Interprofessional conflict, accommodation, and the flow of capital: The ASB vs The securities industry and its lawyerS

In an earlier paper, Martens and McEnroe (1991) found that the Auditing Standards Board (ASB) substantially rewrote major sections of the exposure draft (ED) of Statement on Auditing Standards (SAS) No. 54 to accommodate the wishes of a special interest group, the legal profession. This study involves a similar examination of the development of SAS 72, from its status as an ED to its release as an official auditing promulgation. Specifically, an analysis is made of the positions existing in the ED for SAS 72, the comments submitted to the ASB, and the changes made to the final SAS in light of those comments. The results indicate that the ASB once again accommodated the desires of a special interest group; in this case, the securities industry and its lawyers. A reason for the accommodation is proposed in the context of certain sociological theories of the professions. It is suggested that the ASB, acting as an agent of capital, was convinced that a less restrictive standard was necessary in order to facilitate the role that underwriters play in the flow of investment capital.     

An Analysis of Comment Integration Involving SAS 54

The process by which auditing standards are established in the United States was criticized by the late Senator Metcalf (1977) and more recently by the Treadway Commission (1987). Their allegations involving the Auditing Standards Board (ASB) encompass many perceived deficiencies, ranging from the charge that the large accounting firms dominate the standard-setting process, to the notion that the auditing standards currently promulgated do not address emerging policy issues on a timely basis. However, despite these criticisms, there is a paucity of empirical research involving the actual formulation of auditing standards in the United States. Accordingly, this research investigates certain behavioural facets involving the evolution of Statement on Auditing Standards No. 54, Illegal Acts by Clients , along certain dimensions, including audit-firm size. Specifically, the paper examines reactions to the exposure draft of SAS 54 and the extent to which written suggestions were incorporated into the final standard. The results do not support the proposition that either audit firm size or an employee's membership on the ASB has a significant impact on achieving the integration of a respondent's comments into the final audit statement.     

Ideological diversity in standard setting

Review of Accounting Studies - I compare voting positions taken by Financial Accounting Standards Board (FASB) members on standards to positions taken by constituent sponsors in comment letters...     

A Critique of the International Auditing and Assurance Standards Board

Knowledge of initiatives and developments at the international level are important to the Australian auditing profession, which has adopted a policy of convergence with the International Auditing and Assurance Standards Board (IAASB). To aid this knowledge, this paper provides a critical review of developments at the IAASB and their impact on Australia, drawing on insights gained by the author as a member of the IAASB from 2002 to 2005.     

Empty voting and the efficiency of corporate governance

We model corporate voting outcomes when an informed trader, such as a hedge fund, can establish separate positions in a firm's shares and votes (empty voting). The positions are separated by borrowing shares on the record date, hedging economic exposure, or trading between record and voting dates. We find that the trader's presence can improve efficiency overall despite the fact that it sometimes ends up selling to a net short position and then voting to decrease firm value. An efficiency improvement is likely if other shareholders’ votes are not highly correlated with the correct decision or if it is relatively expensive to separate votes from shares on the record date. On the other hand, empty voting will tend to decrease efficiency if it is relatively inexpensive to separate votes from shares and other shareholders are likely to vote the right way.     

The Australian Auditing and Assurance Standards Board after the Implementation of CLERP 9

This paper traces the establishment of the reconstituted Auditing and Assurance Standards Board (AUASB) as a result of the CLERP (Audit Reform and Corporate Disclosure) Act 2004, and its progress in developing auditing standards that are "in the public interest". The paper canvasses the composition of the AUASB, its transparency and due process, its relationship with the International Auditing and Assurance Standards Board and the Financial Reporting Council, and its resourcing and attitude to researching issues of importance in auditing. The paper discusses methods that might be used to provide evidence of the efficacy of the reforms to auditing standard-setting.     

