

Do Auditors and Audit Committees Lower Fraud Risk by Constraining Inconsistencies between Financial and Nonfinancial Measures?

2018 ◽  
Vol 38 (1) ◽  
pp. 103-122 ◽  
Author(s):  
Joseph F. Brazel ◽  
Jaime J. Schmidt
Keyword(s):  
Audit Committee ◽  
Audit Committees ◽  
Revenue Growth ◽  
Fraud Risk ◽  
Nonfinancial Measures ◽  
Industry Expert ◽  
Jel Classifications ◽  
Industry Expertise

SUMMARY Prior research finds that companies committing fraud exhibit large inconsistencies between reported revenue growth and growth in revenue-related nonfinancial measures (e.g., number of stores, employees, patents). However, prior research also suggests that auditors, on average, are not adept at identifying and constraining these differences. This study investigates whether certain auditors and audit committees are able to lower fraud risk by constraining inconsistencies between financial and related nonfinancial measures (NFMs). For a sample of companies across a variety of industries, we find that auditors with greater industry expertise and tenure and audit committee chairs with greater tenure are less likely to be associated with companies that exhibit large inconsistencies between their reported revenue growth and related NFMs. Surprisingly, we observe that audit committees with industry expert chairs are more likely to be associated with large inconsistencies (higher fraud risk) than audit committees without industry expert chairs. JEL Classifications: M4.

Enhancing Perceived and Actual Audit Committee Effectiveness through Financial Expert Certification

2012 ◽  
Vol 6 (2) ◽  
pp. A15-A25 ◽  
Author(s):  
Jonathan Grenier ◽  
Brian Ballou ◽  
Seth Philip
Keyword(s):  
Best Practices ◽  
Audit Committee ◽  
Potential Method ◽  
Audit Committees ◽  
Certification Program ◽  
Audit Process ◽  
External Auditors ◽  
Strong Signal ◽  
Financial Expert ◽  
Role Sharing

SUMMARY:  The purpose of this paper is to generate and inform academic, practitioner, and regulatory discussion on means to promote perceived and actual audit committee effectiveness. As one potential method, we propose that the SEC initiate a CPE-driven certification program for audit committee members designated as financial experts. Our proposal addresses many of the challenges that post-SOX audit committees face (cf. Beasley et al. 2009; Cohen et al. 2010) by emphasizing their oversight role, sharing audit committee best practices, enhancing the accountabilities of external auditors, and sending a strong signal to stakeholders that the audit committee owns the audit process.

scholarly journals Presence of Quality of Audit Committee and Organization’s Monetary Data: An In-depth Analysis

2021 ◽  
Vol 3 (1) ◽  
pp. 77-91
Author(s):  
Ashfaque Ali Banbhan ◽  
Najia Shaikh ◽  
Khalid Hussain Abbasi
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Practical Importance ◽  
Positive Association ◽  
Audit Committees ◽  
Corporate Boards ◽  
Audit Process ◽  
Depth Analysis

All financial regulatory institutions legally bound their listed companies todisclose the information regarding the formulation of their audit committees.This study quantitatively investigates whether the quality of the auditcommittees affects the quality of a firm’s financial information. Using the dataof publicly listed non-financial companies of Pakistan Stock Exchange, thisresearch found a positive association between audit committee qualitymeasures and the firm’s quality of reported earnings. This study extends theunderstanding of measures for audit committee quality to stabilize thefinancial reporting process as it relates to the ongoing discussion byresearchers and financial regulators. Additionally, the study also increasesthe understanding of the concept of external audit quality for various partieswhich are involved in deliverance of good corporate governance practices; forexample, audit committees, external auditors, corporate boards, and topmanagement team. The study also explores the influencing factors, internal aswell as external, in the audit process by constructing its meaning andexplaining its practical importance. This detailed exploration andinvestigation into the procedures of audit quality are vital because auditing isthe process through which numbers in financial reports are checked and reevaluated for any potential clerical errors and omissions

scholarly journals The Effects of Independent Audit Committee on the Accounting Policy Decisions of Nigerian Firms

2019 ◽  
Vol 5 (2) ◽  
Author(s):  
Muhammad Aminu Isa
Keyword(s):  
Audit Committee ◽  
Audit Committees ◽  
Policy Decisions ◽  
Audit Process ◽  
Predictive Capacity ◽  
Financial Reports ◽  
Statutory Requirement ◽  
Set Up ◽  
Independent Audit ◽  
Accounting Policy

