Audit Committees and Managerial Influence on Audit Quality: ‘Voluntary’ versus ‘Mandatory’ Approach to Corporate Governance

This study provides empirical evidence on how managerial influence to reduce audit quality is moderated by a combination of the audit committee (AC) form and compliance with AC best practice guidelines. There is a negative association between managerial ownership and audit fees; however, the association becomes positive when a voluntary AC follows best practices. Furthermore, the results are robust to the exclusion of industries with large frequency in the sample, the consideration of Korean business groups and recessionary times. The results of this study imply that a voluntary approach to corporate governance, which encourages companies to follow best practice guidelines in the form and composition of the AC, is more effective in controlling management than a mandatory approach. This study contributes to policy making aimed at improving AC effectiveness.     

Canadian Evidence of Adherence to “Comply or Explain” Corporate Governance Codes: An International Comparison

This study documents the rate of compliance by Canadian public firms with corporate governance recommendations imposed by the Canadian Securities Administrators. Canada uses a “comply or explain” governance structure in which harmonized provincial regulation establishes mandatory disclosure of governance practices. Firms can be compliant with these requirements either by voluntarily adopting the recommended best practices (i.e., adopt) or by explaining the alternative practices implemented to achieve the same governance principle (i.e., explain). Firms that fail to comply (i.e., neither adopt nor explain) are in violation of Canadian securities regulation with respect to governance. Using a hand‐collected sample of 742 Canadian public companies and 16 governance recommendations, our results show that an average of 82 percent of firms complied by adopting the best practice and an additional 4 percent complied by explanation. Our study also shows that 39 percent of Canadian publicly traded firms were completely compliant with all 16 recommendations examined in this study, either by adoption or explanation. To provide a broader context for these results, we compare rates of compliance in Canada to rates in Australia, a country broadly similar to Canada with comparable governance recommendations. The Australian Securities Exchange supplied data sample of 1334 Australian companies reports a complete compliance rate of 74 percent compared to Canada's 39 percent complete compliance rate. Our analysis shows that compliance by adoption of best practice is more common in Canada, whereas compliance by explanation is more common in Australia. In our analysis of compliance with individual recommendations, we find that half of the recommendations are more likely to be complied with in Australia, and the other half are more likely to be complied with in Canada.     

The ‘SKADE LITorSET’ Expert System for Corporate ‘Litigate or Settle’ Decisions

The ‘SKADE LITotSET’ system is a blackboard-based expert system that makes ‘litigate or settle’ decisions in the product liability area. It has three knowledge sources: Legal, Manager and Insurance Adjuster. The combined expertise from each of these is required to solve the ‘litigate or settle’ problem. The control component co-ordinates the interaction between the various knowledge sources on the blackboard. Based on the latest changes to the data on the blackboard, it selects and executes the next knowledge source. The model reproduces the decision makers' opportunistic reasoning processes by the interaction between the various knowledge sources through the blackboard. The results of analyses of a hypothetical case through a series of experiments with the ‘SKADE LITorSET’ system indicate that the blackboard is an appropriate model for development of expert systems in the ‘litigate or settle’ decision domain. The initial success with the blackboard approach suggests that further work needs to be done to see whether more complex models can be built to incorporate a broader range of determinants of settlement decisions.     

‘Obedience’ in the classroom

The second general standard of the AICPA states “In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors.” Despite assertions that the ultimate responsibility of independence rests with the individual auditor, emphasis is typically placed on the AICPA's code of ethics in the auditing classroom. But, does such an approach reflect and accentuate the ultimate moral responsibility of the individual? The purpose of this paper is to discuss the use of Milgram's film “Obedience,” which portrays a psychological experiment on response to authority, as a means of dramatizing the subtle nature of “mental independence” to auditing students.The paper describes the use of this film in auditing instruction and the corresponding response of students. Recommendations for effective administration of the film are offered.     

An ‘Islamic future’ without a name

In this allegory of the search for a name for his grandson, the writer envision alternative themes of Islamic futures. In the conclusion of the quest, more fundamental insights into the nature of the future and our present relations to it are gleaned.     

Wisdom or Widgets: Whither the School of ‘Business’?

The development of quantitative methods has proved to be invaluable in contemporary academic life; it has opened up the world to empirical studies. Yet there is a cost. 'The mind of man,' writes John Dewey, 'is taken captive by the spoils of prior victories' (Gummere, 1988, p. 25). In the social sciences, and particularly in the business area, quantitative methods have become a fetish and have led to the crowding out of non-empirical work. 'Wisdom or Widgets' examines the implications of this disturbing phenomenon.     

Firm Characteristics,Shareholder Sophistication and the Incidence of a ‘First Strike’ Under the ‘Two Strikes’ Rule in Australia

To restrain ‘excessive’ executive pay, Australia introduced new legislation in 2011, commonly known as the ‘two strikes’ rule. This rule has predictable consequences for publicly listed firms and their directors. In this study, we investigate which firm characteristics are associated with the incidence of a ‘first strike’ under the two strikes rule. We find that the incidence of a first strike is positively associated with higher levels of CEO pay, lower ownership concentration, smaller firm size, higher level of institutional ownership and CEO duality. Additional analysis suggests that shareholders fail to differentiate between CEO pay, which is related to the economic characteristics of a firm, and the pay that is not related to firm characteristics. This finding suggests that, unlike US shareholders, Australian shareholders do not appear to have a sophisticated understanding of CEO pay structure.