The effectiveness of internal audit in Malaysian public sector

Internal audit in Malaysian public and private sector organizations underwent a steady organic growth since gaining a foothold in the management process in the 1970s. The management of the Malaysian public sector is continuously maturing in facilitating foreign input in national development, echoing similar advances expounded by the internal audit units of private sector organizations. The main difference being the public sector addresses the interest of a much wider group of stakeholders. Rapid development in infrastructures and industries positioned Malaysia on the fringes of globalization and the world market. This enlarges the crucial role of internal auditing to ensure transparency, integrity, quality and improved service delivery; among myriad positive aims, remain the end point of any process area. This study explored the significance of internal auditing in the Malaysian public sector, and its subsequent extent and influence in public sector hierarchy and decision making. Data was collected from responses to a questionnaire distributed to head of internal auditors, internal auditors and other staff of internal audit departments from various categories of public sector departments and agencies in Malaysia. The study concluded that the internal audit function in the public sector in Malaysia is curtailed by understaffing and hampered by inadequate support from top management while, the auditors seldom extend their full cooperation. The auditors themselves lack appropriate knowledge and training on effective auditing approaches. The negative perception accorded to internal audit led to inaction by management on recommended remedies which only serve to nullify the positive contribution internal audit potentially holds to elevate the service delivery quality of the public sector.     

Auditor Switching and Investors＇ Reliance on Earnings： Evidence From Bursa Malaysia

This study provides some insights of investors＇ view on auditor independence focusing on auditor switching. Hence, the purpose of this study is to examine the effect of appointing a new auditor on investors＇ reliability on reported earnings in financial accounts. Analyses are based on a matched-pair sample of 162 listed companies in the Bursa Malaysia for the year 2011. The results of the ordinary least squares （OLS） regression show that earnings response coefficients for auditor switching companies are significantly higher than for non-auditor switching companies. The results provide support for the contention that investors place greater reliability on the financial accounts audited by newly appointed auditors. This finding is consistent with the Malaysian audit market where long audit tenure is a common practice and auditor switching is considered rare. Findings provide support for the long discussed issue of the importance of auditor rotation in maintaining auditor independence.     

Forensic Auditing Techniques and Fraudulent Practices of Public Institutions in Nigeria

Public institutions are charged with the responsibility of providing essential services for the welfare of the citizens by manipulating the economy＇s financial flow through public expenditure, taxation, and so on. The reliance on public institutions to provide public services in Nigeria has resulted in disappointing results, because chief executives of the institutions take less interest in the degree of its success, and this accounts for the high level of fraudulent practices in such institutions. This study, therefore, examined the relationship between forensic auditing and fraudulent practices in Nigerian public institutions. To achieve this purpose, some hypothetical statements were made and a review of relevant literature was explored. The population of the study consisted of the general managers and accountants of 12 public institutions in Nigeria. The data generated were statistically tested with the Pearson Product-Moment Correlation Coefficient. The findings suggest that both the proactive and reactive forensic auditing techniques have a negative significant relationship with fraudulent practices in Nigerian public institutions. Based on the above, it was recommended that： （1） The Economic and Financial Crime Commission （EFCC）, the Independent Corrupt Practices Commission （ICPC）, and other anti-corruption bodies in Nigeria should have, in their payroll, internal forensic auditors to supplement the duties of the internal auditors; （2） Forensic auditors should regularly undergo training and development programs to acquaint them with relevant knowledge and skills for effective forensic auditing; and （3） Forensic auditing should be made mandatory for public institutions by regulatory authorities rather than being voluntary.     

Effect of personality on fraud detection： The Malaysian case

Auditing standards require external auditors to provide reasonable assurance that the financial statements are free from material misstatements, either due to fraud or error. Inability of the external auditors to detect the material misstatements, particularly fraud, may expose them to litigation. The present study aims to examine the effect of personality factors （i.e., neuroticism, extraversion, conscientiousness, openness to experience and agreeableness） on the external auditors＇ ability to detect the likelihood of fraud. An experimental approach is adopted by sending case materials to audit partners and audit managers attached to auditing firms operating in Malaysia. The result shows that personality does not have a positive effect on the external auditors＇ ability to detect the likelihood of fraud.     

