Audit market competition: causes and consequences

The aim of this paper is to examine the impact of competition in audit market and client importance to perceived auditor independence from the perspective of Malaysian auditors, loan officers and senior managers of public listed companies. It is found that auditor independence would be threatened if auditors were to receive significant fees from a single client. The dependence on a single client would cause auditor to face a 'self-threat' risk, where they were economically and financially reliant on a single customer. The interview survey disclosed that regulatory authorities should closely monitor the profession by persistently scrutinising each audit firm's revenue and expenses

Accounting Information Systems (AIS) and knowledge management : a case study

This study seeks to examine the use of Accounting Information Systems (AIS) by ZBMS Sdn. Bhd., and it’s contribution to the knowledge management and strategic role of the organisation. ZBMS is a company that registered in Kuala Lumpur and operate inconstruction industry. The company used automated AIS known as ‘Contract Plus –Financial & Project Accounting’ package commercially developed by a private company(ZYXW). Wide variety of people that involve in the company’s operation within and outside the organisation uses accounting information generated by this system for decision-making. Based on input provided by operational level managers, the Contract Plus software produces monthly projects’ income statements, balance sheets and statement of changes in financial position for the strategic and tactical managers to plan, control and make decision on the resources allocation. The role-played by AIS enhanced the organisations’ accountingfunctions, and add information value. The automated AIS speed up the process to generatefinancial statements and overcome human weaknesses in data processing. The systemenhances management of resources and the process of monitoring, control and prediction ofZBMS business for better future. With the advent of AIS, the growth of tacit and explicit knowledge could be seen from the intensive training of personnel at the early stage of system implementation to the development and use of company’s own manual in training of new staff and assisting the job of existing staff. Given the benefit of AIS to ZBMS, this paper recommended that the source of data should be fully automated, and the existing system should be upgraded through computerise the pre-tendering and post-tendering of projects to enable AIS integration

Predicting Corporate Failure Using Accounting Information: The Malaysian Experience

Financial ratios have long been used as predictor of important events in the financial markets. Researchers have formulated business failure prediction models utilising financial ratios. However, relatively few failure prediction studies on Malaysian firms have been documented. The objective of this study is to develop a model that can discriminate between Malaysian failed and nonfailed firm. Also, this study investigates the distributional properties of the financial ratios of failed and non-failed listed firms. One-to-one sampling technique was utilised, where 33 failed and non-failed mixed industry sector firms, and 24 failed and non-failed industrial sector firms for the period from 1980 to 1996 were sampled. Using Kolgomorov-Smirnov test adjusted to Lillifors test, it was found that, only one financial ratio was normally distributed. Nine financial ratios were found to be lognormal in mixed industry sector and the number increased to 18 in the industrial sector In addition, 3 financial ratios were square root normal in mixed industry sector and 6 in industrial sector It is found that the log transformation technique was the most effective procedure and the square transformation technique was the least effective to transform non-normally distribution data to the family of lognormal distribution Finally, industry sector played an Important role in determining the normality level, where focused into specific industry sector gave better results than mixed industry sector However, it is found that the equality of variance covariance of the failed and non-failed firms was not observed However, the impact of this inconsistency was minimal on the classification accuracy After the assumptions of discriminant analysis were satisfied, stepwise multiple discriminant analysis was utilised to develop failure prediction models The mixed industry model correctly classified 86 2% and 91% of the original sample and holdout sample respectively The model was further validated using leaveone- out classification or U-method (86 2% correct classification) The results remain robust and the failed and non-failed classification accuracy was found to be significantly better than chance An alternative prediction model was developed based on accounting information, which outperformed the original model and correctly classified 88 1% of the original sample and 86 7% in U method The models for industrial sector were equally accurate for the mixed industry, which correctly classified more than 80% of the failed and non-failed firms and the original model outperformed the alternative model. The selected variables in the final model were a good proxy for the profit, cash flow, working capital and net worth variables

Governance structure and external audit price: evidence from an emerging economy

This study provides new evidence on the relationship between external audit price and corporate governance of the largest (based on market capitalization) 100 listed firms on both the main and second board of the Bursa Malaysia (BMB) (previously known as the Kuala Lumpur Stock Exchange). The findings show that for main board companies, external audit price is positively and significantly associated with corporate size, complexity and internal governance variable (i.e. director’s remuneration). For the second board firms, complexity, corporate size and internal governance variables (i.e. proportion of non-executive directors to total directors) were important determinants of external audit pricing. External audit price had a significant negative relationship with individual shareholders ownership for both main and second board companies, and companies’ age for companies listed on the second board

