The impact of audit quality on earnings predictability

Purpose – This paper examines the impact of audit quality, measured by financial statements audited by the big four accounting firms, on the investors' ability to predict future earnings for profitable and unprofitable firms. Methodology – The paper uses the returns-earnings regression model developed by Collins et al. (1994) and the author interacts all independent variables in this model with a dummy variable, AUDIT, which is set to equal one if financial statements audited by the big four accounting firms, zero otherwise. Future Earnings Response Coefficient (FERC) is the measure of earnings predictability. Findings – The paper finds that investors are able to better anticipate future earnings when financial statements are audited by the big four accounting firms. However, the findings are not applicable for unprofitable firms. Practical implications – The findings of the paper have implications for auditing related academic research and the users of financial statements. In particular, the study shows that the big four accounting firms have not lost their audit quality advantage and that financial statements audited by the big four accounting firms are arguably of higher quality than those audited by non-big four accounting firms. Originality/value - To the best of the author’s knowledge, there is no UK study to date examining the association of the quality of financial statements audited by the big four accounting firms and the returns-earnings association. Consequently, this paper significantly contributes to the limited literature on the perceived value relevance of audit quality

Corporate Governance Online Reporting by Saudi Listed Companies

Purpose – This paper examines the extent to which Saudi listed companies report online information about their corporate governance practice in light of the guidance issued by the Saudi Arabian Capital Market Authority (SACMA), thereafter. Methodology – We adopted a content analysis approach, accordingly a corporate governance disclosure index is developed to analyse the content of every company's website. Findings – We found that the majority of Saudi listed companies utilise the Internet to communicate some information about corporate governance to their stakeholders. We also found that the level of online reporting of corporate governance varies between sectors. In particular, the paper revealed that the banking sector has the highest level of corporate governance disclosure compared with other sectors. On the other side, companies in the industry and service sectors provide very little information about corporate governance on their websites. The results suggest that the nature of control over the sector, the involvement of government in the ownership and management of businesses and some social assumptions could have an impact on companies' decision to disclose online information about their corporate governance in developing countries. Practical implications - The importance of investigating online reporting of corporate governance in Saudi Arabia emerges from the fact that SACMA published a guidance in 2006 that recommends the disclosure of corporate governance information by Saudi listed companies. Therefore, it would be worthwhile informing SACMA about the extent of compliance with the guidance of corporate governance. This is essential taking into consideration two facts; first, the recent remarkable grown of the Saudi stock market which was accompanied by significant increase in the demand for additional information by stakeholders, second , the recent increase of the utalisation of the Internet by companies for disclosure purposes worldwide. Further, the results of this research study could add to our limited knowledge about the practice of corporate governance in developing countries. Originality/value – This paper contributes to the limited literature on disclosure practices in developing countries in general and in Saudi Arabia in particular. Our review of the literature revealed that there is no study to date on online disclosure of corporate governance in Saudi Arabia and very limited research has been carried out in developing countries in general. This is important taking into consideration environmental factors of developing countries, which could bring different sight in the issue of the disclosure of corporate governance

Governance vis-à-vis investment efficiency: substitutes or complementary in their effects on disclosure practice

Prior studies provide evidence that both corporate governance and corporate investment efficiency affect corporate disclosure practice. In this paper, we examine their joint effect on disclosure. In particular, we examine whether corporate governance quality and corporate investment efficiency act as substitutes or complements in their impact on narrative disclosure. We collect disclosure scores from Lancaster University's Corporate Financial Information Environment (CFIE) website for a sample of non-financial UK companies for the period 2007-2014. We regress measures of corporate governance and corporate investment efficiency on two different proxies of disclosure practice (performance commentaries disclosure and the tone of narrative disclosure). Consistent with prior studies, we find that both governance and investment efficiency affect disclosure. We contribute to narrative disclosure studies in two crucial respects. First, we provide empirical evidence that governance and investment efficiency has a complementary effect on performance commentaries disclosure. Second, we contribute to the disclosure tone literature by providing empirical evidence that both governance and investment efficiency have a substitution effect on the tone of narrative disclosure

