Avoidance of reported earnings decreases and losses: evidence from Malaysia / Norman Mohd Saleh, Takiah Mohd Iskandar and Mohd Mohid Rahmat

The study investigates the existence of earnings management practices by companies listed in the KLSE. Prior studies suggest that managers manage earnings to avoid reporting losses and earnings decreases. This study tests the effects of size and code of corporate governance on the incidence of managing earnings to avoid reporting earnings decrease and losses by Malaysian companies. Using the discontinuity test and level of smoothness test around zero reported earnings, this study finds a significant incidence of companies reporting positive earnings while avoiding showing losses. This finding is consistent with that of previous studies. The study also provides evidence that earnings management practices were reduced following the introduction of a code of corporate governance by the Malaysian government in 2001

A review of expertise in auditing

This paper reviews past studies on audit expertise, and discusses some important issues relating to it. Earlier studies in this area had mainly focused on the effects of experience on auditors’ performance. These experiences were measured in terms of consensus, cue weighting, self-insight, and stability of auditors’ judgments. However, results were inconclusive. Further developement in the research on audit judgments showed the need to diferentiate auditors’ expertise according to ability and knowledge. Given that audit work requires an understanding and knowledge of specific industry, auditors’ expertise is specified in terms of industry specific knowledge. Studies show that auditors develop industry-based knowledge structure. As suggested by past studies, industry specialisation is an important characteristic in auditing practice that develops into an important component of audit expertise

The relationship between audit client satisfaction and audit quality attributes: case of Malaysian listed companies

This study examines client satisfaction over audit services as perceived by the company management and its relationships with audit quality attributes. Comparisons of audit client satisfaction are made between Big 4 and non-Big 4 firms on the audit of Bursa Malaysia listed companies. The study employs the Behn et al. (1997) research instrument consisting of fifteen item questionnaires of audit quality attributes and two items of client satisfaction of audit performance at the firm and team levels. The questionnaire solicits perceptions of financial controllers over the quality attributes of auditors and their level of satisfactions with audit services. Results show that quality attributes of audit firm are ranked higher than quality attributes of audit team. There is no significant difference in client satisfaction over the performance of audit between the Big 4 and non-Big 4. Further analysis shows that client satisfaction is significantly related to four audit firm quality attributes, i.e. prior experience, responsiveness, independence, and commitment of audit firm to quality audit. Results also show that client satisfaction is significantly related to certain quality attributes of audit team, i.e. experience with client, independence, involvement in the engagement, conduct of field works, and ethical and knowledgeable of accounting and auditing standards

ASSESSMENT OF VALUE-BASED PRINCIPLES ON ISLAMIC BANKING PRACTICES IN MALAYSIA: AN EXPLORATIVE STUDY USING BANK’S DISCLOSURE

Background and Purpose: This study aimed to understand banking practices to legitimise their role in society and meet stakeholder needs in terms of their products and services. This study narrowed its scope to use the underpinning thrust of value-based intermediation (VBI) as it is a primary pillar of the VBI framework. Towards these same ends, the study also sought to gauge how banks integrated their products and services with the framework.   Methodology: This study employed the triangulation approach, which comprised of a content analysis of annual reports of the bank and trend analysis of court cases. This study used Bank Islam Malaysia Berhad (BIMB) as an explorative study.   Findings: The findings indicated a decrease of total occurrences over the years on litigation cases involving BIMB, related to know-your-customers compliance. Meanwhile, the analysis of annual reports of the bank indicated that shariah non-compliance incidents are due to operational failures and lack of shariah knowledge among the staff. This study highlighted the need for the banks to strengthen the know-your-customer compliance, besides enhancing and promoting Islamic financial literacy and ethics to their stakeholders.   Contributions: This study contributes a novelty in this area of study by using data triangulation on court cases and annual reports to provide a more comprehensive perspective on the issue. This study also added to the current literature on VBI, especially within Malaysian context.   Keywords: Corporate responsibility, due diligence, know-your-customer, Islamic ethics, financial literacy.   Cite as: Talib, S. A., Mohd Iskandar, T., & Muda, R. (2023). Assessment of value-based principles on Islamic banking practices in Malaysia: An explorative study using bank’s disclosure.  Journal of Nusantara Studies, 8(TI), 429-452. http://dx.doi.org/10.24200/jonus.vol8issTIpp429-45

Audit Market Share And Auditors' Industry Specialisation: Effects Of Different Bases Of Measurement

Past studies have examined audit market concentration and auditors' industry specialisation within different countries including the US (Zeff & Fossum, 1967; Rhode, Whitsell & Kelsey, 1974; Schiff & Fried, 1976; Eichenseher & Danos, 1981; Danos & Eichenseher, 1982), Australia (Craswell & Taylor, 1991; Craswell, Francis & Taylor, 1994), and Malaysia (Iskandar, Maelah & Aman, 2000). These studies have employed different bases to measure audit market concentration and auditors' industry specialisation. It is argued that, due to the different bases used to measure audit market share, results of the studies may not be comparable. The differences in research findings may be driven by the differences in the bases of measurement. Hence, the results do not reflect the actual market distribution and industry expertise of the auditor. The objective of this study is to provide evidence to support the argument that differences in research results are due to differences in the methods used to measure audit market concentration and auditors' industry specialisation. Results show that, based on Malaysian empirical data, audit market share and industry specialisation vary significantly with different bases of measurement employed

