International Journal of Accounting, Auditing and Performance Evaluation (32 papers in press)
Who is responsible for developing the non-core skills of entry-level public sector trainee auditors? The case of the Auditor-General South Africa
by Fortunate Mashabela, Barry Ackers
Abstract: Within the context of rising levels of corruption, financial mismanagement, fraud, and irregular, fruitless and wasteful expenditure in the South African public sector, as well as high profile audit failures, this paper investigates the employment readiness of recent auditing graduates, with particular emphasis on their non-core skill proficiency. The observations are based on a survey of respondents involved in appointing and training aspiring chartered accountants at the Auditor-General South Africa. Aspirant auditors graduating from the South African Institute of Chartered Accountants (SAICA) accredited universities lacked the necessary non-core skills of entry-level trainee auditors at expected levels of proficiency, necessitating additional training interventions. However, universities should not be solely responsible for developing all the skills of competent public sector auditors. Instead, an integrated and collaborative effort by the key stakeholders in the auditing profession is required. These parties include universities, audit firms and professional bodies and the students themselves, as well as other parties such as regulators. Despite extant studies examining the employment readiness of auditing graduates, this is one of the first that specifically focuses on the phenomenon within the public sector.
Keywords: Auditor-General South Africa; chartered accountant; entry-level trainee auditor; non-core skills; pervasive skills; public sector.
Accrual accounting earnings around zero in Greek municipalities: the relevance of political factors
by Sandra Cohen, Ioanna Malkogianni
Abstract: This paper provides empirical evidence that Greek municipalities report small surpluses or zero earnings and that there is a statistically significant political effect related to this attitude. The analysis is based on the annual financial data of Greek municipalities for the period 2011-2017. The final sample includes 1417 annual observations. Based on the public choice theory, it is attempted to associate earnings management behaviour with political incentives and to uncover possible reasons that may induce it. By using the method of bootstrap kernel density estimation (bKDE) the hypothesis that municipalities tend to report earnings close to zero is supported. The findings suggest that core political factors, such as the oppositions strength and the mayors re-election, exert an effect on the appearance of discontinuities around zero reported earnings, contributing to the knowledge regarding earnings management. Sensitivity analysis confirms this political effect.
Keywords: bootstrap kernel density estimation; earnings management; Greek municipalities; opposition; re-elected mayors.
Disclosure of forward-looking information: does overlapping audit committee membership matter?
by Hidaya Al Lawati, Khaled Hussainey
Abstract: We examine whether overlapping audit committee (AC) membership affects the forward-looking content of the chairman reports. We use content analysis to measure levels of forward-looking disclosure (FLD) for 48 bank-year observations from eight banks listed on Muscat Securities Market in Oman for the period 2014-2019. Our regression analysis shows that overlapping AC membership positively affects FLD. The evidence from this study suggests that a consideration of AC directors attributes (e.g. overcommitted AC members) is needed to understand their role in the boardroom or in the subcommittees. An implication of the result is that the Omani corporate governance code should provide guidelines on the type and proportion of the overlapping AC membership. Furthermore, the code could encourage AC members to be overlapped across different committees as this could have a positive impact on corporate disclosure practice. Our study has demonstrated, for the first time, that overlapped AC members enhance the forward-looking content of chairman reports.
Keywords: overlapping audit committee membership; forward-looking disclosure; chairman reports; content analysis; Oman.
Changes in the value relevance of energy industries accounting information: the impact of the shale revolution
by Gee Jung Kwon
Abstract: This study investigates the value-relevant factors of companies in the global energy industry from the point of view of accounting information, and investigates how the value relevance of accounting factors is changing as a result of the shale revolution that began in 2012. The empirical analysis of this study shows that the value relevance of R&D expenditures has declined dramatically since 2012, when shale gas extraction began in the USA. It also shows that in the energy industry, operating cash flow and company size are not important value-related factors in increasing corporate value. Conversely, operating income is the most important value-relevant variable for corporate value since 2010. The results also suggest that accounting information from the energy equipment and services industry group are more useful than information about firms in the oil gas consumable fuel industry. This study shows that there is a change in the value relevance of firm value variables in the energy industry after the shale revolution. The study are expected to be useful for investors and stakeholders in making investment decisions in the global energy industry.
