Independence from the perspective of the Shari'ah committee

PurposeThe purpose of this study is to gather the perceptions of the Shari'ah committee members on what and how they safeguard and strengthen their independence in fact and independence in appearance during the discharge of their duties.Design/methodology/approachData were gathered through semi-structured interviews with 13 Shari'ah committee members from 13 different Islamic financial institutions (IFIs).FindingsBased on the Islamic worldview and agency theory, the findings suggest that safeguard measures within the context of the Shari'ah committee are strengthened by the following factors: presence of competencies, personal characteristics of the Shari'ah committee members, board engagement, role of the chairman in the Shari'ah committee and accountability to God. Based on the agency theory, it can be suggested that the characteristics of the Shari'ah committee and the presence of an effective governance structure are able to minimise threats to the independence of the Shari'ah committee and enhance its effectiveness.Practical implicationsThe insights from this study highlight that proper and fit criteria need to be enhanced to ensure the independence of the Shari'ah committee members when performing their roles for IFIs. Moreover, it shows that board engagement and chairman involvement in overseeing the Shari'ah committee in the discharge of its duties is able to improve the independence of the Shari'ah committee both in fact and in appearance.Originality/valueThis study contributes to the evidence on safeguard measures in the Malaysian context, which is highly regulated in relation to the Shari'ah governance practices in IFIs. This evidence could be considered by other Shari'ah committees in different contexts.

MANDATORY AUDITOR ROTATION: THE PERCEIVED BENEFITS AND DRAWBACKS (A CASE STUDY IN BPK)

After years of implementation of the policy, there is an inconclusive opinion of whether a mandatory auditor rotation could improve the independence of auditors, including those working within the public sector, such as BPK. This study intends to empirically test the impact of mandatory rotation towards auditors' independence in fact and in appearance. Additionally, the study examines how auditor satisfaction towards the policy affects their perceived benefits and drawbacks of the scheme. Following a statistical assessment of primary data using the independent-samples t-test, findings show that independence in appearance of auditors would be enhanced as a result of mandatory rotation. The rotation policy, however, could not by itself improve auditors’ independence in fact. Consequently, complementary schemes are needed to preserve the independence in fact of auditors. Further, auditors who have a favorable view of mandatory rotation would assume that the mechanism offers more advantages than disadvantages. On the other hand, unhappy employees would perceive that mandatory rotation brings more adverse effects than positive ones. The vast majority of respondents also believe that the rotation mechanism is necessary to be implemented in BPK. Lastly, a number of valuable respondent inputs aimed to improve the rotation scheme are elaborated in this study.

Tax services, consequence severity, and jurors' assessment of auditor liability

Purpose – The purpose of this research is to determine whether the type of tax services provided by a public accounting firm to its audit client and the consequence severity of an audit failure impact jurors' assessment of audit quality and auditor liability. Design/methodology/approach – The authors administer a court case to 168 jurors manipulating three levels of tax services provided to an audit client (none, tax preparation, and aggressive tax planning services); two levels of consequence severity of the alleged audit failure, observing the impact on jurors' assessment of audit quality, auditor responsibility for audit failure; and damages awarded the plaintiff. Findings – Consistent with recent US regulations, jurors perceive the quality of the audit to be lower when auditors provide aggressive tax planning services, but not for tax preparation services. Damages are greater when auditors provide aggressive tax planning services across both levels of consequence severity. Research limitations/implications – The results indicate that the type of tax services provided may impact jurors' views of audit quality and damage assessments against auditors. The questionnaire uses previously validated measures, but the results may not be generalizable to jurors in all jurisdictions. Practical implications – Though empirical evidence is mixed at best about the impact of auditors providing non-audit services on auditor independence in fact, auditor independence in appearance, and thus audit quality, such impacts may affect the way jurors perceive the situation. Originality/value – The study directly tests the implications for auditor liability of new restrictions on tax services and more accurately measures the impact of consequence severity, using actual jurors.

Nonaudit Services and Independence in Appearance: Decision Context Matters

ABSTRACT This paper reports the results of two experiments designed to examine users' assessment of the provision of nonaudit services (NAS) on auditor independence. By design, each experiment includes a different decision context. In the first experiment, users witness a large decline in asset value and decide whether to sue the auditor in an effort to recoup losses (as often occurs with accounting scandals). In the second experiment, users assess asset value, which offers a more mundane context. We contend that decision context influences users' motives, such that the auditor's provision of NAS is interpreted opportunistically. Indeed, we find that decision context dramatically affects users' perceptions. Our findings have implications for regulators, who face the daunting challenge of mandating rules/laws to ensure auditor independence. The task becomes more difficult when users' assessment of auditor independence is malleable, varying across decision contexts.

ierarchical Difference In Auditors Perceptions Of Lowballing: A Study Of Current Attitudes

<span>Auditors are in the business of providing to their clients the value of their attestation services for financial reporting. Auditors (and other accountants) have a strict Code of Professional Conduct which is enforced by the American Institute of Certified Public Accountants (AICPA). According to this Code of Professional Conduct (AICPA 1988), the AICPA sets forth the requirement that all auditors comply with generally accepted auditing standards (GAAS) in all audit engagements. These rules are a necessary part of the audit process helping to ensure a quality result for the stakeholders of the organization. Lowballing, the practice of bidding under or at cost for an audit in order to attract new clients, may violate the independence in appearance clause of the Code of Professional Conduct. Researchers and regulatory authorities appear to differ on their treatment of this issue. Differences in option (AICPA 1978 compared to DeAngelo 1981) appear to center around the interpretation of independence in the Code of Professional Conduct. This study evaluates current attitudes towards lowballing for all levels of professional auditors within four public accounting firms and specifically addresses the question of whether lowballing is a violation of the impendence in appearance section of the Code. The study also questions auditors as to their beliefs about the Code of Professional Conducts potential for change to accommodate the practice of lowballing.</span>

Assessing The Appearance Of Auditor Independence Using Behavioral Research Methodology

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">Recent archival studies have examined the association between auditor independence and non-audit services. The results of these studies<span style="mso-bidi-font-weight: bold;"> suggest that fees for non-audit services are not associated with indicators of auditor independence in fact whereas these fees are associated with financial statement users&rsquo; perceptions of auditor independence (i.e., independence in appearance). The present study attempts to reconcile these conflicting findings by using a behavioral research methodology that provides greater control over the independent variables and measures more directly financial statement users&rsquo; perceptions. Our results indicate that fees for financial information systems development services do not affect perceptions of auditor independence, whereas, fees for tax services adversely affect perceptions of independence. Overall, the results provide mixed support for the recent Securities and Exchange Commission policy changes on auditor independence. </span></span></span></p>