SELF-REFERENTIAL LOBBYING OF THE ACCOUNTING STANDARDS BOARD: THE CASE OF FINANCIAL REPORTING STANDARD NO. 1

This paper employs a Latourian framework to analyse the informal and formal lobbying of the Accounting Standards Board (ASB) over its flagship standard on cash flow statements. The purpose of the analysis is to reveal how the self-referential rhetoric of key lobbyists, such as companies and auditors, was used to “enrol” the ASB into amending its standard in line with the transformative practices of some large companies. The issue of whether net debt should be included on cash flow statements is analysed in detail, as it reveals how a small group of companies were able to enrol the ASB into accepting their translated definition of “cash”. The paper concludes that, given that the ASB essentially relies on voluntary compliance, it responded to the rhetoric of key allies in the standard-setting process in order to maintain its position as an obligatory passage point and so retain support for its project to reform accounting.     

Inherent risk: An investigation of auditors' judgments

The assessment of inherent risk is a judgment required of auditors by Statement on Auditing Standards 47 (Auditing Standards Board, AICPA, New York, 1983) that normatively affects the scope of work performed on audit engagements. This study explores the judgments of auditors concerning inherent risk in inventory. Four inherent risk factors were examined: turnover of the controller, financing pressure, the amount of complexity of overhead in inventory, and the quality of the personnel responsible for the inventory calculation. A human information processing approach employing ANOVA was utilized to determine the relative reliance on these factors in the inherent risk judgments of 65 practicing auditors. Correlation techniques were used to measure consensus, reliability, and self-insight.The results suggest that although all four inherent risk factors were important to auditors, quality of personnel was the most significant. Reliability was slightly lower than in previous research, but was still fairly high. Self-insight was moderate.     

Corporate Lobbying on Accounting Standards: Methods, Timing and Perceived Effectiveness

There is a long-standing concern in the literature about the potential importance of non-observable forms of lobbying that may be used by corporate managers to influence accounting standard setting bodies. To date, however, no study has documented their nature or their volume. This study provides such evidence in the context of the U.K.'s Accounting Standards Board (ASB) standard setting process for the period 1991–96. It also provides evidence with respect to the timing at which lobbying activity takes place and its perceived effectiveness by corporate managers. The findings suggest that companies use a variety of lobbying methods, including appeals to their auditors and private meetings with ASB members and staff. Importantly, however, the use of these methods is significantly associated with the use of comment letters; companies which submit comment letters are much more likely to use other methods than companies which do not. Other findings suggest that more companies lobby during the stages of the ASB process at which public consultation takes place (e.g., exposure period of a discussion paper) than at the earlier stages of the process (e.g., agenda formation) which are considered in the literature as the stages at which lobbying can be most effective. With respect to the perceived effectiveness of lobbying, companies which lobbied the ASB considered lobbying to be more effective than companies which did not.     

The unintended consequences of PCAOB auditing Standard Nos. 2 and 3 on the reliability of preliminary earnings releases

Implementation of Public Company Accounting Oversight Board Auditing Standards No. 2 on internal control and No. 3 on documentation has delayed audit completion. However, due to market demand for timely disclosures, most firms maintain the same preliminary earnings release date even though the audit may not be complete as of that date. Results indicate revisions to preliminary announcements when filing the 10-K report would have been 35% lower during 2005 if the historical frequency of issuing earnings releases after the audit report date had not changed. Additionally, stock market reaction to impending revisions suggests lower reliability of preliminary earnings.     

Hedge funds,insiders, and the decoupling of economic and voting ownership: Empty voting and hidden (morphable) ownership

Most U.S. public companies have a single class of voting common shares: voting power is proportional to economic ownership. Linking votes to shares is often thought to be desirable, because, as residual claimants, shareholders have an incentive to exercise voting power well. The linkage also facilitates the market for corporate control. On the other hand, decoupling is efficient in some situations. Equity derivatives and other capital market developments now allow shareholders to readily decouple voting rights from economic ownership of shares, often without public disclosure. Hedge funds are prominent users of decoupling. Sometimes they hold more votes than economic ownership (a situation we term “empty voting”). Sometimes they hold undisclosed economic ownership without votes, but often with the de facto ability to acquire votes if needed (a situation we term ‘‘hidden (morphable) ownership”). This Article analyzes empty voting and hidden (morphable) ownership, which we term the “new vote buying.” We offer a framework for unpacking its functional elements and assess its potential benefits and costs. Two companion legal articles (Hu, Henry T.C., and Bernard S. Black, 2006a. The New Vote Buying: Empty Voting and Hidden (Morphable) Ownership, Southern California Law Review 79, 811–908#, and Hu, Henry T.C., and Bernard S. Black, 2006b. Empty Voting and Hidden Ownership: Taxonomy, Implications and Reforms, Business Lawyer 61, 1011–1069.) provide more details on current disclosure rules and offer a disclosure reform proposal.     