Pengurusan perolehan: Peranan kualiti audit dan urus tadbir korporat

This study has investigated certain corporate governance characteristics, which include independence of board of directors, accounting skill and knowledge of audit committee, and managerial equity ownership, and the relationships between theses characteristics and earnings management. In addition, this study has also examined the role of audit quality as an independent variable as well as a moderating variable. The sample consists of 812 and 868 companies that have been listed on both the First and Second Boards of Bursa Malaysia for the years 2001 and 2002, respectively. In this study, the dependent variable is the discretionary accruals. The agency theory is used to explain the relationships between variables. Results show that independence of board of directors has a significant relationship with discretionary accruals. It was also observed that there was a significant negative relationship between accounting skill and knowledge of audit committee, and discretionary accruals.These findings indicate that the board of directors’ independence and audit committees’ accounting skill and knowledge are important factors in curtailing earnings management practices. The results of a regression analysis also indicate that audit quality has a significant negative relationship with discretionary accruals. This finding is consistent with the theory which states that high quality audit reduces agency costs resulting from the separation between ownership and company management. Overall, results of this study provide an explanation for the importance of both internal and external mechanisms of corporate governance in strengthening the monitoring of the company

An analysis of audit fee premiums of the merged audit firm in Malaysia

After the Big 6 merger exercise in 1998, PriceWaterhouseCoopers (PWC) has become the industry market leader that provides high quality audit services. Consequently, it has acquired a greater capacity to develop expertise and provide better quality audit services. It is expected that PWC charges fee premiums in return on investment for the capacity building. This study investigates how audit fee (AF) premiums and how it relates to auditors' industry specialisation and reputation. The study utilises data of 679 Bursa Malaysia listed companies in 2001 and 796 in 2005. AF premiums are calculated using the Simunic (1980) AF model. Industry specialisation is determined based on the number of audit clients at 20% threshold. Results indicate PWC obtains highest average AFs, hence, maintains its industry leadership. Results show that PWC does not charge AF premiums over and above the amount charged by the Big 5/4 regardless of whether they are industry specialists or not, except on smaller clients

The Enforcement Role Of The Companies Commission Of Malaysia

This paper explores the role of the enforcement efforts undertaken by the Companies Commission of Malaysia (CCM) as a regulator of the Companies Act of 1965, which is entrusted to uphold and ensure good practices of corporate governance among Malaysian companies.  The paper attempts to provide an understanding on various enforcement actions in terms of the effectiveness and adequacy of the measures adopted by the CCM in promoting and improving the level of corporate governance practices in Malaysia.  CCM has adopted the Balanced Enforcement Approach to promote effective corporate governance practices among the Malaysian companies. An increasing compliance rate and greater corporate governance awareness at a level similar to other countries indicates at least aminimum success of the Balanced Enforcement Approach.  Indicated is the need for CCM to establish a benchmarking or ranking procedure in order to determine the level of corporate governance practices among companies in Malaysia

The effects of fraud risk assessment on the external auditor's ability to detect the likelihood of fraud: a conceptual discussion

The Malaysian Approved Standards on Auditing (MASA), AI 240 on "Fraud and Error" requires the auditor to assess the risk of fraud and error during the audit of financial statements by considering the various fraud risk indicators. Based on the risk assessment, the auditor will design audit procedures to obtain reasonable assurance that misstatements arising from fraud and error that are material to the financial statements taken as a whole are detected. Inability to detect fraud may lead to a litigation action being taken against the external auditor (Palmrose, 1987). The collapse of Enron has shed some news and somewhat unfavourable light on the role that external auditors play in the detection of fraud (Thomas & Clements, 2002). This paper aims to determine whether the ability of the external auditor to detect the likelihood of fraud is influenced by his/her fraud risk assessment. In this paper a discussion on the development of a conceptual framework for the fraud risk assessment and detection of fraud is presented

Board of Directors and ownership structure: a study on small and medium enterprises (SMEs) in Malaysia

Small- and medium-sized enterprises (SMEs) do not gain sufficient economic returns despite their significant economic contributions. A possible cause of poor SME performance is weak corporate governance. However, the corporate governance of SMEs is rarely investigated. Ownership structure provides SMEs with a monitoring mechanism that enhances performance. This study examines the relationships between board characteristics (including size, composition boards, CEO duality, expertise, and ethnicity) and SME performance in Malaysia. This study also explores how such relationships can be moderated by monitoring ownership structure. Survey results on SMEs in Klang Valley and Selangor areas show that non-executive boards and CEO duality are significantly and positively related to firm performance. In comparison, management ownership is significantly and negatively related to performance. Board size, expertise, ethnicity, and family ownership are not significantly related to SME performance. Findings indicate that good corporate governance improves decision making and firm performance. Furthermore, agency theory can explain conflict of interest in SMEs and the importance of corporate governance in enhancing their performance