Distinctive characteristics of entities with an internal audit department and the association of the quality of such departments with errors*

Abstract. This research identifies those characteristics that could potentially influence a choice to create an internal audit department and tests via discriminant analysis to evaluate whether such attributes significantly distinguish between companies with and without an internal audit department. In addition, qualitative characteristics of such departments are described, as is the association of such traits with errors and the overall control environment. A sample of 260 companies is examined. Companies with internal audit departments are observed to be significantly larger, more highly regulated, more competitive, more profitable, more liquid, more conservative in accounting policies, more competent in their management and accounting personnel, and subject to better management controls. Key discriminant variables are the degree of regulation, decentralization, size, the duration of association with present auditors, the existence of an audit committee, EDP control, and pressures by external parties on management to achieve budgetary goals. Qualitative attributes of internal audit are systematically associated with the overall quality of the control environment, as well as errors. The most important attribute appears to be the independence of internal audit in terms of the propriety of the reporting level. An advantage of internal auditing is that external auditors report a 10 percent reduction in the number of hours incurred and greater flexibility appears to exist in the proportion of work performed in off-peak periods. Résumé. Les auteurs dressent l'inventaire des caractéristiques susceptibles d'influer sur le choix de créer un service de vérification interne et soumettent ces attributs à des tests, par voie d'analyse discriminante, afin de déterminer s'ils permettent d'établir une distinction claire entre les entreprises ayant et n'ayant pas de service de vérification interne. De plus, ils décrivent les caractéristiques qualitatives de ces services, de même que l'association de ces carctéristiques aux erreurs et au contexte global du contrôle. Les auteurs procèdent à l'examen d'un échantillon de 260 entreprises. L'étude révèle que les entreprises possédant des services de vérification interne sont beaucoup plus souvent des entreprises de grande taille, faisant l'objet d'une réglementation plus rigoureuse, plus concurrentielles, plus rentables, ayant davantage de liquidités, plus prudentes dans leurs conventions compatables, possédant une équipe de gestion et un personnel comptable plus compétents et soumises à de meilleurs contrôles de gestion. Les principales variables discriminantes sont le degré de réglementation, la décentralisation, la taille, la durée de l'association avec les vérificateurs actuels, l'existence d'un comité de vérification, le contrôle dans un cadre informatique et les pressions exercées par les tiers sur la direction pour l'atteinte des objectifs budgétaires. Les attributs qualitatifs de la vérification interne sont systématiquement asociés à la qualité globale du cadre de contrôle, de même qu'aux erreurs. L'attribut le plus important semble être le degré d'autonomie du service de vérification interne, c'est-à-dire le caractère approprié de ses liens hiérarchiques. La vérification interne comporte un avantage: les vérificateurs externes font état d'une réduction de 10 pour cent dans le nombre d'heures consacrées à la vérification, et il semble exister une plus grande souplesse dans la proportion du travail de vérification effectué en dehors des périodes de pointe.     

Are differences in firm size transitory or permanent?

An Erratum for this article has been published in Journal of Applied Econometrics 18(2) 2003, 249 Previous empirical work on corporate growth rates using cross‐section or short‐panel econometric techniques suggests that growth rates are random but that some degree of mean reversion exists. This means that size differences between firms are transitory. Another, more natural way to explore the long‐run distribution of firm sizes is to examine data on the growth of particular firms over long periods of time. Using a sample of 147 UK firms observed continually for more than 30 years, our conclusions are that growth rates are highly variable over time and that differences in growth rates between firms do not persist for very long. Further, firms show no tendency to converge to either a common size or to a pattern of stable size differences over time. These results are compared and contrasted with standard approaches that suggest that firms reach and maintain stable positions in a skewed size distribution. Copyright © 2002 John Wiley & Sons, Ltd.     

Bayesian MCMC Mapping of Quantitative Trait Loci in a Half-sib Design: a Graphical Model Perspective

Graphical models provide a powerful and flexible approach to the analysis of complex problems in genetics. While task-specific software may be extremely efficient for any particular analysis, it is often difficult to adapt to new computational challenges. By viewing these genetic applications in a more general framework, many problems can be handled by essentially the same software. This is advantageous in an area where fast methodological development is essential. Once a method has been fully developed and tested, problem-specific software may then be required. The aim of this paper is to illustrate the potential use of a graphical model approach to genetic analyses by taking a very simple and well-understood problem by way of example.     