Audit committee and auditor independence: the bankers' perception

This paper examines the perception of bankers on contribution of audit committees towards external auditor independence in public listed companies. All Malaysian public listed companies are required to establish an audit committee as a measure to improve on the internal control mechanism that can help improve the corporate governance practices of firms. Postal questionnaires and interview surveys were used to solicit the perception and views of loan officers. The majority of the respondents believe that auditor independence is preserved with the presence of an actively functioning audit committee. This implies favourably on the corporate governance reforms initiated by the government after the 1998 financial crisis

Audit committee reporting: current practices of companies listed on the Kuala Lumpur stock exchange (Bursa Malaysia)

This study examines the disclosures contained in Audit Committee Reports (ACRs) and the level of compliance of current practices with the amended Kuala Lumpur Stock Exchange listing requirements after the adoption of various recommendations made by the High-Level of Finance Committee on Corporate Governance and the Malaysian Code on Corporate Governance (MCCG) in 1999 and 2000 respectively. All firms listed on the KLSE’s main and second board, and MESDAQ counters were sampled. Consistent with the literature in developed markets, the findings reveal that very few companies provide more than what is expected by the ACRs in their listing requirements. Further, companies in finance, technology and IPC counters, and companies on the main board counter have greater initiative to provide value added (or termed as ‘non-boiler plate’) statements to information users

Diversification across economic sectors and implication on portfolio investments in Malaysia

Due to the increasing efforts towards regional and global economic integration, the effects of "country specific" factors are becoming less important in managing domestic portfolio investment. Consequently the concept of diversification across economic sectors has received attention in literature. This paper analyzes the opportunity for diversification across different economic sectors for long-term investment using sectorial indices. The findings indicate high but unstable correlation of returns between indices. this imply that investment in one or two sectors of the stocks market face higher total risk than in the past due to the increasing "sector" effect on portfolio investment

A closer look at accounting for Islamic financial institutions

This paper provides a discussion of a study that examines accounting in Islamic perspectives. The discussion includes an overview of the development of Islamic finance, accounting in Islamic perspectives, and four key accounting assumptions, namely ‘substance over form’, ‘time value of money’, ‘fair value’ measurement and ‘recognition based on probability’, which serve as important guides to preparers of financial information

Commercialization of accounting profession: the case of non-audit services

Over the last decade, the accounting profession has witnessed the commercialisation of audit firms through offering of non-audit services (i.e. business consultancy services) to their audit client. Regulators and stakeholders have placed a great concern on the potential threat of commercialization of audit services on perceived auditor independence. This study reports the effects of the joint provision of audit and non-audit services (NAS) and the type of NAS on perceived auditor independence. The main findings suggest that auditor independence is perceived to be compromised when audit and NAS were jointly offered by audit firms. However, when there exist proper segregation of duties in audit firms that offer both services, the perception changed

Forecasting financial problems in emerging capital markets

The advent of the Asian Financial Crisis (AFC) in the Southeast Asia in 1997 is an appealing case for research work in assessing corporate financial distress. From international perspective, AFC is a product of contagion effect that spread from Thailand and consequently to the other Asian countries. Domestically, the AFC has resulted a sudden economic slump and corporate failures in these economies. This paper examines the corporate failure before the 1997 Asian Financial Crisis in three emerging capital markets namely Malaysia, Singapore and Thailand, and develops, tests, and analyses a model for classifying and predicting financial distress. A failure classification model based on multiple discriminant analysis was utilised to classify listed corporations from these countries for the 1980 to 1996 period. The model is tested on a sample of 33 Malaysian, 17 Singaporean and 52 Thailand failed firms and similar number of non-failed firms in the respective countries as a control sample. The failure prediction model developed successfully discriminates between failed and non-failed listed firms at the rate of 86%, 82% and 71% of Malaysian, Singaporean and Thailand firms respectively. Further validation of findings show that the predictive accuracy was significantly better than chance. © EuroJournals Publishing, Inc. 2006