Practical Problems In The Reporting Entity Concept

The concept of a reporting entity has been introduced into financial reporting in Australia through a number of statements and standards. These documents require reporting entities to prepare so-called general-purpose financial reports which comply with all statements of accounting concepts and accounting standards, whereas non-reporting entities are not bound to the same level of compliance. Unfortunately, little authoritative guidance on interpretation and application of the reporting entity concept has come from either the Australian Accounting Standards Board or the Auditing Standards Board, despite the fact that the reporting entity concept has applied since 30 June 1992. The solutions proposed here may be temporary, given that the Corporations Law could be amended. It would be in readers' interests to consider any further authoritative guidance which might become available.     

Evaluating the Work of Internal Audit: A Comparison of Standards and Empirical Evidence

Numerous changes have recently been proposed or made to audit standards providing guidance for external auditors' evaluations of internal audit work. This paper reports the results of a study to compare the UK's Accounting Practices Board Statement of Auditing Standard 500, first, with similar standards promulgated by international, Canadian and US societies, and second, with audit quality factors derived from practising internal auditors. The data for the latter comparison was obtained from a two-phase study that first generated a set of potential quality factors through intensive structured interviews with audit groups from six different and diverse organisations, and then obtained evaluations of these factors from a large sample of internal auditors worldwide. Results first indicate that there are strong similarities between the guidance provided by SAS 500 and that proposed or promulgated by the UK, international, Canadian and US audit groups. Furthermore, the guidance provided by these SASs for items to consider in evaluating the quality of internal audit work are largely in agreement with the factors determined by practising internal auditors. There are, however, several items listed in SAS 500 that are not considered useful by internal auditors and there are other factors considered crucial by internal auditors but not mentioned in the SASs.     

现代风险导向审计与项目审计工时:来自中国证券市场的初步证据

2007年审计准则变更将现代风险导向审计引入了中国证券市场,旨在提高审计的效率和效果。本文为了检验2007年审计准则和现代风险导向审计在中国的应用效果,对准则变更前后审计项目投入的水平进行了比较。我们发现:(1)现代风险导向审计提高了会计师事务所的审计效率;(2)现代风险导向审计在一定程度上提高了会计师事务所对高风险客户的关注程度;(3)四大将新旧审计准则的转换成本部分转移给其客户,而非四大在市场竞争的作用下自行承担了转换成本。     

CFOs’ and public accountants’ perceptions of material weaknesses in internal control areas as required by Section 404 of the Sarbanes-Oxley act

One of the most controversial aspects of the Sarbanes-Oxley Act of 2002 (SOA) is related to Section 404, which requires management to assess the entity’s internal controls, and then its independent auditor to attest and report on management’s assessment. The auditing standard governing this requirement was promulgated by the Public Company Accounting Oversight Board (PCAOB). Its title is Auditing Standard (AS) No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements [Public Company Accounting Oversight Board (PCAOB) (2004). An audit of internal control over financial reporting performed in conjunction with an audit of financial statements. Auditing Standard No. 2, Washington, DC: PCAOB]. AS No. 2 requires, among other things, that management must disclose any “material weaknesses” in internal controls. However, absent any guidance other than definitions from the PCAOB, management and independent auditors are left to their own judgment to define and recognize “material weakness in internal control” or “significant deficiency” while implementing AS No. 2. The research question, then, becomes to what extent, if any, are weaknesses in internal control over financial reporting consistently assessed, recognized and agreed upon by both parties? Or does their professional judgment and point of view cause different perceptions? Most of the Section 404 research has focused on the characteristics of the material weaknesses disclosed (and the capital market or other impacts of reported material weaknesses). This study, in contrast, is behavioral in context, and examines the perceptions of CFOs and CPAs as to whether they believe an internal control material weakness exists under four independent scenarios. The results indicate that the CPAs were significantly more conservative in their assessments in two of the four cases.     

