Audit committees and fraudulent financial reporting: a descriptive analysis

The study examines the background of the audit committee from the aspect of professional affiliations, postgraduate qualifications and senior managerial experiences, in association with fraudulent financial reporting

Pre fraud: some firms' charateristics

The paper specifically examines the pre fraud firms’ characteristics for over 3 years before fraud occurred. Selections of companies were made from Securities Commissions’ enforcement actions released between the years 2000 until 2008. A matched pair sampling was made with the control group, and 192 firms’ observations were made. Findings revealed that there were decreased in cash flow as well as lesser number of board sizes during the three years before the fraud for fraud firms. In addition, roles of independent directors may lessen the impact of fraud

Financial instruments disclosure practices : evidence from Malaysian listed firms

The current changes in business settings have directed companies to conduct businesses at the international level which requires the use of financial instruments. The-mandatory MFRS 7, an adoption of IFRS 7 standard has been implemented for entities to disclose their involvement with financial instruments. Thus, the aimed of this study is to investigate the financial instruments disclosure practices (FID) among Malaysian listed companies; specifically, on the level of compliance with MFRS 7. The overall results indicate that companies complied with MFRS 7, though there are several requirements omitted by companies. Furthermore, with the revised of Malaysian Code of Corporate Governance (MCCG) in 2012, this study examines the association of corporate governance mechanisms (board expertise, audit committee independence, audit fee, external and internal audit functions) with the extent of FID among companies. Based on a total sample of 319 Malaysian public listed companies for financial year end 2012, the analysis revealed that FID is significantly and positively associated with audit committee independence and external audit functions, while internal audit is negatively associated. Hence, it suggests that effective corporate governance is crucial as this is likely to have some influence on the extent of disclosure level among companies

Fraudulent financial reporting in Malaysia: a basic analysis

For the past decade, little had been discussed on the much taboo subject among companies, as the consequences are massive either legally, financially, and morally. It is important to distinguish between error and fraud, as error is an unintentional mistake in financial statements. However, fraud is said to occur with intention in order to conceal or benefit certain parties. Many companies face occupational fraud and abuse that involve a wide variety of conduct by executives, employees, and managers, ranging from sophisticated investment swindles to petty theft. However, the common violations are usually corruption, asset misappropriation and fraudulent statements. Subsequently, fraud for or against a company can take the form of fraudulent financial reporting. The objective of the study is to examine the differences between fraud and non-fraud firms on the firm characteristics as well as director characteristics

An Investigation on the Audit Committees Effectiveness: The Case for GLCs in Malaysia

Financial reporting quality has been under scrutiny especially after the collapse of major companies. The main objective of this study is to investigate the audit committee’s effectiveness on the financial reporting quality among the Malaysian GLCs following the transformation program. In particular, the study examined the impact of audit committee characteristics (independence, size, frequency of meeting and financial expertise) on earnings management in periods prior to and following the transformation program (2003-2009). As of 31 December 2010, there were 33 public-listed companies categorized as Government-Linked Companies (GLC Transformation Policy, 2010) and there were 20 firms that have complete data that resulted in the total number of firm-year observations to 120 for six years (years 2003-2009).  Results show that the magnitude of earnings management as proxy of financial reporting quality is influenced by the audit committee independence. Agency theory was applied to explain audit committee, as a monitoring mechanism as well as reducing agency costs via gaining competitive advantage in knowledge, skills, and expertise towards financial reporting quality. The study is important as it provides additional knowledge about the impact of audit committees effectiveness on reducing the earnings management, and assist practitioners, policymakers and regulators such as Malaysian Institute of Accountants, Securities Commission and government to determine ways to enhance audit committees effectiveness and improve the financial reporting of GLCs, as well as improving the quality of the accounting profession.    

