Effective methods for detecting fraudulent financial reporting: practical insights from Big 4 auditors

Purpose Using a qualitative grounded theory approach, this study explores the methods experienced external auditors use to detect fraudulent financial reporting (FFR) during standard audits. Design/methodology/approach Semi-structured interviews were conducted with 24 experienced external auditors to explore the methods they used to detect FFR successfully during standard external audits. Findings The authors find 58 methods used for FFR detection, out of which the following methods are frequently used and help in detecting more than one type of FFR: (1) specific analytical procedures, (2) positive confirmation, (3) understanding of the client's business and industry, (4) the inspection of specific documents, (5) a detailed analysis of the audit client's anti-fraud controls and (6) investigating tip-offs from suppliers, employees and customers. Research limitations/implications Based on the grounded theory approach, the authors theorise that auditors must return to the basics and focus on specific audit procedures highlighted in this study for effective fraud detection. Practical implications The study provides practical guidance, including 58 methods used in audit practice to detect FFR. This knowledge can improve auditors' skills in detecting material misstatements due to fraud. Besides, analytical procedures and positive confirmation helped external auditors in this study detect all forms of FFR, yet they are overlooked in the external audit practice. Therefore, audit firms should emphasise the significance of these audit procedures in their professional audit training programmes. Audit regulators should advise auditors to consider positive confirmation instead of negative confirmation in financial audits to increase the likelihood of FFR detection. Moreover, audit standards (ISA 240 and SAS 99) should explicitly require auditors to conduct a detailed analysis of the client's anti-fraud controls. Originality/value This is the first study to identify actual, effective methods used by external auditors in detecting FFR during the ordinary course of an audit

CSR Communication Research: A Theoretical-cum-methodological Perspective from Semiotics

Despite the proliferation of studies on corporate social responsibility (CSR) communication, there is a lack of consensus and a cardinal methodological base for research on the quality of CSR communication. Over the decades, studies in this space have remained conflicting, unintegrated and sometimes overlapping. Drawing on semiotics – a linguistic-based theoretical and analytical tool, our paper explores an alternative perspective to evaluating the quality and reliability of sustainability reports. Our two-phased analysis employed the Greimas Canonical Narrative Schema and the Semiotic Square of Veridiction to draw meanings from the sustainability/CSR reports of selected UK FTSE100 companies. Our paper advances CSR communication research by introducing a theoretical-cum-methodological perspective which provides unique insights into how to evaluate the quality of CSR communication. In addition, we present a distinctive CSR Report Quality Model capable of guiding policy makers and firms in designing sustainability/CSR reporting standards. ABSTRACT Despite the proliferation of studies on corporate social responsibility (CSR

Does Regulatory Environment affect Earnings Management in Transitional Economies? An Empirical Examination of the Financial Reporting Quality of Cross-Listed Firms of China and Hong Kong

This chapter provides evidence on the impact of regulatory environment on financial reporting quality of transitional economies. This study compares the financial reporting quality of Hong Kong firms which are cross-listed in mainland China with those of Hong Kong firms cross-listed in China using specific earnings management metrics (earnings smoothing, timely loss recognition, value relevance and managing towards earnings targets) under pre- and post-IFRS regimes. The financial reporting quality of Chinese A-share companies and Hong Kong listed companies are examined using earnings management measures. Using 2007 as base year, the study used a cumulative of −5 and +5 years of convergence experience which provide a total of 3,000 firm-year observations. In addition to regression analyses, we used the difference-in-difference analysis to check for the impact of regulatory environments on earnings management. Through the lens of contingency theory, our results indicate that the adoption of the new substantially IFRS-convergent accounting standards in China results in better financial reporting quality evidenced by less earning management. The empirical results further shows that accounting data are more value relevant for Hong Kong listed firms, and that firms listed in China are more likely to engage in accrual-based earnings management than in real earnings management activities. We established that different earnings management practices that are seemingly tolerable in one country may not be tolerable in another due to level of differences in the regulatory environments. The findings show that Hong Kong listed companies’ exhibit higher level of financial reporting quality than Chinese listed companies, which implies that the financial reporting quality under IFRS can be significantly different in regions with different institutional, economic and regulatory environments. The results imply that contingent factors such as country’s institutional structures, its extent of regulation and the strength of its investor protection environments impact on financial reporting quality particularly in transitional and emerging economies. As such, these factors need to be given appropriate considerations by financial reporting regulators and policy-makers interested in controlling earnings management practices among their corporations. This study is a high impact study considering that China plays a significant role in today’s globalised economy. This study is unique as it the first, that we are aware of, to compare real earnings activities against accrual-based earnings management in pre- and post-IFRS adoption periods within the Chinese and Hong Kong financial reporting environments, distinguishing between cross-listed and non-cross-listed firms.N/

