Board gender diversity and internal control weaknesses

We investigate the role of gender diversity on corporate boards in mitigating internal control weaknesses (ICWs). We predict and find that firms with greater female board representation are less likely to have ICWs. The results are not driven by females sitting on the audit committee. Instead, it appears that females on corporate boards reduce ICWs, regardless of whether they sit on the audit committee or not. Our results are inconsistent with the critical mass theory, showing that even one female board member could reduce the likelihood of ICWs. Taken together, the evidence is consistent with female board members\u27 typical characteristic tendency shown in prior literature (e.g., being more likely to discuss difficult issues, more fiscally conservative, better monitors, and less tolerant of opportunistic behaviors). Our results have implications for board member selection from a policy perspective as well as board member monitoring from an investor and regulator perspective

The Impact of PCAOB Auditing Standard No. 5, the PCAOB Inspection Regime, and the Great Recession on Audit Fees and Audit Quality

We investigate the coinciding effects of the implementation of Auditing Standard No. 5 (AS5), the change in the Public Company Accounting Oversight Board’s (PCAOB) inspection regime, and the Great Recession on the audit fees and audit quality of accelerated filers. AS5 took effect in November 2007 and promulgated a top-down, risk-based audit approach to SOX 404(b) audits of accelerated filers. Concurrently, the PCAOB adopted a stricter approach to its inspections of audit firms, which encouraged them to improve audit quality and reduce audit fees. Moreover, the Great Recession pressured audit firms to reduce fees. We find that, following the three events, audit fees decreased and quality increased for accelerated filers. We also find that audit fees and audit quality increased for non-accelerated filers, although these filers were not directly affected by AS5

Financial performance evaluation and bankruptcy prediction (failure)1

Despite the copious number of statistical failure prediction models described in the literature, testing of whether such methodologies work in practice is lacking. This paper examines the performance of the same companies with solvency for predicting bankruptcy and comparison in both models. This model is suggested for measuring the values of financial performance (Al-Kassar and Soileau; 2012), and applying the financial failure model (Z-score) used by Taffler (1983). The data of six companies were examined for the period 1998-2011. The methodology which used at empirical study includes measuring financial performance according to both models. Then both results have been shown in table (8). The correlations between their results for both models are shown highly relationship. They were tested by T-test. Therefore, they were classified and ranked the companies according to these values. The research also demonstrates the need to include measures of both financial and non-financial performance in the evaluation as they complement each other. Without both financial and non-financial, the evaluation process is incomplete and does not provide desired results or the correct image of the process. The research suggests including comprehensive measures of performance evaluation of projects by using indicators of adopted criteria. Thus, the application of both models leads to better results and assists users in maintaining greater objectivity while obtaining more accurate results than from analysis based on personal evaluation alone

Business strategy and auditor reporting

This study examines whether a firm\u27s business strategy influences auditor reporting. We rely on the organizational literature to develop our prediction that firms utilizing the innovative prospector strategy will be more likely than firms utilizing the cost-leadership defender strategy to receive both going concern and material weakness opinions. Our empirical evidence supports this prediction. Specifically, we find that, among a sample of financially troubled firms, prospectors are significantly more likely than defenders to receive a going concern opinion. We then analyze a sample of clients who subsequently filed for bankruptcy and find that auditors are less likely to issue going concern opinions to prospector clients. This indicates that auditors commit more Type II errors when auditing prospector clients. We also find that prospectors are significantly more likely than defenders to receive a material weakness opinion. Taken together, the evidence suggests that business strategy is a significant determinant of both going concern and material weakness auditor reporting