Keywords: shale revolution; value relevance; accounting information; energy industry.
The impact of ownership structure and corporate governance on capital structure decisions in the UAE
by Mohammed Elgammal, Basil Al-Najjar
Abstract: This paper expands the capital structure literature by investigating how ownership shareholdings and corporate governance influence the capital structure decisions within an emerging market context, namely the United Arab Emirates (UAE). Our sample includes firms listed in both Abu Dhabi and Dubai Stock Exchanges for the period from 2008 to 2019. The UAE market is interesting because of the scarcity of research on the capital structure choices within this context. We employ panel models as well as the Two Stages Least Squares (2SLS) technique. Our results show that board structure has a negative effect on capital structure decisions. We also detect a positive impact of institutional ownership and managerial ownership on capital structure, while government ownership is inversely related to capital structure. Finally, we report that profitability negatively affects capital structure. Thus, we argue that the main determinants of capital structure reported in the developed markets literature do hold in the UAE settings. Accordingly, this study contributes to previous studies in the capital structure context and adds to its puzzle by introducing new insights into the capital structure choice in a free tax environment.
Keywords: capital structure; ownership structure; corporate governance; panel data; UAE.
The challenges of implementing enterprise risk management: a study of manufacturing companies in the Tehran Stock Exchange
by Setareh Fasihi, Seyed Ali Hosseini, Nelson Waweru, Ali Rahmani
Abstract: Implementing enterprise risk management (ERM) is one of the important solutions in reducing the uncertainty and survival of companies. The ERM is very important owing to the varying conditions of Iran's business environment as well as the role of manufacturing companies in its prosperity and economic growth. Therefore, the present study aims to explore the challenges of implementing ERM in the manufacturing companies listed in the Tehran Stock Exchange. In the present study, semi-structured interviews with the experts in the field of ERM among selected Iranian manufacturing companies and other ERM experts in the pharmaceutical, automotive, and petrochemical industries are used. The identified challenges related to implementing ERM include intra-organisational and extra-organisational challenges. Intra-organisational challenges include risk governance, risk culture, enterprise risk management process, and infrastructures. Besides, extra-organisational challenges include the role of government and policymakers, political and economic conditions, international restrictions, and the lack of a competitive environment (exclusiveness).
Keywords: enterprise risk management; Iranian manufacturing companies; contingency theory; risk governance; risk culture; institutional shareholder; international restrictions.
The causes of profitability: a panel study of the Indian IT and consulting sector
by Rohit Bansal, Sanjay Kar, Saroj Mishra
Abstract: The paper uses several methods of profit to examine the factors of profitability for the Indian IT and consulting sector. This reading aims to detect the association between the activity ratio or turnover ratio and the profitability of the Indian IT and consulting sector over the seven years from April 2012 to March 2018. Profitability was used as a dependent variable characterised by Profit Margin (PM); Debtors Turnover Ratio (DTR), Working Capital Turnover (WCT) and Assets Turnover Ratio (ATR) were used as independent variables. Financial statements and income statements of all listed IT and consulting companies on the Bombay stock exchange were gathered from companies websites. The data were then analysed with a descriptive research technique of panel data regression and verified with Hausmans measurement, which is a widely used technique for selecting the panel effect. Working capital turnover was found to be statistically positively significant against the profitability of the Indian IT and consulting sector. However, assets turnover ratio and debtor turnover ratio were found statistically insignificant with the profit margin of the Indian IT and consulting sector from 2012 to 2018. The findings of this research will support companies' internal management, auditors, policy-makers, financial executives, and investors in making investment decisions.
Keywords: profitability determinants; profit margin; assets; debtor turnover; working capital; India; consulting industry; fixed effect panel; radom effect panel; panel regression.