Enhancing life cycle product design decision-making processes : insights from normal accident theory and the satisficing framework

Life Cycle Assessment (LCA), a computational tool for enabling sustainable product design decision making, faces challenges in the interpretation phase, where conclusions are drawn for improvement recommendations. This necessitate the need to incorporate into LCA management-relevant theoretical underpinnings to strengthen decision-making processes. Comparative LCA case studies of lead-based piezoelectric material (lead zirconate titanate – PZT) and lead-free alternatives (potassium sodium niobate – KNN, sodium bismuth titanate – NBT), was employed to demonstrate how two theoretical lenses, namely Normal Accident Theory (NAT) and the Satisficing Framework, are used inductively to enhance decision making regarding unintended consequences in the value chain. By operationalising NAT, which has hitherto focused on the consequences of physical accidents, as a life cycle engineering-based methodology, NAT attributes of interactive complexity and tight coupling was revealed in piezoelectric materials, based on environmental systems’ predictability, observability, and applicability. This led to the introduction of Environmental Impact Accident (EIA) as a new concept, facilitating an early assessment of the associated complexities influencing the sustainability credentials of piezoelectric materials whilst informing mitigation strategies. However, when considering multiple objectives that conflict or trade-off between alternative piezoelectric materials with different environmental and health impacts across the value chain, a conundrum is created but resolved using the Satisficing Framework. The paper concludes by proposing theoretical and practical policy options for incorporating LCA into product life cycle decision making

Acoustic vibrational resonance in a Rayleigh-Plesset bubble oscillator

The phenomenon of vibrational resonance (VR) has been investigated in a Rayleigh-Plesset oscillator for a gas bubble oscillating in an incompressible liquid while driven by a dual-frequency force consisting of high-frequency, amplitude-modulated, weak, acoustic waves. The complex equation of the Rayleigh-Plesset bubble oscillator model was expressed as the dynamics of a classical particle in a potential well of the Li´enard type, thus allowing us to use both numerical and analytic approaches to investigate the occurrence of VR. We provide clear evidence that an acoustically-driven bubble oscillates in a time-dependent single or double- well potential whose properties are determined by the density of the liquid and its surface tension. We show both theoretically and numerically that, besides the VR effect facilitated by the variation of the parameters on which the high-frequency depends, amplitude modulation, the properties of the liquid in which the gas bubble oscillates contribute significantly to the occurrence of VR. In addition, we discuss the observation of multiple resonances and their origin for the double-well case, as well as their connection to the low frequency, weak, acoustic force field

Enhancing life cycle product design decision-making processes: insights from normal accident theory and satisficing framework