Effectiveness of Budgetary Entities

This paper acquaints readers with the practice of effectiveness evaluation in the public sector. The purpose of this paper is to study performance measurement according to the changes in public sector reform by focusing on performance-based budgeting in Russia. This paper suggests that the construction process of performance measurement should be aligned with outputs and outcomes of budget policy. The main research materials for this paper are based on data from a survey and follow-up interviews of budgetary managers and accountants. The survey result sets priorities and weighted some indicators to the measurement of effectiveness in the public sector. The data of this study were not large, but the study led to understanding how effectiveness is seen by budgetary managers and how measurement systems should be structured. Texts and contents from different sources such as financial annual reports and budgetary entities＇ websites provided insightful and interesting findings.     

Accounting for goodwill under FRS 136： Case of Malaysian plantation companies

The introduction of FRS （financial reporting standards） 136 to Malaysian PLC＇s （public limited company） in 2006 indirectly formalized accounting for purchased goodwill for the first time. Based on a sample of 2006 annual reports of 10 Main Board companies from plantation sector, the study finds the level of desired disclosure has yet to be met. Whilst the intention of the standard is noble, actual practice for first time reporting entities indicate that Malaysian PLC＇s and their auditors have far to go before they can meet the expectation set by FRS 136 in particular and International Financial Reporting Standards in general.     

Financial statements in less developed countries： What do preparers demand？

This study reports on an empirical investigation of the characteristics, attitudes, and beliefs of preparers of external financial reports in a less developed country. The basic research instrument consisted of a questionnaire in two parts： the first addressing attitudes of professional accountants toward annual financial reports generally; the second, more specifically measuring the importance of the information items to preparers. Our results suggest that the independent auditor is the most influential group in decision-making processes. As in many developed countries, the auditor＇s report and the regulatory framework are considered to have a major influence on financial reporting practices. Preparers believe that a lack of knowledge of external users＇ needs and lack of reporting standards and accepted accounting principles are the main concerns with corporate financial reports in Iran. The results showed that the balance sheet, auditors＇ report, and income statement in that order are the three most important parts of the annual reports.     

Application of International Public Sector Accounting Standards in Vietnam in Current Conditions

The objective of improving the state accounting system is to build a state accounting system based on a single and complete database which is applied uniformly across all public authorities and agencies from central to local. Such an accounting system must ensure a reliable and smooth flow of information among all the entities that take part in the preparation, allocation, execution, and finalization of the state budget. In order to improve the quality of financial information, to harmonize, and to develop accounting profession globally, the trend of international economic integration requires the standardization of accounting legislative framework among countries and first of all, the harmonization and unification of the preparation, presentation, and disclosure of financial information. Financial statements of each business in the private sector and financial statements of the government in the public sector in different countries should be transparent and presented in accordance with the accounting standards and principles and in line with international practices so that the financial information will be able to be compared and evaluated. Therefore, financial statements of each entity in the public sector and the consolidated financial statements of public sector entities issued by the government in different countries must be prepared and presented in a unified form to suit the international public sector accounting standards. Accordingly, with the application of the interview method in research, the main objective of this article is to focus on searching for the bases and consideration for the application of international public sector accounting standards in Vietnam in current conditions. This article consists of eight sections： （1） what are international public sector accounting standards？ （2） accounting entities of the public sector; （3） the limitations of current public sector accounting in Vietnam; （4） financial information to meet the requirements of state management and to comply with international practices; （5） the advantages of applying international public sector accounting standards in Vietnam; （6） the difficulties and challenges of applying international public sector accounting standards in Vietnam; （7） learning experiences from other countries; and （8） conclusion.     

The Theoretical Perspectives and Managerial Implications of the Balanced Scorecard （BSC） in the Italian Public Utilities

The present work aims to conduct a critical analysis of control systems and tools of performance assessment in local public services companies, with a particular reference to the public transport sector. The interest in this issue arises for various reasons, from the growing economic significance of the sector at a national level, measurable in terms of production value and the number of operators involved, to the spread of outsourcing policies, liberalization and privatization, and the use of the standard cost to establish the level of funding. In the field of public utilities, until a few years ago, the concept of control was intended only in a ＂bureaucratic＂ sense as the capacity to fulfill the formal obligations linked to the strong regulatory context, ignoring aspects that have become fundamental today, such as economy, efficiency, and effectiveness of management. The approach used is deductive and the study ends with the presentation of the possible implications of the use of standard cost and the presentation of an application hypothesis of a balanced scorecard （BSC） for local public transport （LPT）.     