The effectiveness of government internal auditor: evidence from Indonesia
by Sutaryo Sutaryo, Arifudin Tri Anto
Abstract: We analyse the effectiveness of the internal audit of the governments in Indonesia. As independent variables, we examine the role of professional proficiency of internal auditors, quality of audit work, organisational independence, auditor career and advancement, and support from the leaders of internal audit entity, by geography, gender, education level and functional position of auditor as control variables. This study uses a structured questionnaire, distributed to 385 functional auditors as our respondents that came from the State Development Audit Agency (BPKP). The results show that professional proficiency of internal auditors, quality of audit work, organisational independence, career path and development, and the support from the internal audit entity leadership have positive influence on governments internal audit effectiveness in Indonesia. Nevertheless, all of the variables are still possible to develop appropriate additional test results. Internal audit entity requires internal auditors who have the professional proficiency, independence, and quality of the audit work results. Internal audit entity should also implement the career policy for auditors and give full support to the implementation of the audit. The findings are discussed in terms of how they can assist in enhancing internal audit effectiveness and provide added value to the auditee.
Keywords: effectiveness of the internal audit; professional proficiency of internal auditors; organisational independence; support from internal audit entity leadership.
Government Investments Commitment to Internal Audit requirements
The case of Jordan
by Mohammad Aladwan, Omar Alhwatmeh
Abstract: The study aims to examine the commitment of government companies to international internal auditing standards. The study employs both qualitative and quantitative research methods in addressing the problem. To achieve the study objective, the researchers distributed a questionnaire to 627 employees of 156 Jordanian companies that have government contribution, 582 (92%) of the questionnaires were returned. As a mean for analysing the study data; the researchers used the mean, standard deviation, percentages, and T-test. The general findings revealed that Jordanian companies with government contributions do not apply international internal auditing standards; instead they commit to practices that are enacted by government regulations but, unfortunately, these practices are found not fully similar to international internal auditing standards. Therefore, the results showed weak commitment from the sampled companies to such necessary standards. In the light of the study results, the researchers give a number of recommendations that are necessary to achieve effective internal auditing standards.
Keywords: internal audit; internal audit standards; owned companies and government contributions; Jordan.
The role of internal control weakness in debt selection
by Bambi Hora, Edward Walker, Yinghong Zhang
Abstract: We investigate the impact of internal control weakness (ICW) on debt selection. We categorise debt structure in two ways: 1) bank debt, bonds, program debt, private placements, convertible debt, and other debts; and 2) secured, senior unsecured, and subordinated debts. We hypothesise that the existence of ICWs reduces accounting information quality and increases firm risk and default risk. Therefore, bank debt is borrowed to provide better monitoring. Additionally, the presence of ICW is also positively associated with the usage of secured debts, which are collateralised by assets. Our findings are consistent with our predictions. Our findings suggest that ICW information provides incremental value to creditors and that changes in debt selection are one economic consequence of companies reporting ICWs.
Keywords: debt structure; internal control weakness; secured debt; senior unsecured debt; subordinated debt; bank debt; bonds; program debt; private placement; convertible debt.
Does foreign ownership affect audit committee adoption? Evidence from Brazilian companies
by Daniel Vancin, Clea Macagnan, Lucas Cervo, Cristiano Costa
Abstract: The aim of this article is to verify whether the voluntary constitution of the audit committee in companies listed in the Brazilian stock market could be explained by the presence of foreign stockholders. The method used was a probit model with instrumental variables, and the results confirmed the hypothesis, indicating that there is an U-shaped relationship: the probability of adoption of the audit committee slightly decreases at low levels of foreign participation and increases after reaching a cutoff level. This result is in line with previous literature on the role of foreign investors in improving corporate governance in companies in developing countries to protect themselves from expropriation by local stockholders and managers.
Keywords: voluntary audit committee; foreign stockholders; corporate governance; monitoring; determinants.
Enterprise risk management disclosure and creative accounting practices: evidence from Nigeria
by Olayinka Erin, Paul Olojede
Abstract: This study investigates the impact of Enterprise Risk Management (ERM) disclosure on creative accounting practices of listed firms in Nigeria for the period of 2013-2018. With a sample of 120 firms in Nigeria, we drew insights from the contingency theory. The study used panel data with fixed effects regression analysis to analyse the dataset. The findings empirically revealed that ERM disclosure has a significant impact on the reduction of creative accounting practices. Our findings call for clear responsibility and a strong drive for ERM disclosure by corporate institutions in Nigeria and other emerging economies. The empirical approach used in this study emphasises the need for corporate organisations to embrace ERM practices and to integrate ERM information into their business strategies and operations. Our findings contribute to the growing literature in the area of ERM disclosure, creative accounting practices, business ethics, and corporate transparency in Nigeria and, by extension, other Sub-Saharan African countries.