Life Cycle Assessment (LCA), a computational tool used in sustainable product design decision making, faces challenges in the interpretation phase, where conclusions are drawn for improvement recommendations. This necessitate the need to incorporate into LCA management-relevant theoretical underpinnings to strengthen decision-making processes. Comparative LCA case studies of lead-based piezoelectric material (lead zirconate titanate – PZT) and lead-free alternatives (potassium sodium niobate – KNN, sodium bismuth titanate – NBT), was employed to demonstrate how two theoretical lenses, namely Normal Accident Theory (NAT) and Satisficing Framework, are used inductively to enhance decision making regarding unintended consequences in the value chain revealed by LCA outputs. The environmental analysis reveals NAT attributes of interactive complexity and tight coupling in piezoelectric materials, based on systems’ predictability, observability, and applicability, leading to the introduction of Environmental Impact Accident (EIA) as a new concept. EIA facilitates early assessment of the associated complexities influencing the sustainability credentials of piezoelectric materials, informing mitigation strategies. However, a conundrum is created when considering multiple objectives that conflict or trade-off between alternative piezoelectric materials with different environmental and health impacts across the value chain but was resolved using the Satisficing Framework. The paper concludes by proposing theoretical and practical policy options for incorporating LCA into product life cycle decision making

Big Data and Changes in Audit Technology: Contemplating a Research Agenda

This study explores the most recent episode in the evolution of audit technology, namely the incorporation of Big Data and Data Analytics (BDA) into audit firm approaches. Drawing on 22 interviews with individuals with significant experience in developing, implementing or assessing the impact of BDA in auditing, together with publicly available documents on BDA published within the audit field, the paper provides a holistic overview of BDA-related changes in audit practice. In particular, the paper focuses on three key aspects, namely the impact of BDA on the nature of the relationship between auditors and their clients; the consequences of the technology for the conduct of audit engagements and the common challenges associated with embedding BDA in the audit context. The study’s empirical findings are then used to establish an agenda of areas suitable for further research on the topic. The study is one of the first empirical accounts providing a perspective on the rise of BDA in auditing

The Impact of Socio-Demographic and Religious Factors upon Sexual Behavior among Ugandan University Students

INTRODUCTION: More knowledge is needed about structural factors in society that affect risky sexual behaviors. Educational institutions such as universities provide an opportune arena for interventions among young people. The aim of this study was to investigate the relationship between sociodemographic and religious factors and their impact on sexual behavior among university students in Uganda. METHODS: In 2005, 980 university students (response rate 80%) were assessed by a self-administered questionnaire. Validated instruments were used to assess socio-demographic and religious factors and sexual behavior. Logistic regression analyses were applied. RESULTS: Our findings indicated that 37% of the male and 49% of the female students had not previously had sex. Of those with sexual experience, 46% of the males and 23% of the females had had three or more sexual partners, and 32% of the males and 38% of the females did not consistently use condoms. For those who rated religion as less important in their family, the probability of early sexual activity and having had a high number of lifetime partners increased by a statistically significant amount (OR = 1.7; 95% CI: 1.2-2.4 and OR = 1.6; 95% CI: 1.1-2.3, respectively). However, the role of religion seemed to have no impact on condom use. Being of Protestant faith interacted with gender: among those who had debuted sexually, Protestant female students were more likely to have had three or more lifetime partners; the opposite was true for Protestant male students. CONCLUSION: Religion emerged as an important determinant of sexual behavior among Ugandan university students. Our findings correlate with the increasing number of conservative religious injunctions against premarital sex directed at young people in many countries with a high burden. of HIV/AIDS. Such influence of religion must be taken into account in order to gain a deeper understanding of the forces that shape sexual behavior in Uganda

Fraud and the interaction between political, legal and financial reporting regimes

There is evidence in the extant literature on frauds and its drivers and inhibitors at firm level. Yet, there is still the beliefs that (1) ‘Politicians could intervene to protect fraudster and that this intervention varies between political regimes of countries and (2) the legal regimes could be less rigour or contains loopholes that reduces deterrent incentives to frauds and fraudster’, let aside the financial reporting regimes. This is an anecdote that is yet to be demystified. This paper therefore argues that behind this anecdote, that there is an interaction between politics, laws and financial reporting on fraud and that the nature and magnitude of this interaction either deters or covers up frauds. The purpose of this paper is two phases: (i) to assess this triangular effect and (ii) to investigate how each type of political, legal and financial reporting regime impacts on fraud at a country level