Purpose: The study examines the effects of the independent audit committee on the accounting policy decisions of firms. Managers use their discretion in accounting decisions against the interests of shareholders. Independent audit committees are relied upon by the shareholders for monitoring. Design/Methodology/Approach: Data were generated from the financial reports of the sampled firms and a model similar to Bowen DuCharme and Shores (1995) and Jackson, Xiaotao and Cecchini (2009) was used to estimate the predictive capacity of the independence audit committee in the process.  Findings: It was found that the firms predominantly decided on income increasing policies but did not find any significant evidence that independence audit committee monitoring is effective on accounting decisions.  Implications/Originality/Value: The firms set up audit committees not because they rely on them for effective monitoring but to fulfil statutory requirement of CAMA 2014, as amended. This conclusion is consistent with the view of Menon and Williams (1994).  This evidence extents the literature of accounting choice in relation to the role of audit process. 

scholarly journals Specialists accounting in audit committees and their role in corporate governance

2018 ◽  
Vol 48 (3) ◽  
pp. 23-30
Author(s):  
Halina Buk
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Financial Statements ◽  
Audit Committees ◽  
Audit Process ◽  
Audit Firm ◽  
Market Participants ◽  
Financial Audit ◽  
Public Oversight

The new act on statutory auditors, audit forms and public oversight, which came into force in the first half of 2017, introduced important changes related to activities of audit com-mittees supervisor board in public-interest entities. The implemented regulations strengthened the role of audit committees in monitoring of financial statements, audit process and internal control, and choice of audit firm. The Act clearly defined the profes-sional competencies that are needed by the members of an audit committee. One of them should have knowledge of the branch, and at least one should have knowledge in ac-counting or in financial audit. This requirement will make substantive supervision better, and the financial market participants will trust published information more. The aim of the article is to present the role of accounting specialists, when they are the members of an audit committee. The article refers to the kinds of activities, with widely understood interest of the company and shareholders.

Associations between the financial and industry expertise of audit committee members and key audit matters within related audit reports

2019 ◽  
Vol 21 (1) ◽  
pp. 185-200 ◽  
Author(s):  
Patrick Velte
Keyword(s):  
Empirical Research ◽  
Audit Committee ◽  
Design Methodology ◽  
Audit Committees ◽  
Regression Analyses ◽  
Content Type ◽  
Flesch Reading Ease ◽  
Considerable Impact ◽  
Audit Reports ◽  
Industry Expertise

Purpose The purpose of this paper is to focus on audit committees’ financial and industry expertise (FIE) and their impact on the readability of key audit matters (KAMs). Design/methodology/approach Based on an agency-theoretical framework, analyses are conducted of data from a sample of UK premium listed companies for the fiscal years 2014–2017 (i.e. 1,319 firm-year observations). Correlation and regression analyses are conducted to evaluate possible associations between FIE in audit committees and KAM readability. The author relies on popular readability measures (Flesch Reading Ease and Fog Index). Findings Audit committees’ FIE and KAM readability are positively connected. Combined FIE also has a stronger effect than either financial or industry expertise alone. Research limitations/implications Companies, regulators and researchers could be significantly affected by the finding that audit committees’ FIE can have a considerable impact on KAM readability. Originality/value The analysis of the link between audit committees’ FIE and KAM readability makes a contribution to prior empirical research on KAM.

scholarly journals The Development of Audit Committees - A Review of the Literature on Theoretical and Global Perspective

2018 ◽  
Vol 10 (2) ◽  
pp. 82
Author(s):  
Lubna Javed Rizvi ◽  
Randa Alyafi ◽  
Syeda Taj Unissa
Keyword(s):  
New York ◽  
Financial Reporting ◽  
Boards Of Directors ◽  
Audit Committee ◽  
Stock Exchange ◽  
Internal Controls ◽  
Global Perspective ◽  
Audit Committees ◽  
Audit Process ◽  
The Right

