Nonprofessional investors' perceptions of the incremental value of continuous auditing and continuous controls monitoring: An experimental investigation

In this study, we investigate nonprofessional investors' perceptions of the incremental value of additional assurance provided by continuous auditing (CA) and continuous controls monitoring (CCM) relative to traditional periodic auditing. We also examine whether nonprofessional investors' perceptions of incremental value of CA and CCM depend on whether the procedure is performed by internal or external auditors, given that external auditors are likely to be perceived as more independent and objective than internal auditors. We conduct two experiments, one using 120 nonprofessional investors recruited by a national survey company, and the second using 184 participants recruited via Amazon's Mechanical Turk platform. The first experiment employed a 2 × 2 between-participants design in which we manipulate the type of assurance (CA or CCM) and the source of assurance (internal or external auditors). The second experiment was identical to the first experiment, with the addition of a fifth condition to test a conjecture stemming from the results of the first experiment. The results from both experiments indicate that although nonprofessional investors believe that continuous auditing decreases the likelihood of material errors and asset misappropriation, nonprofessional investors do not concomitantly increase their investment upon learning about the implementation of these sophisticated continuous assurance techniques. Evidence from the second experiment provides support for the contention that the reason why nonprofessional investors do not increase their investment pursuant to implementation of CA or CCM is due to the salience of the additional costs of these techniques. These results have important implications for firms considering the implementation of additional assurance procedures such as CA and CCM.     

Is assurance on risk management systems relevant for bankers’ decisions?

Risk management systems (RMS) are an essential element of corporate governance and support companies in managing the omnipresent internal and external risks. Assurance on such systems can support such efforts and add further benefits. This study investigates the impact of RMS assurance on the perceptions and decisions of German bankers, and analyzes whether the assurance provider and the assurance level are relevant to them. We conducted an experiment with 145 bankers, using ANOVA to analyze their reliance on the hypothetical company’s RMS and their decisions regarding lending, recommending investments, and investing in stocks. A 2×2+1 between-subjects design was chosen, and we manipulated the assurance provider (audit firm vs. third-party provider) and the assurance level (limited vs. reasonable), and added a control condition with no assurance. Our results indicate that RMS assurance positively influences banker perceptions and decisions, whereas the assurance provider and assurance level has no statistically significant impact on them.     

企业内部监督模式研究——基于风险导向和成本效益原则

内部监督是对内部控制的再控制,旨在为内部控制体系的持续有效运行提供合理保证。本文探讨了内部监督模式的生成基础,构建了内部监督流程,通过风险导向提高内部监督的效果,通过成本效益原则提高内部监督的效率,从而为相关政策的制定提供参考。     

The acceptance and adoption of continuous auditing by internal auditors: A micro analysis

The umbrella of “advanced technology” covers a range of techniques widely used in the U.S. to provide strategic advantage in a very competitive business environment. There is an enormous amount of information contained within current-generation information systems, some of which is processed on a real-time basis. More importantly, the same holds true for actual business transactions. Having accurate and reliable information is vital and advantageous to businesses, especially in the wake of the recent recession. Therefore, the need for ongoing, timely assurance of information utilizing continuous auditing (CA) and continuous control monitoring (CM) methodologies is becoming more apparent. To that end, we have conducted interviews with 22 internal audit managers and 16 internal audit staff members at 9 leading internal audit organizations to examine the status of technology adoption, to evaluate the development of continuous auditing, and to assess the use of continuous control monitoring. We found that several companies in our study were already involved in some form of continuous auditing or control monitoring while others are attempting to adopt more advanced audit technologies. We also made a large number of surprising observations on managerial, technology training and absorption, and other issues. According to our audit maturity model, all of the companies were classified between the “traditional audit” stage and the “emerging stage,” not having yet reached the “continuous audit” stage. This paper,¹ to our knowledge, is the first to study CA technology adoption in a micro level by an interview approach.     