Keywords: board risk committee; cash based earnings management; creative accounting practices; contingency theory; chief risk officer; enterprise risk management.
Factors inhibiting effective organisational performance management: insights from the South African public sector
by Asogan Moodley, Barry Ackers, Elza Odendaal
Abstract: Despite a quarter of a century of democracy, the South African government continues facing civil unrest relating to poor delivery of public goods and services. To address this deficiency, the South African government adopted organisational performance management (OPM), as a tool to improve strategic management and operational performance. Despite this directive, service delivery does not appear to have improved. This study therefore aims to establish the factors that inhibit the effective implementation of OPM and accordingly impair service delivery. The study, which adopts a multiphase mixed methods research approach, uses both quantitative and qualitative data collected through surveys, interview and focus groups, as well as from a content analysis of pertinent documents and records. Non-alignment between planning and budgeting, focusing on outcomes rather than impacts, the adoption of a compliance-driven orientation rather than focusing on effective organisational performance, inadequate stakeholder management, poor technical skills, and a lack of effective consequence management were amongst the factors identified as inhibiting OPM and effective service delivery.
Keywords: consequence management; governance; monitoring and evaluation; organisational performance management; performance information reporting; public sector.
Sahara: when regulators radar strikes
by Palka Chhillar
Abstract: Sahara India Parivar, an Indian conglomerate with many companies under its umbrella, had experienced phenomenal growth in the business for decades. The activities by the conglomerate to raise capital through different means were finally caught in the regulators radar resulting in years' long litigation and surrender of Sahara chief. The case provides relevant details to understand the timeline of the events, and the roles of the chairman, other company officials, and the regulator. The case draws attention to the role of regulators in the capital markets, quality of financial reporting, investor protection, financing vehicles, and corporate governance. The case study is written based on the information available in the public domain and other secondary sources.
Keywords: capital markets; regulator; India; family-owned business; corporate frauds; earning management; financial statement analysis.
The UK public sector VfM audit expectations gap: evidence from the informed groups
by Abdelhafid Benamraoui, Yousef Alwardat, Yusuf Karbhari
Abstract: This paper investigates the current practice of Value for Money (VfM) auditing in the UK public sector organisations. We focus primarily on two main research questions: to what extent an expectation gap exists between the VfM auditors and auditees, and what lessons can be drawn from VfM audit practice. To address these critical research questions, we conducted 39 semi-structured interviews with key external auditors and public sector organisations representatives who have direct experience of VfM process and audit. The study results reveal significant differences between auditors and managers perceptions of VfM audit materiality, audit evidence and the true and fair view of auditors reports and public sector performance audit. Intriguingly, the study finds evidence that auditors are not performing their VfM audit responsibility with the level of professional and technical expertise as expected by the organisations managers. Overall, our findings provide further empirical evidence on the public VfM audit practice in the UK and draws attention to some of the ambiguities associated with what auditors perceive as their roles and what auditees expect from them.
Keywords: audit expectation gap; audit evidence; materiality; performance audit; public sector; true and fair view; UK; VfM audit.
Earnings management and environmental performance from a political cost perspective: an Indonesian case
by Alex Johanes Simamora
Abstract: This study aims to examine the moderating role of industry sensitivity, profitability, and size of companies on the effect of environmental performance on earnings management. The samples are manufacturing companies listed on the Indonesian Stock Exchange and PROPER assessment 2015-2019. Based on the year-fixed effect regression, companies with lower environmental performance are more likely to manage earnings downward if companies are included in an environmentally sensitive industry and have higher profitability. This indicates that, to avoid the political cost of lower environmental performance, companies that are in an environmentally sensitive industry and have higher profitability tend to manage earnings downward to reduce societal, regulators, and environmental activist attention and pressure. Surprisingly, companies with lower environmental performance are more likely to manage earnings downward for smaller companies than bigger ones. This indicates that smaller companies with lower environmental performance have less market pressure to fulfil earnings targets and tend to manage earnings downward.