A Cross‐national Comparison of R&D Expenditure Decisions: Tax Incentives and Financial Constraints*

We provide evidence on the impact of tax incentives and financial constraints on corporate R&D expenditure decisions. We contribute to extant research by comparing R&D expenditures in the United States and Canada, thereby exploiting the differences in the two countries' R&D tax credit mechanisms and generally accepted accounting principles. The two tax incentive mechanism designs are consistent with differing views of the degree of financial constraints faced by firms in these economies. Our sample also allows us to explore the effects of capitalizing R&D on Canadian firms. Employing a matched design, we document relations between tax credit incentives and R&D spending consistent with both Canadian and U.S. public companies responding as though they are not financially constrained. We estimate that the Canadian credit system induces, on average, $1.30 of additional R&D spending per dollar of taxes forgone while the U.S. system induces, on average, $2.96 of additional spending. We also find that firms that capitalize R&D costs in Canada spend, on average, 18 percent more on R&D. Collectively, this evidence is important to the ongoing debates in both countries concerning the appropriate design of incentives for R&D and is consistent with the assumptions found in the U.S. tax credit system, but not those found in the Canadian system.     

Biodegradation of phenol at low temperature using two-phase partitioning bioreactors.

Two-phase partitioning bioreactors offer many advantages for the removal of toxic pollutants. In particular, such systems can be loaded with very large quantities of pollutants without risks of microbial inhibition, they are self-regulated and they prevent the risks of hazardous pollutant volatilisation during aerobic treatment. However, their potential has never been tested at low temperatures. Phenol biodegradation by a cold adapted Pseudomonas strain was therefore tested at 14 or 4 degrees C using 2-undecanone, diethyl sebacate or 2-decanone as organic phases in a two-phase partitioning bioreactor. The three solvents were biocompatible at 14 degrees C but evidence was found that diethyl sebacate was biodegraded by the bacteria and this solvent was not tested further. Although only 2-decanone was suitable at 4 degrees C, phenol biodegradation was more efficient in 2-undecanone at 14 degrees C, reaching a maximum volumetric rate (based on the volume of aqueous phase) of approximately 1.94 g/L.day after 47 h of cultivation. In 2-decanone at 14 degrees C, evidence was found that phenol degradation was limited by the release of biosurfactants, which increased the solubility and toxicity of the solvent in the aqueous phase inhibiting microbial activity. This study therefore shows that pollutant removal at low temperature is feasible but that the production of biosurfactants can have a negative impact on the process and must be taken into consideration when selecting the organic solvent. Future work should therefore focus on the selection of solvents suitable for use at temperatures below 14 degrees C.     

Apatite as an interesting seed to remove phosphorus from wastewater in constructed wetlands.

Intensive use of phosphates has resulted in high P levels in surface waters and therefore eutrophication problems. Over the last decade many studies have revealed the advantage of using specific materials with efficient phosphorus retention capacities. Recent studies state that Ca materials are of particular interest for long-term retention of P, but can induce negative effects. To improve P retention and avoid negative counter-effects we tested the potential of natural apatites. Apatite sorption was evaluated using batch and open reactor experiments. Batch experiments identify sorption mechanisms and the influence of the ionic characteristics of the solution; open reactor experiments evaluate sorption capacities in relation to the ionic composition of the solution and biomass development. In parallel, observation of the material by electron microscopy was used to give more precision information about the mechanisms involved. This work reveals the strong chemical affinity between apatites and phosphorus. Compared to other calcareous materials apatite is better able to maintain low outlet P levels. After more than 550 days feeding, sorption was still present and low P outlet levels were still being obtained when sufficient contact time and calcium content in the solution were ensured. This work demonstrates the advantages of using apatites for phosphorus removal in constructed wetlands. The behaviour of apatite in phosphorus retention is explained and its suitability for use in such extensive systems defined.     

Long- and short-term interest rates in 19 countries: Tests of cointegration and parameter instability

This paper examines the long-run relationship between short-term and long-term interest rates (both nominal and real) in 19 countries, and explores the possibility that the relationship is statistically stable using Lc, MeanF, and SupF statistics suggested by Hansen [1992]. Empirical results obtained from various cointegration techniques (Johansen, Phillips and Hansen, Stock and Watson, and Park) and quarterly data (1973–1998) show considerable support for the expectations hypothesis in all countries (except the United Kingdom). In a majority of cases, it is also found that a stable relationship exists between the short-term and long-term interest rates.     

Kinetics of the reaction of hypobromous acid and organic matters in water treatment processes.

The fate of bromine species from human activity is affected by the bromination reaction in water treatment processes. In this study, kinetic information of the reaction between hypobromous acid (HOBr) and seven different natural organic matters (NOM) was collected by sequential stopped-flow techniques. Multiple reaction phases were found in the reaction between HOBr and NOM. The number of reaction sites for the faster reaction phase ranged from 0.26 to 0.92 micromole (mg DOC)(-1), and was correlated to both SUVA and specific phenolic content at pH 7.0. The apparent second-order rate constants for the faster reaction phase at pH 7.0 ranged from 5.4 x 10(5) to 1.4 x 10(6) M(-1) x s(-1), indicating that vanillin-like structures are involved in this reaction phase.