Issues with the communication and integrity of audit reports when financial reporting shifts to an information-centric paradigm

A core application of XBRL is to facilitate the flow of tagged financial statements and annual reports, from companies and other entities directly to the databases, web sites, and computers of regulators, stakeholders and other information consumers. Increasingly, XBRL provides the technological foundation for the communication of financial information where there is independent assurance. This XBRL-based assurance may be on the financial statements (i.e., an electronically consumable form of today's standard PDF or HTML audit report) or focus on the quality of the XBRL exhibit (i.e., the instance document). Regardless of the type of XBRL assurance report, maintenance of the security and integrity of the instance document is paramount. This conceptual paper identifies and discusses the communication, security challenges and relevant research issues when there is independent assurance on financial statements formatted in XBRL. Successful electronic communication of assurance to information consumers should clearly distinguish the responsibilities of management (i.e., the financial statements) and the auditor (i.e., the audit report). It is important to have an integrated approach where the assurance report, financial statements and other reports in which facts in the financial statements are incorporated are inextricably tied at the level of automated data consumption. Further, as much as possible, human interaction should be accommodated. The paper sets out a range of alternatives for maintenance of security on the assurance report.     

Machine‐independent audit trail analysis—a tool for continuous audit assurance

This paper reports the results of a research project which examines the feasibility of developing a machine‐independent audit trail analyser (MIATA). MIATA is a knowledge‐based system which performs intelligent analysis of operating system audit trails. Such a system is proposed as a decision support tool for auditors when assessing the risk of unauthorized user activity in multi‐user computer systems. It is also relevant to the provision of a continuous assurance service to clients by internal and external auditors. Monitoring user activity in system audit trails manually is impractical because of the vast quantity of events recorded in those audit trails. However, if done manually, an expert security auditor would be needed to look for two main types of events—user activity rejected by the system's security settings (failed actions) and users behaving abnormally (e.g. unexpected changes in activity such as the purchasing clerk attempting to modify payroll data). A knowledge‐based system is suited to applications that require expertise to perform well‐de?ned, yet complex, monitoring activities (e.g. controlling nuclear reactors and detecting intrusions in computer systems). To permit machine‐independent intelligent audit trail analysis, an anomaly‐detection approach is adopted. Time series forecasting methods are used to develop and maintain the user pro?le database (knowledge base) that allows identi?cation of users with rejected behaviour as well as abnormal behaviour. The knowledge‐based system maintains this knowledge base and permits reporting on the potential intruder threats (summarized in Table I). The intelligence of the MIATA system is its ability to handle audit trails from any system, its knowledge base capturing rejected user activity and detecting anomalous activity, and its reporting capabilities focusing on known methods of intrusion. MIATA also updates user pro?les and forecasts of behaviour on a daily basis. As such, it also ‘learns’ from changes in user behaviour. The feasibility of generating machine‐independent audit trail records, and the applicability of the anomaly‐detection approach and time series forecasting methods, are demonstrated using three case studies. These results support the proposal that developing a machine‐independent audit trail analyser is feasible. Such a system will be an invaluable aid to an auditor in detecting potential computer intrusions and monitoring user activity. Copyright © 2004 John Wiley & Sons, Ltd.     

The Impact of AASB 8 Operating Segments on Analysts’ Earnings Forecasts: Australian Evidence

This paper evaluates the impact of firms’ adoption of AASB 8 segment disclosure rules on analysts’ earnings forecasts. It examines whether providing more disaggregated segment information following the adoption of AASB 8 is associated with an increase in analysts’ ability to forecast earnings. We find that analysts’ earnings forecasts have not improved significantly after adopting AASB 8 in Australia, regardless of whether firms disclosed more disaggregated segment information. Our use of control firms provides assurance that the results are due to AASB 8 and not to some other events concurrent with the adoption of AASB 8. Overall, our results imply that the benefits associated with the management approach as experienced by financial analysts in the United States have not been realised by financial analysts in Australia. This suggests that the successful adoption of an accounting standard in one country should not be the justification for recommending adoption in other countries. Further, our results raise questions about whether the enhanced disclosures required in the new standard are more for the other users of financial statements, such as investors, rather than analysts.     

Initial public offering prospectus forecast errors and mandatory explanations: evidence from New Zealand

This paper examines management forecast errors in initial public offering (IPO) prospectuses of New Zealand firms and subsequent management explanations for earnings forecast errors in recent years. New Zealand has several unique features and recent changes that are worthy of research, including the requirement for management to make forecasts; a requirement to explain differences between forecast and actual; and a recent change that provides the voluntary opportunity to obtain a negative assurance opinion on forecasts. Using hand-collected IPO data between 1998 and 2014, we find that firms that include a negative assurance opinion on the prospective financial information in the prospectus have more accurate earnings and cash flow forecasts. We investigate the subsequent explanations for forecast errors, which are mandated by a financial reporting standard. We show that management tends to attribute negative and large forecast errors to external causes rather than their own actions. Our findings have implications for regulators and investors in New Zealand and other settings.     

