Fair CRISP-DM: Embedding Fairness in Machine Learning (ML) Development Life Cycle

With rapid adoption of machine learning (ML) technologies, the organizations are constantly exploring for efficient processes to develop such technologies. Cross-industry standard process for data mining (CRISP-DM) provides an industry and technology independent model for organizing ML projects’ development. However, the model lacks fairness concerns related to ML technologies. To address this important theoretical and practical gap in the literature, we propose a new model – Fair CRISP-DM which categorizes and presents the relevant fairness challenges in each phase of project development. We contribute to the literature on ML development and fairness. Specifically, ML researchers and practitioners can adopt our model to check and mitigate fairness concerns in each phase of ML project development

THE INFLUENCE OF CORPORATE GOVERNANCE AND AUDIT QUALITY ON TRUSTED FINANCIAL STATEMENTS THROUGH FINANCIAL DISTRESS IN BUMN HOLDINGS IN INDONESIA

This study aims to analyze the effect of corporate governance and audit quality on trusted financial reports through financial distress. The analytical tool used in this study is the Structual Equation Model (SEM) with Partial Least Square (PLS), while the sample used in this study is 68 BUMN Holding business units in Indonesia. The research respondents were auditors who had experience in auditing BUMN Holdings. The results of the study show that corporate governance has a positive effect in encouraging the creation of trusted financial reports. Corporate governance has no significant effect in encouraging the creation of BUMN Holding financial distress in Indonesia. Audit quality has a positive effect in encouraging the creation of trusted financial reports. Audit quality has a positive effect on financial distress. Financial distress has a negative effect on trusted financial reports. This research provides insight into the field of financial risk management research. The insignificant relationship between corporate governance and financial distress is an important finding, because most previous studies have concluded that corporate governance variables have a direct effect on financial distress, both positive and negative. Given the complexity of the relationship between corporate governance and financial distress, more in-depth further research can be conducted to explain in more detail why this relationship is not significant. Qualitative approaches such as case studies, interviews or comparative analysis can be used to gain deeper insight into the context and mechanisms underlying these finding

Comment and Response to “Do Client Characteristics Really Drive the Big N Audit Quality Effect? New Evidence from Propensity Score Matching” by Mark DeFond, David H. Erkens, and Jieying Zhang

This discussion presents the comments by the authors of Lawrence et al. [Lawrence A, Minutti-Meza M, Zhang P (2011) Can Big 4 versus non-Big 4 differences in audit-quality proxies be attributed to client characteristics? Accounting Rev. 86(1):259–286] to the critique of their study in DeFond et al. [DeFond M, Erkens DH, Zhang Z (2017) Do client characteristics really drive the Big N audit quality effect? New evidence from propensity score matching. Management Sci. 63(11):3628–3649] and response by the authors of the latter study

Qualidade da auditoria e rendibilidade das ações: evidência no mercado indonésio

Objetivo: Analisar o impacto da qualidade da auditoria na rendibilidade das ações, medida em função das demonstrações financeiras serem ou não auditadas por uma das big 4, verificando ainda se esta relação se altera de acordo com a natureza, positiva ou negativa, dos resultados líquidos do período. Metodologia: Utilizou-se a metodologia de dados em painel, aplicada a uma amostra de 93 empresas do setor da indústria com títulos cotados no mercado de capitais da Indonésia, para o período compreendido entre 2010 e 2014. Resultados: Globalmente, os resultados permitiram concluir que a rendibilidade das ações é positivamente influenciada pela rendibilidade do capital próprio. Embora não tenhamos encontrado evidência capaz de suportar a hipótese de que existe uma relação positiva entre a qualidade da auditoria e a rendibilidade das ações, concluímos que esta relação é mais forte nas empresas com resultados positivos. Finalmente, não encontrámos evidência de que a dimensão das empresas influencie a rendibilidade das ações. Limitações: Eventuais outliers ou resultados enviesados, resultantes da falta ou incoerência dos valores de alguns relatórios. Implicações práticas: Contribui para a evidência empírica acerca da capacidade da qualidade da auditoria credibilizar a informação para a tomada das decisões de investimento, sendo útil para os investidores. Originalidade: A análise do mercado de capitais da Indonésia constitui uma novidade na evidência empírica da relação entre qualidade da auditoria e a rendibilidade das ações

Audit quality and properties of analysts’ information environment

© 2018 John Wiley & Sons Ltd We consider how audit quality impacts sell-side analysts’ information environment. Using the method outlined by Barron et al., we examine whether higher audit quality is associated with differences in the weight analysts place on common information relative to private information, as well as the extent to which audit quality separately impacts the precision of analysts’ private and common information. Our results show that, in instances where analysts revise their earnings forecasts for year t+1 shortly after the release of year t earnings, higher audit quality results in analysts placing more weight on public information. The precision of private (as well as public) information is improved. These results extend our understanding of how audit quality impacts on attributes of analysts’ forecasts and provides support for the argument that audit quality has important capital market implications