Keywords: earnings management; environmental performance; company’s size; industry sensitivity; political cost; profitability.
Towards a quantitative measure of audit quality: do auditor demographic characteristics in the Egyptian setting matter?
by Tariq Ismail, Raghda Mohamed
Abstract: The purposes of this paper are (i) to extend the prior model of Sutton and Lampe (1991) of audit quality to provide a quantitative and reliable measure, and (ii) to hypothesise that demographic characteristics of audit partners impact the audit quality measure. We used a quasi-experimental method to quantify the factors of the audit quality as well as examining the impact of demographic characteristics of audit partners on the audit quality, based on data of companies listed on the Egyptian Stock Exchange (EGX) between the years 2014-2017. The results suggest that the proposed quantitative measure of the audit quality would help stakeholders during the objective judgement of the audit quality, and that auditor partners' demographic characteristics such as gender, age, experience, education and culture will have an impact on the audit quality. Furthermore, the audit quality is not homogeneous across different types of industry in the Egyptian setting.
Keywords: audit quality; audit quality measures; auditor demographic characteristics; quasi-experimental study; EGX 100; Egypt.
The moderating effect of internal audit quality on the relationship between working capital management and firm performance: evidence from the United Arab Emirates
by Magdi El-Bannany, Mohamad Ali Abdul Hamid, Mohamed Salem M.S. Bayou, Walaa Wahid Elkelish, Alhashmi Aboubaker Lasyoud, Sunday Simon, Khaled Hussainey
Abstract: The study investigates the moderating effect of internal audit quality (IAQ) on the relationship between working capital management (WCM) and firm performance, and examines the quadratic relationship between WCM and firm performance. Using a sample of 31 large firms listed on the UAE stock exchange from 2007 to 2017, the study finds that days sales outstanding, days inventory outstanding, and cash conversion efficiency have a positive relationship with firm performance while days payment outstanding and cash conversion cycle have a negative relationship with firm performance. The results also reveal that IAQ significantly moderates the observed relationship between WCM and firm performance. Further analysis revealed that the relationship between WCM and firm performance in UAE is quadratic or non-linear. These findings have theoretical and practical implications, as they suggest that policies for improving working capital metrics should also consider internal audit recommendations in response to firm performance. The reason is that a high-IAQ provides insight that will guide WCM decision making. This is in addition to maintaining an optimal level of investment in WCM.
Keywords: working capital management; firm performance; audit quality; UAE.
Does the market react to mandating ESG disclosure? A regression discontinuity based evidence
by Zelalem Abay
Abstract: This study examines the stock market reaction to the recently adopted European Union Directive 95/2014 on mandating certain entities to disclose non-financial information, commonly termed ESG disclosure. Owing to the cost burden of small and medium-sized enterprises, previously voluntarily disclosed information is now mandated only for large undertakings. This size-based directive provides an opportunity to apply a regression discontinuity design, the quasi-experimental research approach. Using a sample of European firms, the study finds that firms on both sides of the threshold react negatively to the directive, with an insignificant difference in these negative market reactions. These findings potentially contribute to the existing literature by documenting new evidence of size-based regulations using a unique approach, indicating that a wider market reacts negatively, irrespective of size, which the directive considered as the basis for compliance. The novelty of this study refers to the application of the unique regression discontinuity design for an event study to exploit the size-based nature of the directive.
Keywords: ESG; non-financial disclosure; regression discontinuity design; event study,
The use of the internal audit function as management training ground and internal audit quality
by Grace Mubako, Tatiana Mazza
Abstract: This study examined the association between the practice of using the internal audit function (IAF) as management training ground (MTG) and internal audit quality, by analysing data from selected questions from the IIA 2015 Common Body of Knowledge Survey. Findings suggest that while auditors in organisations that use the IAF as MTG (MTG auditors) were less likely to have internal audit qualifications, they were more likely to be in compliance with IIA standards and were more confident in their mastery of internal audit competencies, compared to auditors in organisations not using the IAF as MTG (non-MTG auditors). Additionally, MTG auditors reported reduced objectivity compared to non-MTG auditors. Findings from this study provide a better understanding of how the use of the IAF as MTG may affect internal audit quality.
