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

The determinants of forward-looking information in annual reports of UAE companies

Purpose To empirically explore empirically the underlying factors that may affect the extent to which forward-looking information is disclosed. Methodology This study uses a list of forward-looking keywords to demonstrate the differences, if any, in the level of disclosure among firms and between sectors. The sample includes 46 companies listed in either the Dubai financial market or Abu Dubai securities market. Statistical analysis is performed using a backward regression. Findings Debt ratio and profitability are found significant; however, sector type, firm size, and auditor size are found to have insignificant association with the level of forward-looking information disclosed in UAE annual reports. Practical implications A number of users, such as investors, lenders, and auditors, may find these results beneficial. These users may consider the results of this study when they are dealing with firms that have low profitability and high financial risk. Accordingly, they may wish to extend their investigations and verify such reporting practices. By doing this, the quality of information that is available to the public may be enhanced; and hence, users of annual reports may be better served. Originality/value It is important to note that the association between the extent of disclosure and the selected corporate attributes is still ambiguous. There are very limited number of studies that have examined disclosure of forward-looking information in developing countries and even fewer such studies may be found in the Middle Eastern countries. To the best of the authors' knowledge, no study yet has examined the forward-looking information disclosure issues in the UAE or Middle Eastern countries

Corporate governance mechanisms and capital structure in UAE

Purpose – The purpose of this study is to examine the impact of corporate governance mechanisms on corporate financial decisions in one of the emerging economies, United Arab Emirates (UAE). In particular, the paper examines the degree to which internal corporate governance mechanisms and an external corporate governance mechanism affect UAE firms' capital structure. Design/methodology/approach – The paper uses a multiple regression analysis to examine the association between corporate governance and capital structure for a sample of 71 UAE firms listed either in the Dubai financial market or the Abu Dhabi securities market during 2006. Findings – The paper finds that institutional investors have a negative impact on debt-to-equity ratio. This result does not support the "active monitoring hypotheses" where institutional investors are expected to exercise their voting rights effectively in order to prevent managers from reducing their "employment risk" at the expense of the interests of shareholders. It also finds that dividend policy is negatively associated with debt-to-equity ratio, while firms' size is positively associated with debt-to-equity ratio. Research limitations/implications – Empirical analysis suggests that corporate governance mechanisms have important implications for UAE firms' financial policies. UAE managers should be aware of the benefits of the implementation of effective internal and external corporate governance mechanisms while embracing international corporate governance standards. An effective implementation of the codes of corporate governance should improve the efficiency and effectiveness of UAE firms and the UAE stock markets. Originality/value – To the best of the authors' knowledge, there is no study that has yet empirically examined the effect of the corporate governance mechanisms on capital structure in UAE or Middle Eastern countries. This study offers the first evidence of the impact of corporate governance mechanisms on capital structure in UAE

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