Quality accounting information and audit effort: The Spanish case

[SPA] El objetivo de este trabajo es analizar si los auditores son capaces de detectar la gestión de resultados en sus empresas auditadas y si ante un incremento en el esfuerzo, el nivel de devengos discrecionales será menor. Como singular contribución, se mide el esfuerzo del auditor mediante las horas efectivamente empleadas, al contrario que trabajos anteriores que se basan en honorarios u horas estimadas o subrogados de estas. Asimismo, la muestra utilizada está compuesta por pequeñas y medianas firmas de auditoría, lo que le aporta un valor añadido por ser este segmento del mercado de auditoría más competitivo. Los resultados evidencian que el cliente reduce los devengos anormales positivos del resultado ante un incremento del esfuerzo del auditor, poniendo así en valor su figura como garante de la información financiera, contribuyendo al debate sobre la calidad de las pequeñas firmas. En lo que respecta a los ajustes por devengo negativos, se puede interpretar una pasividad del auditor ante el conservadurismo contable y un efecto aprendizaje en el cliente, que aumenta la manipulación negativa de resultados conforme se incrementa la duración contractual con el auditor.[ENG] The objective of this paper is to analyze if small and medium auditors are able to detect the earning managments in their audited companies and, in that case, if the increase of the audit effort produces a lower level of discretionary accruals. As a particular contribution, the auditor's effort has been measured through the hours actually spent, unlike previous work based on estimated or subrogated fees or hours. Similarly, the sample used is composed of small and medium-sized audit firms, which gives added value for this segment of the most competitive audit market. The results show that the client reduces the positive abnormal accruals if the audit effort increases, thus valuing his figure as guarantor of the financial information, contributing to the debate on the quality of small firms. Regarding the negative accrual adjustments, it could be interpreted as an auditor passivity against the accounting conservatism and a learning effect on the client, which increases the negative discretional accruals as the contractual relationship with the auditor increases

An Empiricist’s Guide to Nonparametric Analysis in Accounting

Recent advancements in statistical packages and computing power have made various forms of nonparametric estimation accessible to empirical researchers. This study explores several of these nonparametric estimation techniques, focusing on kernel density estimates and locally weighted regression for tractability. We provide a discussion of these research design choices, including their statistical properties, limitations, and key inputs over which researchers have discretion. Then, we provide examples of these techniques, analyzing effective tax rates in the financial service industry using kernel density estimates and the relation between audit fees and size using nonparametric regression analysis. Additionally, we discuss how nonparametric techniques may be used in univariate estimates, to complement ordinary least squares regression, and in other areas in accounting

Accounting quality and debt concentration

Singapore Management Universit

Affiliation of local audit firms with Big4 auditors and capital structure : evidence from Indonesia

Purpose: This paper aims to investigate whether the choice for a Big4-affiliated local audit firm affects the capital structure of listed companies in Indonesia, a fast-growing emerging country that is characterized by high information asymmetry and low litigation risk. A unique characteristic of the Indonesian audit environment is that Big4 auditors can only enter the market indirectly through affiliation with a local audit firm. Design/methodology/approach: A sample of Indonesian listed companies between 2008 and 2015 is used to investigate this relation using ordinary least squares (OLS). To address the concern that the choice for Big4-affiliated auditors might reflect client characteristics, the authors also perform OLS on a matched sample, using both propensity-score and entropy-balance matching. Findings: Across all three samples, the authors document that companies audited by a Big4-affiliated local audit firm display lower debt ratios. The authors find no such effect for affiliation with second-tier audit firms. Surprisingly, they find that the negative effect of Big4 affiliation is increasing in client size. Research limitations/implications: This study provides evidence of the consequences of hiring Big4 auditors on the perceived information asymmetry by financial markets under extreme conditions: in an environment characterized by low litigation risk and where Big4 auditors can operate only indirectly through affiliation. Practical implications: The results of this study are of interest to policymakers, managers and financial stakeholders in emerging countries where external financing is important yet difficult to obtain because of severe information asymmetry. Hiring a Big4 auditor, even only through affiliation, might reduce perceived information asymmetry and increase the access to external equity financing. Originality/value: To the best of the authors' knowledge, this study is the first to provide evidence of the effect of Big4 auditors on their clients' capital structure when they can operate only indirectly through affiliation with a local auditor