Keywords: internal audit; management training ground; competence; IIA; experience; audit quality; qualifications; objectivity.
Internal auditors without proficiency: a giraffe without a neck
by Hassan Kehinde Oyewumi, Che-Ahmad Ayoib, Oluwatoyin Muse Johnson Popoola
Abstract: This study examines the proficiency of internal auditors in three tertiary institutions. It evaluates three proficiency dimensions - knowledge, experience, and professional skill- and their impact on the overall proficiency of internal auditors. The study employs a quantitative approach, a cross-sectional design, and a survey method. It obtained data through questionnaires from 263 respondents (i.e., accountants and internal auditors) about their perception of internal auditors proficiency. IBM SPSS version 23 and PLS-SEM were used to analyse the data for model robustness. The study reveals that experience and professional skill have a positive significant influence on the proficiency of internal auditors. The study has practical implications as the internal auditors, management of tertiary institutions, Councils of tertiary institutions, professional accounting and auditing bodies, and government can use it in their decision making.
Keywords: proficiency; knowledge; experience; professional skill; tertiary institutions; internal auditor.
Examining the impact of top-management teams on performance measurement system design: a social network perspective
by Mohamed M. M. Ahmed
Abstract: This study aims to explore the relationship between informal social relations between top-managers and the sophistication of the performance measurement system (PMS) in small-and-medium-sized manufacturing companies. Drawing on social network theory, the paper argues that when TMT members are networked by interpersonal ties, this would provide top managers with easier access to information and exchange of knowledge. Hence, these informal relationships could facilitate their control over day-to-day activities, and there would be a lesser need for adopting sophisticated management control practices. Using survey data on 2058 manufacturing SMEs from World Management Survey (WMS) project, the results support the predicted negative impact of interpersonal ties in TMTs on PMS sophistication. The results also shed light on the key role of CEO in SMEs, by showing that this negative association is larger in TMTs led by internally promoted CEOs than outsider CEOs. The paper also predicts and finds that interpersonal ties between TMTs moderate the extent to which SMEs adopt sophisticated PMS owing to pursuing differentiation strategic priorities.
Keywords: performance measurement system; TMT interpersonal ties; CEO origin; social network theory; differentiation strategy; manufacturing SMEs.
Special Issue on: EAMMIS 2021 Accounting and Big Data Analytics
The fraud theories: triangle, diamond, pentagon
by Parvati T. Soneji
Abstract: Early indications of fraud play an important role in detection and prevention. Murphy and Dacin (2011) state that frauds mostly occur in three ways: error lacking awareness; intuition supporting fraud avoiding negative emotions or effects; and awareness of fraud coupled with cost-benefit analysis. Hutchison (2013) comparing management fraud to human behaviour says fraud is intentional, multidimensional and complex fallout of several interactive factors, analysis fraud through different abstracts organizational systems, conflicts of interest, rational choice, social constructiveness, psychodynamic and developmental outlook. The proposed unrealistic goals rewarding attractive compensations purports indulgence in frauds. The desire for achievements, fear of losing job, challenges meeting financial targets for bonuses, unhealthy competition and criminal collaborations are causes of financial frauds. Management fraud results from decision making, influenced by personality traits, belief, attitude, social customs, institutional rules and regulations, ethical values, and organizational culture. The paper aims to understand fraud and the theories related to fraud.
Keywords: fraud; fraud theory; management fraud; financial fraud; fraud triangle theory; fraud diamond theory; fraud pentagon theory.
Do Islamic banks react due to the impact of Charia Supervisory Board on their financial performance? A joint worldwide analysis
by Achraf Haddad, Abdelfattah Bouri
Abstract: The real impacts generated by the Charia Supervisory Board (CSB) on the Islamic banks financial performance have not yet been thoroughly investigated in detail. To explore the relationship between the selected variables through the application of the fixed and random effects method, we used 180 Islamic banks from 56 countries during the period (2010-2019). The empirical results revealed that the CSB size, the number of meetings and the presence of Charia advisers improved the Islamic banks financial performance. However, the presence of financial or accounting experts in the CSB degraded their financial performance. The IBs CSB size ensured the skills diversification, since the number offers them the necessary time to discuss monetary exchanges, investment choices and complaints from other committees, while the existence of specialist advisers has optimised the respect for Charia standards. Nevertheless, the impact type coming from the experts confirmed either their qualification insufficiency or their training inadequacy in terms of Fikh Al-Muamalat.