Information asymmetry,mutual funds and earnings management: Evidence from China

This paper investigates how information asymmetry and mutual fund ownership affect listed companies’ earnings management. We show that (1) reducing information asymmetry improves firms’ earnings management behavior; (2) relative to short-term mutual funds, long-term mutual funds promote earnings quality by adopting a monitoring role; and (3) by dividing firms into high/low information asymmetry groups, we find that the information environment significantly increases the effect of long-term mutual funds on firms’ earnings management. In this paper, we provide new evidence for the role that institutional investors play in a typical emerging capital market. Our results have clear policy implications: to increase earnings quality, it is essential to improve information transparency and develop long-term institutional investors.     

Impact of stakeholder characteristics on voluntary dissemination of interim information and communication of its level of assurance

Equity of access to information for listed entities is a key principle in an efficient and effective market. Direct mailing is a mechanism for achieving this. This study examines equity of access by identifying the half‐yearly financial information, if any, voluntarily mailed out by Australian listed entities and associated stakeholder characteristics. We find that certain stakeholder characteristics (presence of audit committee and shareholder dispersion) are associated with voluntary mail‐out of half‐yearly financial information, along with certain control variables (size of entity, industry and audit opinion). This study further identifies that there are very few instances of the higher level of assurance (audit) being chosen, and where half‐year information is disseminated there are very few instances of the level of assurance on this information being communicated to shareholders.     

A Statistical Control Model for Utilization Management Programs

Abstract

A new approach is proposed for monitoring health-care costs to help in cost containment efforts. This informative essay is intended to provide information on and stimulate discussion of ways of improving the health-care management process.

Data that are being collected by insurers and providers could be used to analyze and improve the health-care process. New statistical techniques, and better, more consistent input of data, will be critical to successful utilization management programs. Necessary conditions for the success of the new methods are (1) diagnosis protocols that are “true gold standards,” (2) a satisfactory disease classification system, (3) meaningful and consistently coded data, and (4) statistical methodology that takes advantage of as much of the available data as possible. The hospital admissions process is illustrated to show the incorporation of an inexpensive statistical control process for reducing the incidence of unnecessary hospitalizations.     

Audit firm's Confucianism and stock price crash risk: Evidence from China

This study examines the association between audit firm's Confucianism and stock price crash risk. We postulate that Confucian moral standards predict a mixed relationship between audit firm's Confucianism and stock price crash risk. Using a large sample of listed firms in China during 2006–2018, we find that audit firm's Confucianism is positively related with client's future stock price crash risk, implying that Confucianism of audit firm aggravates client's bad news hoarding behavior. The effect is more pronounced for client without female auditors and/or with closer personal relationship with auditors. Mechanism analysis shows that audit firm's Confucianism exacerbates crash risk by worsening audit quality and information transparency. Political discipline and external monitoring help to alleviate the negative influence of audit firm's Confucianism on stock price crash risk.     

Management accounting systems, task uncertainty and managerial performance: A research note

This study examines the interactive effects of management accounting systems (MAS) design and task uncertainty on managerial performance. MAS design was defined in terms of the extent to which managers use broad scope MAS information. The responses of 42 managers, drawn from a cross-section of Australian manufacturing companies, to a questionnaire survey were analysed by using a multiple regression technique. The results showed that under a high task uncertainty situation, the extent of use of broad scope MAS information led to effective managerial decisions and hence to improved managerial performance. On the other hand, under low task uncertainty situations, the extent of use of broad scope MAS information led to information overload which was dysfunctional to managerial performance.     

Assuring the integrated report: Insights and recommendations from auditors and preparers

There is little guidance on how integrated reports could be the subject matter of a conventional assurance engagement despite their growing use as an important means of communicating with stakeholders. This paper takes the first step in addressing this issue. The study relies on primary data collected from recorded interviews with 20 audit experts and 20 preparers, complemented by principles from existing professional assurance standards, to develop interpretively three possible assurance models (restricted, integrated and Delphi-inspired assurance).A restricted assurance model concentrates only on the audit of financial statements and the reporting of inconsistencies between the financial statements and other information contained in an integrated report to those charged with an organisation's governance. An integrated approach to ‘assurance’ offers an immediate solution for providing at least some assurance over the integrated report. It relies on different systems of checks and balances to provide directors with a basis for accepting responsibility for their organisations' integrated reports. Finally, a Delphi-inspired model offers a glimpse into how assurance services may evolve in response to the call for integrated reports to be assured. This model relies on a panel of experts to express an opinion on the method used to prepare integrated reports.     