The Relationship Among Ethical Climate,Job Satisfaction,Organizational Commitment,and External Auditor＇s Turnover Intention

This study attempts to examine the relationship among ethical climate, job satisfaction, organizational commitment, and turnover intention in the context of the Malaysian external auditor＇s work environment. The questionnaire is sent to a sample of external auditors from Malaysian Big Four （Klynveld Peat Marwick Goerdeler （KPMG）, Ernst and Young, Deloitte KassimChan, and PricewaterhouseCoopers （PwC）） main offices. There are 167 useable responses. The regression results have provided evidence that ethical climate is directly, significantly, and positively associated with job satisfaction. In contrast, ethical climate appeared not to be directly related with external auditor＇s turnover intention. Both job satisfaction and organizational commitment were identified as significant predictors in explaining turnover intention, since they had a significant and negative effect on external auditor＇s turnover intention. This study also implied that job satisfaction had a significant effect on organizational commitment. Furthermore, the findings revealed that organizational commitment partially mediated the relationship between job satisfaction and turnover intention. The results extend the literature on external auditor＇s turnover intention and provide insights for human resource management in accurately assessing employee＇s turnover intention in order to improve retention and reduce actual turnover particularly in audit firms.     

The Role of Accountants in Decision-Making in Lebanese Firms

The issue of accountants＇ role in decision-making has been the center of attention of lots of studies in the last decade but never did it get the adequate coverage in Lebanon. This paper studies to what extent accountants are involved in the managerial decision-making in Lebanon. Two hundred experienced accountants from all over the country were randomly selected for a questionnaire survey. This survey provides evidence as to what factors contribute to the variance of influence accountants have in managerial decision-making. The results from the questionnaires varied, but we conclude that accountants＇ involvement in new product development （NPD）, the skills that accountants have, their role in the financial analysis of the firm, and how much the finn they work for encourages them to advice on business decisions affect the degree of contribution an accountant has to decision-making. The findings of this research could be used as a reference to help in understanding the role of accounting in Lebanon by various finns and organizations.     

Do auditors perform governance functions？ A research on the change of performance notice

Whether auditors provide high-quality audit services has been a concern of academics for a long time, but it has not clear answer. In this paper the author studies this problem from the real basis of audit activities, in view of an endless stream of the performance of listed companies notice ＂change＂ phenomenon. The author finds that auditing is the important reasons of listed companies notice ＂change＂, auditor can improve disclosure quality, is the gatekeeper to accounting information. The author also finds that there may be exist collusion of listed company with auditor, SEC should enhance inspection of the implementation of listed companies notice of earnings.     

Issues on Public Sector Accounting Reform in Jordan

This study reviews recent articles discussing the benefits of International Public Sector Accounting Standards(IPSAS)implementation in reforming public sector accounting,specifically in developing countries.These benefits are among others better transparency,accountability,and decision making in public sector financial transactions.The purpose of this study is to examine the role of IPSAS in addressing some critical financial issues,including financial aids,budget deficit,taxes,and corruption,which may hinder the progress of Jordanian public sector and the country’s economic growth.This study concludes that IPSAS has an effective role in addressing these thorny issues and its implementation would therefore allow the Jordanian public sector to reach its development goals.The unique contribution of this study is that it enriches the body of knowledge regarding the benefits of IPSAS implementation in a more holistic manner and in a new context,Jordan.     

Board independence, ownership structure, audit quality and income smoothing activities： A study on Malaysian market

The 1997 economic crisis faced by many East Asian economies has generated a substantial amount of debate largely focused on issues such as the roles and functions of good corporate governance （CG）. Lack of transparency has been singled out as the major culprit of the crisis and it has been alleged to cause management to indulge themselves in unhealthy activities such as income smoothing （IS） act. The paper extends Nasuhiyah, Hian, Sob and WEI （1994） by incorporating contextual variables that proxy for CG, ownership structure and audit quality. The empirical analysis is conducted on a sample of Bursa Malaysia listed companies for a period between 1991 and 2000. The main intention of taking this time span is to observe to what extend has previous business operations inculcated the feature of CG in the running of their companies＇ activities despite not being obligatory for them to uphold. The results showed that the existence of non-executive directors and the presence of brand name auditors to be significant in hindering the management from indulging in IS. The study opens the way for a richer understanding of the links among CG, ownership structure, audit quality and IS in Malaysia.     