The audit committee performs a pivotal role in making the right environment for quality auditing. It is the audit committee's obligation to breed an environment that encompasses an open dialogue in a culture of honesty, regard and transparency amongst management and auditors. The prime purpose of an audit committee is to provide oversight of the financial reporting process, the audit process, the system of internal controls and compliance with laws and regulations. Audit committees will consider internal controls and review their effectiveness. Since 1940, the SEC has acknowledged that an audit committee can serve a significant, and eventually essential, role in guaranteeing that a publically listed corporation financial reporting is correct. In the 1970s, the New York Stock Exchange (NYSE) obligated boards of directors of these listed firms to employ an audit committee. Then in the late 1980s, (Nasdaq) the National Association of Securities Dealers and (AMEX) American Stock Exchange afterward employed the audit committees. Today, innumerable practices and rules command the composition, roles, and duties of audit committees. After the Enron’s collapse, audit committee affiliates duties are enhanced and Securities Exchange Commission are investigating the board of directors and management more and more. This article provides a brief overview of audit committee’s emergence in UK and Saudi Arabia, Moreover theoretical foundations of the audit committees are also discussed.

The role of stakeholders' perception in internal audit status: the case of Iran

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bita Mashayekhi ◽  
Farzaneh Jalali ◽  
Zabihollah Rezaee
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Chief Executive ◽  
Audit Committees ◽  
Current Status ◽  
Structured Interviews ◽  
Audit Process ◽  
Content Type

PurposeThe purpose of this study is to explore the internal audit actors and stakeholders' perceptions of the IA status in Iranian companies, and those actors and stakeholders' roles in shaping the current situation of IA in Iran.Design/methodology/approachThis paper uses the interpretive qualitative method. Data comprises of semi-structured interviews with board of directors, audit committees, chief executive officers and chief audit executives. The paper analyzes internal audit policy documents, reports and legislations.FindingsThe results illustrate that the internal audit in Iran is perceived as a “perfunctory” practice among its stakeholders due to being recognized as an inefficient process. The key actors and stakeholders in internal audit process–including executive and board managers, audit committee members and chief audit executives–play important roles in shaping the current status of internal audit via their perceptions and actions.Practical implicationsThe fact that internal audit in Iran is perceived as an inefficient process and is used as a perfunctory practice highlights the importance of addressing this issue at the standardization and regulation level. The deficits in the roles of key actors and stakeholders need to be considered as the legislative guide in different levels.Originality/valuePrior studies mostly focus on the role of internal audit in organizations. In contrast, this study focuses on the role of key actors and stakeholders of internal auditing process in shaping the current perceived role of internal audit in organizations. Also, the study examines an emerging economy, which differs from advanced economies in important ways, including regulations, organizational culture, internal control structure and internal audit.

scholarly journals Pengaruh Profitabilitas dan Komite Audit terhadap Audit Report Lag pada Perusahaan Sub Sektor Property dan Real Estate (2017-2018)

2020 ◽  
Vol 20 (2) ◽  
pp. 388
Author(s):  
Samuel Parlindungan Silalahi ◽  
Harman Malau
Keyword(s):  
Real Estate ◽  
Audit Committee ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Secondary Data ◽  
Audit Committees ◽  
Fiscal Year ◽  
Audit Report ◽  
Audit Process ◽  
Other Information

This study aims to determine the effect of profitability and audit committee on audit report lag of companies listed on the Indonesia Stock Exchange in the property and real estate sub sector in 2017-2018. This study uses descriptive methods in finding relationships between variables that provide a detailed description of a phenomenon by conducting linear regression analysis. The method of collecting data uses a passive participatory observation method where the researcher observes but is not directly involved in the activity. Through this method has been carried out by studying, classifying, and analyzing secondary data in the form of independent auditor's reports, financial reports and other information related to the scope of this research. Audit report lag, which is the time difference that occurs when the end of the fiscal year with the date of issue in the audit report. This variable is the dependent variable that is measured by the interval of the number of days between the date of the financial statements until the date the auditor's report is signed. The variables that affect are profitability and the audit committee. Profitability will be measured using the ratio of Return on Assets (ROA). The audit committee will be deducted by dividing the total members of the audit committee by the total members of the board of commissioners. The results of this study are profitability and audit committee does not significantly affect audit report lag by having a positive relationship. Audit report lag will increase due to the company's high profitability and the greater proportion of audit committees, resulting in a longer audit process.

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