Conversions to Islamic Banks: Jurisprudence; Economic and AAOIFI Requirements

       The major objective of this study is to investigate the conventional banks conversion to Islamic banks. Islamic banking industry has grown tremendously. Nearly, 1.6 billion Muslims believe that Islam is not only a religion, but also a guideline for the complete way of life. Thereby, the demand on Islamic product is increased day by day. Islamic banking assets with commercial banks globally are set to exceed US$1.7t in 2013, suggesting an annual growth of 17.6% (Arnest &Young 2013/2014). This huge growth of Islamic banks is attracting big financial institutions such as HSBC, Citibank, Deutshebank to keep up with this growth by providing Islamic financial services, opening an Islamic branch of the bank (or window within the banks), or even fully converting to Islamic banking (Saaid & Shafii, 2013). Islamic banks in the financial crisis (2008) were less adversely affected and have been much more resilient than conventional banks. These conversions present a challenge to Islamic banking sector and many are skeptical of these branches and consider just curious just to attract depositors' money savers. As well as that, these branches are not overseen by a Sharia supervisory board like Islamic banking and may employ external legitimate counsel, and this in truth is not enough (Al-Atyat,2007). Hence such branches become a serious challenge to the Islamic banking. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) issued standard number (6) which represents the conversion issue and identifies its requirements and how the banks deal and treat with it.This study, therefore, provides an important opportunity to advance the understanding of the Sharia requirement to conversion process and what the conventional bank have to do to be right converted to Islamic bank. In addition, it discusses the jurisprudential and financial reasons for why traditional banks turned towards Islamic banking. Moreover, it discusses the AAOIFI conversion standard. This paper, hence, provides a step further in understanding  the conventional banks conversion issue by highlighting four main areas (1) the main Jurisprudence reasons of conversion (2) the economic motives of conversion (3) explore the main conversion forms from jurisprudential point of view (4) AAOIFI conventional banks conversion to Islamic bank standard overview.Overall, the conversion process is turned from corrupted situation toward right way. There is religious and financial motivation to conventional banks conversion. The religious motivation must be supported by stable and good plan to grantee a successful conversion. The conventional banks conversion to Islamic banking is obligatory in Islam, and the gradually method is one of the most successful methods used in the implementation of the transformation. Independent Sharia supervisory board is a very important element in conversion to Islamic bank. Moreover, AAOIFI Sharia standard put explanatory procedures and illustrate how to treat the conversion process. The study suggested that the conventional banks must commitment with all conditions to finish the conversion successfully and to be full commitment to sharia law

Determinants of narrative risk disclosures in UK interim reports

Purpose– The purpose of this paper is to contribute to the existing disclosure literature by examining the determinants of narrative risk information in the interim reports for a sample of UK non-financial companies. Design/methodology/approach– This study uses the manual content analysis to measure the level of risk information in interim report narrative sections prepared by 72 UK companies. It also uses the ordinary least squares regression analysis to examine the impact of firm-specific characteristics and corporate governance mechanisms on narrative risk disclosures. Findings– The empirical analysis shows that large firms are more likely to disclose more risk information in the narrative sections of interim reports. In addition, the analysis shows that industry activity type is positively associated with levels of narrative risk disclosure in interim reports. Finally, the analysis shows statistically insignificant impact of other firm-specific characteristics (liquidity, gearing, profitability, and cross-listing) and corporate governance mechanisms on narrative risk disclosure. Practical implications– The study's findings have practical implications. It informs investors about the characteristics of UK companies that disclose risk information in their interim reports. For example, the findings show that narrative risk disclosures are affected by firm size and industry type rather than firms' risk levels (e.g. financing risk measured by the gearing ratio or liquidity risk measured by lower liquidity ratios). Practical implications for managers from these findings are that, in order to keep investors satisfied, companies with high levels of financing and liquidity risks should look at investors' demands for risk disclosure. This will help investors when making their investment decisions. Originality/value– The determinants of narrative risk disclosure in interim reports have not been explored so clearly in prior research and, therefore, this paper is the first of its kind to examine this research issue for a sample of UK companies

Managers' and auditors' perceptions of intellectual capital disclosure

Purpose– This paper aims to explore managers' and auditors' perceptions of intellectual capital (IC) measurement and reporting in Egyptian companies. Design/methodology/approach– The paper draws on a questionnaire survey sent to managers and external auditors who were asked to provide their opinion about IC measurement and reporting for companies listed on the Egyptian Stock Exchange. Findings– The paper finds significant differences between respondents' rates on IC indicators. These differences are due to different industry sectors involved in our sample. Further, it finds that Egyptian listed firms neither measure nor report IC indicators in their annual reports. In addition, it finds that auditors' responsibilities on IC reporting are ambiguous. Finally, the paper finds that work experience is the main determinant of managers' perceptions of IC indicators, while professional education is the main determinant of external auditors' perceptions of IC indicators. Originality/value– Prior research on IC used the content analysis approach to measure levels of IC disclosure in annual reports. This paper adds to the existing literature by using the results of a survey questionnaire distributed to managers working in (and auditors specialised in) Egyptian companies to explore their perceptions on IC measurement and reporting. Since prior research has focused on developed economies, we strongly believe that this paper contributes to the existing literature, as we are the first to examine this issue in Egypt as an example of a developing economy