Keywords: financial performance; Islamic banks; Charia Supervisory Board; financial stability period.
Special Issue on: Accounting, Auditing and Finance research in Times of the COVID-19 Pandemic
Financial reporting considerations in response to the COVID-19 pandemic: empirical evidence from the UAE accounting professionals
by Riham Muqattash, Mohamed Kolsi, Ahmad Al-Hiyari
Abstract: The COVID-19 pandemic and its economic ramifications have heightened the need for investors and other stakeholders to have access to higher-quality financial information. In this study, we explore the impact of the current pandemic on firm value and financial reporting in relation to the international financial reporting standards (IFRS) from the viewpoint of accounting professionals in the United Arab Emirates (UAE). Mainly, we use a survey-based questionnaire targeting auditing firms. We adopt a qualitative approach based on the principal component analysis (PCA). Results indicate that the COVID-19 pandemic significantly delayed financial reporting and releases (both annual and interim reports), and adversely impacted revenues recognition, net profit, borrowing terms including credit rates, and going concern. Finally, our findings also reveal a negative impact on most of the income statement and financial position rubrics. However, no significant impact is observed on off-balance-sheet assets and liabilities, owing to their uncertainties and contingencies.
Keywords: COVID-19 pandemic; financial reporting delay; firm market value; financial position and net income impact; off-balance-sheet items; stakeholders' relationship; UAE.
Interdependence between the Moroccan and international stock markets before and during the Covid-19 crisis.
by Lhoucine Ben Hssain, Jamal Agouram, Ghizlane Lakhnati
Abstract: This paper examines the degree of interdependence between Moroccan and international stock markets (USA, Germany, and China). To test time-varying correlations, we used the dynamic conditional correlation model (DCC-GARCH). In addition, we used daily returns from stock market indices from January 2019 to January 2021, before and after the emergence of Covid-19. The study results indicate that the conditional correlations between Morocco and the selected markets are time-varying, with the existence of strong and weak correlations phases. We also noted that the Covid-19 crisis had an impact on the increased interdependence of the Moroccan stock market, with the US and German stock markets.
Keywords: stock returns; DCC-GARCH model; Covid-19; interdependence.
Special Issue on: New Trends in Accounting and Auditing for SMEs
Is solvency influencing EPS growth in Poland, Austria and Germany: a comparison study of markets with a similar bankruptcy law
by Agata Gniadkowska - Szymanska, Monika Bolek
Abstract: The goal of this paper is related to the comparison analysis of the companies listed on exchange markets in Poland, Austria and Germany under the issue of insolvency affected by financial liquidity that can influence the earnings per share growth in the light of the bankruptcy law. Financial liquidity is mentioned in the bankruptcy law as the phenomenon directly influencing the possible default of a business entity. The growth of earnings per share is considered as a measure of companies economic condition, also mentioned in the bankruptcy law, indicating the value creation for shareholders. To analyse the influence of financial liquidity on the growth of EPS, the linear and logit models are applied to compare the relationship between variables. The results showed that financial liquidity affects the earnings per share growth in Germany in a higher degree, while in Poland and Austria such an influence is much weaker.
Keywords: financial liquidity; bankruptcy; the economic condition of companies.
The relationship between organisational decentralisation, balanced scorecard and its perceived benefits in Moroccan SMEs
by Azzouz Elhamma
Abstract: Since the paper published by Kaplan and Norton (1992), the balanced scorecard (BSC) has been the subject of several research studies especially in large companies in the developed countries. However, the use and the benefits of this tool for strategic performance management in SMEs remains a field that has not yet been sufficiently explored, especially in the MENA region. In this context, this article aims to examine the BSC use and its perceived benefits according to the organisational decentralisation in Moroccan SMEs. The main results obtained, by using linear logistic regression and Student's t-test for a difference in means, show that 30% of the surveyed SMEs use the BSC. In addition, the study finds that in centralised SMEs, the impact of the BSC use on the three dimensions of the global firm's performance (competitiveness, profitability and productivity) is significant. However, in decentralised SMEs, this impact is not significant.
