Assessing inherent risk during audit planning: The development of a knowledge based model

Within the academic and professional auditing communities there has been growing concern with accurately assessing the various risks associated with the performance of an audit. One approach to developing sophisticated risk assessment models is to study how experienced expert auditors use industry and firm specific factors in making audit judgements. This study presents a model of inherent risk assessment based on literature reviews and a field study that involved structured and unstructured interviews and observations of experts in audit planning meetings. Analysis of the data gathered led to the specification of a conceptual model of inherent risk assessment which has been implemented as a computer program (a computational model). Auditors were asked to assess the behavior and performance of the computational model as a first step in evaluating the expert model.     

Cultural Affinity and Lending Discrimination: The Impact of Underwriting Errors and Credit Risk Distribution on Applicant Denial Rates

We examine the impact of underwriting errors on marginal loan denial rates when these errors or average creditworthiness differ across racial groups. We find that the noise in evaluating applicant credit risk can have a differential impact on marginal borrowers across racial groups. Consequently, discrimination can go undetected in an examination of relative loan denial rates when it is present. We also show that discrimination can be detected where none exists. Furthermore, we argue that it is likely that the errors a bank makes in assessing applicant credit risk are a consequence of its skill or affinity, which, in turn, is shaped by the underwriting experiences in the bank's market. A resulting implication is that banks that develop affinities in serving different market segments may have substantially different denial rate experiences across racial groups. This observation can shed light on the puzzling result that minority-owned banks tend to perform poorly in studies of lending discrimination. We conclude that underwriting errors call into question the reliability of the fair-lending guidelines used to assess all banks.     

Trust and direct marketing environments: A consumer perspective

The desire to establish long‐term customer relationships has led companies to consider normative as well as outcome related aspects of relationship development. Much of the research undertaken in this field has focused upon such activity in business‐to‐business markets. The current study sought to examine these issues, from the consumer perspective, in relation to approaches made by firms using direct marketing techniques, specifically direct mail. Empirical assessment was made of a sample of consumers in relation to their receptivity to product and service offerings from firms, and the effects of commitment, trust and privacy concerns upon this receptivity. In conclusion, some implications for marketing practice in developing customer relationships in direct marketing environments are discussed.     

Hospitality entrepreneurs managing quality of life and business growth

The hospitality industry is dominated by small- and medium-sized enterprises (SMEs).They are often led by entrepreneurs who face the challenge of simultaneously managing business decisions and their own wellbeing. The competitiveness of tourism destinations often depends on these entrepreneurs and therefore understanding their motivations and work patterns is critical. Research on individual wellbeing increasingly builds on the concept of quality of life (QoL). Hospitality and tourism literature so far predominantly focused on investigating QoL for tourists and residents, rather than for entrepreneurs’ QoL, even though being key stakeholders in the hospitality industry. Therefore, this study explores the factors influencing hospitality entrepreneurs’ quality of life (“HE-QoL”) and how these relate to business growth. Results of a 380 hospitality entrepreneurs’ survey identify six distinct factors of HE-QoL. Two groups of HE-QoL are identified with significant differences in fitness level activity, entrepreneurial competencies and business growth. Findings lead to recommendations to reduce stress to improve HE-QoL, and to develop entrepreneurial competencies, which help to cope with entrepreneurial challenges. Tourism destinations and politics can support hospitality entrepreneurs in these actions by creating conditions that foster social exchange in regional communities and trust in political and economic stability.     

Fixing the financial system

At the base of the current recession is a global financial system that is arguably the root of the problem. Georgina Peters considers how the system came unglued and what it will take to repair it.     

A Note on the Profitability of Wheat-ethanol-feedlot Production in Alberta

A risk analysis of the economics of alternative wheat supplies to a small ethanol-beef feedlot facility was conducted, based on historical data from an 18-year period (1978–96). Alternatives simulated were Black, Dark Brown and Brown soil zone locations in Alberta growing either Hard Red Spring (HRS) wheat, Canadian Prairie Spring (CPS) wheat or irrigated Soft White (SWW) wheat to supply a 10 ML per year ethanol plant. The plant would use the coproduct of wet distillers grains in the finishing of approximately 14,000 steer calves per year. Three valuation scenarios were considered: selling ethanol at its market price, inclusion of current Alberta tax incentive levels for ethanol sale, and sale of wheat to the Canadian Wheat Board as opposed to sale to an ethanol plant. Ethanol facility and total net revenues were highest for the CPS-Dark Brown soil scenario due to its relatively high ethanol yields per tonne of feedstock, and high grain yields per hectare. An integrated feedstock-ethanol-livestock operation selling ethanol at current subsidy (tax incentives) levels will lose money approximately half to two-thirds of the time over the long run. Without subsidies, an integrated facility would lose money two-thirds to three-quarters of the time. Nous avons réalisé, à partir de données recueillies durant une période de 18 ans (1978 à 1996), une analyse de risque des aspects économiques de diverses provenances de blé pour une petite exploitation éthanol-parc d'engraissement. Les options simulées consistaient en emplacements situés dans les zones de sols noirs, brunfoncé et bruns de I'Alberta, produisant soil du blé roux vitreux deprintemps (BRVP), du blé de printemps des Prairies canadiennes (BPPC) ou du blé blanc tendre (BBT) sous irrigation pour alimenter un atelier d'éthanol d'un volume de fabrication de 10 millions de litres par année. L'atelier hypothétique utiliserait le co-produit des drêches de distillerie humides pour engraisser quelque 14 OOOjeunes bouvillons par année. Trois scénarios de valorisation étaient envisagés: vente de I'éthanol au prix de marché, inclusion des incitatifs fiscaux actuels de I'Alberta pour la vente de I'éthanol et vente du bléà la Commission canadienne du blé par opposition à la vente à un atelier de production d'éthanol. Les revenus nets tirés de I'atelieret les revenus nets totaux les plus élevés de l'exploitation étaient obtenus dans le scénario BPPC-sol brunfoncé en raison des rendements d'éthanol relativement élevés par tonne de blé et des bons rendements grainiers par hectare obtenus dans cette combinaison. Selon les résultats obtenus, un atelier intégré blé-éthanol-parc d'engraissement écoulant son éthanol au niveau de subvention actuel (incitatifs fiscaux), perdrait de I'argen d'environ la moitié aux deux tiers du temps. Sans ces subventions, il ne rentrerait dans ses dépenses qu'unefois sur trois ou unefois sur quatre seulement.     

Physical appearance and peer effects in academic performance

A large literature examines the role of peer effects in shaping student academic outcomes. This article adds to that literature by introducing a new kind of peer effect – the effect of classmate physical appearance. We document that college students are assigned higher grades when in a classroom with peers who are rated as very attractive. This effect is strongest for female students and appears to be concentrated among the courses of younger and male instructors.     

The international finance corporation and its role in the development process

Measures of different kinds are needed to cope with the manifold tasks arising in international development finance, and a variety of instruments, models and concepts have been suggested in the international discussion. The International Finance Corporation (IFC), a subsidiary of the World Bank, plays a particular role in this connection: according to the objectives laid down in its Articles of Agreement it is to concern itself exclusively with private investments in productive enterprises in developing countries. The following article indicates the problems faced in the institutional promotion of private enterprises and explains why the operations of the IFC have so far yielded somewhat meagre results.