A Statistical Analysis of Reliability of Audit Opinions as Bankruptcy Predictors

This research measures the reliability of audit firms in predicting bankruptcy for United States （US） listed financial institutions. The object of analysis is the going concern opinion （GCO）, widely considered as a bankruptcy warning signal to stakeholders. The sample is composed of 42 US listed financial companies that filed for Chapter 11 between 1998 and 2011. To highlight the differences between bankrupting and healthy firms, a matching sample composed of 42 randomly picked healthy US listed financial companies is collected. We concentrate on financial institutions, whereas the existing literature pays considerably greater attention to the industrial sector. This research imbalance is remarkable and particularly unexpected in the wake of recent financial scandals. Literature points out two main approaches on bankruptcy prediction： （1） purely mathematical; and （2） approaches based on a combination of auditor knowledge, expertise, and experience. The use of data mining techniques allows us to benefit from the best features of both approaches. Statistical tools used in the analysis are： Logit regression, support vector machines （SVMs）, and an AdaBoost meta-algorithm. Findings show a quite low reliability of GCOs in predicting bankruptcy. It is likely that auditors consider further information in supporting their audit opinions, aside from financial-economic ratios. The scant predictive ability of auditors might be due to critical relationships with distressed clients, as suggested by recent literature.     

Accounting regulation and IPSAS implementation： Efforts of transition countries toward IPSAS compliance

The need for high quality standards to enhance sound and consistent financial reporting and the fact that the inefficiency and ineffectiveness of public sector extended to a belief that public and private sectors did not have to be managed in fundamentally different ways, fostered a wide-ranging discussion about the harmonization of public sector accounting systems and their convergence towards the private sector financial reporting standards. This paper discusses the state and perspective of public sector accounting and financial reporting in transition countries. Precisely, this paper aims to examine the adequacy of governmental accounting and financial reporting model, reflecting the existing accounting regulation and financial reporting framework in Slovenia, Croatia and Bosnia and Herzegovina. The motivation for this paper emerges from international discussions about IPSASs development and adoption, and the fact that the topic is becoming more and more relevant as many countries are moving towards adopting full accrual accounting using IPSASs as their method of financial reporting. Our results show that the degree and dynamics of government accounting systems＇ transformation in transition countries depends upon several specific factors which have to be taken into account when evaluating the systems and making comparison between government accounting system reforms in countries in the analysis. Thus, the study distinguishes certain similarities but also discrepancies regarding the status and possible further development of governmental accounting in countries examined.     

Association Between Independent Auditor Fees and Firm Value： A Study of Brazilian Public Companies

This article investigates the relationship between fees for audit and non-audit services with Tobin＇s Q. Using a sample of Brazilian public companies in the period from 2009 to 2011, we estimate the association between Tobin＇s Q and the auditors＇ remuneration scaled by total assets. Additionally, to strengthen the conclusions, we present a second model with the remuneration of the auditors in absolute terms. The results suggest a significant relationship between Tobin＇s Q and audit and non-audit fees, positive and negative, respectively. Specifically, increases in audit fees and non-audit fees respectively increase and decrease the Tobin＇s Q of the audited company. The results of this study have important implications for those interested in good corporate governance practices. Managers and board members concerned with value carefully evaluate the remuneration and nature of services creation, when engaging independent auditors, should provided.     

The audit expectation gap： A review of the contributing factors

The audit expectation gap is critical to the auditing profession because the greater the unfulfilled expectations from the public, the lower is the credibility, earning potential and prestige associated with the work of auditors. The aim of this paper is to uncover the causes of an audit expectation gap. It is revealed that the existence of an audit expectation gap is due to complicated nature of an audit function; conflicting role of auditors; retrospective evaluation of auditors＇ performance; time lag in responding to changing expectation; and self-regulation process of the auditing profession.