Keywords: balanced scorecard; organisational decentralisation; competitiveness; profitability; productivity; SMEs; Morocco.
Impact of agency costs on audit quality demand in initial public offerings
by Soumaya Ayedi Chabchoub
Abstract: This study aims at assessing the impact of agency costs on the demand for audit quality at the time of an Initial Public Offering (IPO) in an emerging market. It is based on IPOs of the Tunis Stock Exchange for the period 2005-2015. We used a logit estimation of our selected model. The results show the importance of the impact of incumbent-potential shareholder agency costs on audit quality demand. However, shareholder-manager agency costs didnt show any impact on the audit quality demand in an IPO context. The study is important because the Tunisian government has been encouraging Tunisian firms to list on the stock exchange by providing them with tax incentives but no particular restrictions have been placed on the IPO prospectus auditing. It is therefore an arbitration between higher and less audit quality demand made by the newly introduced firm in order to control its costs.
Keywords: audit quality; initial public offering; agency costs; capital issue; Tunisian context.
Does the international financial reporting standard for small and medium-sized entities suit private firms? Fieldwork case-study vignettes for Taiwan
by Yu-Lin Hsu, Gavin C. Reid
Abstract: This paper challenges policymakers claims that the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) is fit for purpose in private firms, using the mixed method and fieldwork evidence from Taiwanese companies. We exploit a unique research window during 2012-2016, when the Taiwanese accounting regulators considered adopting IFRS for SMEs, but finally chose a new hybrid standard: the Enterprise Accounting Standards (EAS), involving elements of IFRS and IFRS for SMEs. We find that companies attitudes towards IFRS for SMEs were strongly influenced by their plans and strategies (e.g., being acquired), and the accounting standard used by their parent companies. Hence, while introducing IFRS for SMEs or EAS seems a sound policy, accounting regulators should beware of their challenges to private firms (e.g., no ambitions to go public). Compliance costs could be attenuated by providing firms with clear accounting choices, whilst ensuring adequate financial reporting comparability.
Keywords: IFRS for SMEs; private firms; case-studies; corporate group; GAAP; mixed method.
IFRS experience, extent of disclosure, and perceived corruption: a study on African countries
by Fatma Ben Slama, Yasmin Amara
Abstract: This study investigates whether the quality of the accounting environment, through the IFRS experience of the country and the extent of disclosure, impacts the perception of less corruption after controlling for the legal, political, economic, fiscal and social environments. The study was conducted on a sample of 49 African countries over the period 2012-2017. The perception of less-corruption variable is based on the Transparency International (TI) index. We find strong evidence that the IFRS experience is associated with lower-perceived corruption, while the extent of disclosure does not play a significant role in limiting the perception of corruption. The level of legal enforcement, Gross Domestic Product (GDP) per capita democracy and education contribute to the perception of less public corruption. However, the tax rate favours the perception of greater corruption. This study contributes to the international standard-setting literature by testing the relevance of IFRS adoption over time in Africa.
Keywords: IFRS experience; disclosure; perception of corruption; political system; economic development.
Special Issue on: Contemporary Issues in Accounting and Finance in the MENA Region
Forward-Looking disclosure and short-term liabilities: evidence from Oman
by Hidaya Al Lawati, Khaled Hussainey
Abstract: The objective of the research was to examine whether forward-looking disclosure (FLD) in the narrative sections of the annual reports is associated with short-term liabilities (STLs). For this purpose, the content analysis method was conducted to measure the quality of FLD in annual report narratives. This research used a dataset consisting of 204 firm-year observations of Omani financial institutions listed on the Muscat Stock Exchange over the 2014-2019 period. This research examined the impact of FLD on STLs by using quantitative regression models. The findings revealed that FLD is positively related to the rise of short-term liabilities. This suggests that FLD reduces information asymmetry between companies and their stakeholders. Hence, these companies will be able to raise short-term finance. It is noteworthy that this is one of the early studies that address the link between FLD and short-term liabilities. As such, it provides significant contributions to corporate narrative disclosure studies.
Keywords: short-term liabilities; forward-looking disclosure; content analysis; financial institutions; Oman.