Reporting PFI in Annual Accounts: A User's Perspective

Deciding how to account for public sector financing provided under Private Finance Initiative (PFI) contracts has engendered considerable debate which revolves around whether they should be 'on balance sheet' or 'off balance sheet'. The Accounting Standards Board (ASB) provides the underpinning in FRS 5, interpreted through an ASB Application Note 'Private Finance Initiative and Similar Contracts' and the Treasury Technical Note 'How to Account for PFI Transactions'. This article illustrates the impact of the alternative accountings. It provides an analysis of the annual accounts of two NHS trusts whose assets are financed through PFI contracts, but which use different accounting approaches. There are considerable difficulties for the user of the accounts when attempting to interpret the comparative financial results of the two trusts in the light of these reporting differences and the financing of public services is less than adequately reflected in these resource accounting based financial statements.     

Shareholder election of CSR committee members and its effects on CSR performance

We examine the election of directors to corporate social responsibility (CSR) committees and whether shareholder votes influence CSR committee effectiveness. Our study is motivated by the importance that shareholders place on CSR and the responsibilities of the board in overseeing a firm's CSR practices. We find that CSR committee members receive greater shareholder support than other directors. We further find that among CSR committee members, those who are more experienced and skilled receive greater shareholder support. Furthermore, when a firm's CSR performance is poorer (better), CSR committee members receive lower (greater) shareholder support compared with other directors. Finally, we find that through voting, shareholders can increase the efficacy of the CSR committee, leading to improvements in CSR committee structure and performance. Overall, our results suggest that shareholders value the services and expertise of CSR committee members and hold them accountable for CSR performance. Shareholder votes are also effective in enhancing CSR performance.     

Corporate diversification,refocusing and shareholder voting

We examine if shareholders' attitude towards firm diversification strategy is revealed in their votes on management-initiated acquisition and divestment proposals using data on voting by shareholders of UK public firms between 1997 and 2019. We find that voting dissent is higher for diversifying acquisitions and lower for refocusing divestments, especially when these involve diversified firms. We also find a negative relationship between diversification premium and voting dissent. Our results provide evidence that diversification characteristics of firms and deals have a significant impact on shareholders' dissent in acquisitions and divestments.     

从注册会计师的注意义务看独立审计准则的法律地位

注册会计师承担的审计责任是一种注意义务违反的过失责任。相对于普通人而言 ,注册会计师注意义务是一种高度的注意义务 ;相对于其专业团体而言 ,注册会计师注意义务必须达到的仅仅是本团体中一般人的水平 ,即所谓的“合理谨慎”。独立审计准则是判断注册会计师注意义务的基础 ,它发端于司法实践 ,在发展过程中也得到了司法实践的支持和肯定。中国独立审计准则的制订 ,履行的是一个立法程序 ;独立审计准则在中国具有法规的地位。法律赋予独立审计准则作为注册会计师注意义务判别标准的抗辩地位。最后 ,本文对有关独立审计准则的非难提出了质疑 ,认为尊重独立审计准则的法律地位 ,是促进审计准则发展的前提 ;尊重会计专业团体的生存方式 ,是法学家应有的品格。     

公司社会责任报告外部审验国际标准述评

公司社会责任报告外部审验不仅可以提高社会责任披露信息的可信度,还有助于持续改善公司社会责任绩效。当前,公司社会责任报告审验领域的主要国际标准包括:国际审计与鉴证准则委员会的《历史财务信息审计和审阅之外的其他鉴证业务国际准则》、社会和伦理责任协会的《AA1000审验标准》以及挪威船级社的《企业社会责任报告审验规章》。本文在对上述标准进行简要介绍的基础上,分别从制定背景、侧重方面、标准导向、灵活性和可操作性四个方面进行系统地比较分析,最后提出完善我国社会责任报告外部审验的政策建议。