Activation and variation of the United Nation’s cluster coordination model: a comparative analysis of the Haiti and Japan disasters

The coordinated response to extreme events is critical as illustrated by recent disasters in Haiti and Japan. As a way for coordinated provision of international humanitarian assistance to disaster-hit countries, the Office for the Coordination of Humanitarian Affairs (OCHA) developed cluster coordination model (CCM). With content analysis and network analysis of OCHA situation reports, this study checked four premises regarding activation of CCM, interaction between national and international actors, roles of proximity country, and level of cluster coordination. This study found that there were meaningful variations in implementing the CCM for 2010 Haiti and 2011 Japan disasters. From the analyses, we found that the current CCM may be vulnerable to black swan disasters; thus, extensive and active estimation of national disaster management capacities should be conducted to prevent collapse of national disaster management system. However, the reconciliation of state sovereignty and international humanitarian assistance also should be considered.     

Organizational Health Maintenance: The Design of a Knowledge-Based Strategy Support System

Rather than reacting to strategic problems, a healthy organization should focus on preventing debilitating strategic decisions. This research takes the view that the implementation and monitoring of strategic plans should be more open to opportunistic and preventive intervention as made possible by the design and implementation of innovative information systems technologies employing recent knowledge-based systems advancements. A knowledge-based alerting approach to organizational health maintenance (OHM) is developed. Critical to this approach is the determination of a set of triggers for determining when actions are deemed necessary for preventing strategic problems. An OHM System architecture and implementation are described.     

Central supervision and earnings management: Quasi-experimental evidence from China

Earnings management is costly to society because it decreases the informativeness of earnings and hence distorts capital market efficiency. Drawing upon a natural experiment generated by the staggered random on-site inspection programme initiated by China's central government between 2013 and 2017, this paper finds that highly intensive central supervision significantly decreases local firms' earnings management behaviours. Moreover, the effect of central supervision is found to be more pronounced in provinces with severe GDP exaggeration, provinces with local governors facing impending promotion, and firms controlled by the government. These findings suggest that on-site inspections by the central government may alleviate local officials' political incentives and ability to pressure local firms to engage in earnings management. However, the estimation results of timing tests indicate that this monitoring effect is short-lived, calling for a more comprehensive strategy to enhance the supervision of local officials and consequently improve the reliability of firms' financial reporting quality. These findings highlight the importance of addressing the agency problem between central and local governments in curbing firms' earnings manipulation to improve the capital market efficiency of economies characterized by strong government intervention.     

Proprietary trading losses in banks: do banks invest sufficiently in control?

This paper analyzes management and control issues linked to the employment of traders who engage in proprietary trading activity for their employer (a bank). The bank can invest in control and monitoring of these traders, and the paper evaluates the profitability of such investments. We find that the investment in control is distorted due to interfering market microstructure effects. The bank is inclined to underinvest in control of its traders because traders who are not too closely monitored generate extra liquidity in the market. Bank supervision might be needed, therefore, to correct for such effects. We evaluate the effectiveness of the value-at-risk capital adequacy requirement proposed by the Bank for International Settlements, and find that this approach correctly targets the banks that are the most vulnerable, i.e. those that are the most at risk of underinvesting in its control and monitoring systems.      

Reimagining design science and behavioral science AIS research through a business activity lens

In this paper, we present a novel approach for reimagining the scope and impact of design science and behavioral science accounting information systems (AIS) research. We do so by first explicitly considering the broad impact of accounting on business functions. The proliferation of information technology throughout the organization coupled with the blurring of the lines between “accounting” and “business” activities has spawned a world where (technology-enabled) accounting has truly become the language of (technology-driven) business. Leveraging the International Standards Organization model of the phases of business activity, we highlight how utilization of information systems artifacts in each business activity phase yields a broad array of AIS research questions. Second, we encourage design science and behavioral science AIS research to work synergistically, such that the outputs of each paradigm inform the research conducted in the other paradigm. We suggest that a more purposeful integration of design science and behavioral science AIS research over time can improve the rigor and relevance of AIS research to advance knowledge in the field, amplify the impact of AIS research for our colleagues in both accounting and information systems, and improve the practical applicability of the research findings.