Boards’ and Firms’ Characteristics: The case for Fraudulent Financial Reporting in Malaysia

The purpose of this paper is to provide valuable insights into the characteristics of fraudulent financial reporting in the period pre- and post-fraud. The objective of the study is to examine signals or red flags that exist among fraud firms such as their audit committee size, audit committee independence, board’s size, independent directors, block holders, cash flows and long term debts. Companies of fraud firms were identified from the Securities Commission enforcement actions from year 2000 until 2008. Findings provide practical implications to accounting regulators and practitioners since it revealed boards’ size, block holders and operating cash flow have significant relationship with fraudulent financial reporting. The study concludes that firms that spend more on operating activities, that have larger board’s size and block holders, are less likely to be involved in fraudulent financial reporting

Audit committee's effectiveness and financial reporting quality: the case of GLCs in Malaysia

Financial reporting quality has been under scrutiny especially after the collapse of major companies. The main objective of this study is to investigate the audit committee’s effectiveness on the financial reporting quality among the Malaysian GLCs. In particular, the study examined the impact of audit committee characteristics (independence, size, frequency meeting and financial expertise) on earnings management in periods prior to and following the transformation program (2003-2009). As at 31 December 2010, there were 33 public-listed companies categorized as Government-Linked Companies (GLC Transformation Policy, 2010) and there were 20 firms that have complete data which resulted in the total number of firm-year observations to become 120 for six years (year 2003-2009). Results show that the magnitude of earnings management as proxy of financial reporting quality is influenced by the audit committee independence. However, no evidence was found to support the effect of audit committee size, meetings and expertise on the magnitude of earnings management. Agency theory and resource dependence theory were applied to explain audit committee, as a monitoring mechanism as well as reducing agency costs via gaining competitive advantage in knowledge, skills, and expertise towards financial reporting quality. However, contrary to expectation, the theories were not fully supported hence there is a need for other alternative theory that can explained the relationship in positive manner. This study is different from prior studies, in that it makes a significant contribution towards enhancing one’s knowledge in the interacting role of audit committee’s effectiveness and financial reporting quality subsequent to the transformation program in GLCs. The study is important as it provides additional knowledge about the impact of audit committee’s effectiveness on reducing the earnings management, and assist practitioners, policymakers and regulators such as Malaysian Institute of Accountants, Securities Commission and government to determine ways to enhance audit committee’s effectiveness and improve the financial reporting of GLCs, as well as improving the quality of the accounting profession

Relationship between the industry specialist auditors and financial reporting timeliness under MFRS

This paper aims to identify the association between financial reporting timeliness and the presence of industry specialist auditors. The auditor’s report lag (ARL) is used as a proxy for the financial reporting timeliness. The association between the two factors was examined through the resource dependence theory. Data comprise the 2012 annual reports of 796 Malaysian public listed companies and 342 of these companies had fully complied with the Malaysian Financial Reporting Standards (MFRS). From the results noted, it appears that financial reporting timeliness can be improved through the engagement of industry specialist auditors. This outcome contributes to the existing literature in auditing by enlarging the empirical evidence that was assessed with four different methods

Internal human based threats and security controls in computerized banking systems: evidence from Malaysia

Malaysia being a unique capital market, practices dual banking system to capture the disaggregation of conventional and Islamic banking systems. However, like most financial institutions, no bank is isolated from security threats, even if, it comes from within the organization. Thus the objective of this study is to examine bank managers’ experience on human based security threats and the existence of human based security controls in computerized banking systems (CBS) in Malaysia. Since most major financial institutions operate in the capital city of Kuala Lumpur, questionnaires were sent to some of these bank branches in Kuala Lumpur. Findings revealed that managers recognized the personal policies recruitment procedure, segregation of duties and physical access control as ways to mitigate risks of human security threats. Hence, provide insights of how internal control system of a financial institution can be improved as a means to reduce security threats that have monetary implications. Finally, the study provides a platform for promoting an efficient and effective internal control practices among financial institutions in Malaysia

Audit committee effectiveness and internal audit: an empirical investigation with audit quality

Increased concerns regarding corporate accountability in various developed nations have been associated with the need for effective audit committee and internal control systems. This is due to large corporate collapses which have demonstrated problems with the quality of financial reporting and auditing. This study examines the nature and extent of the relationship between audit committee characteristics and internal audit function characteristics with audit quality whereby audit fee is used as a proxy for audit quality. The corporate governance characteristics included in this study are audit committee expertise, frequency of audit committee meetings, structure of internal audit function and size of internal audit function. This study formulated six hypotheses that guided the analysis and using publicly available information of 200 Malaysian public listed companies for the financial year end 2009 and 2010 each. This study provides recent evidence of a positive relationship between audit quality and two audit committee characteristics: audit committee with postgraduate qualification and frequency of audit committee meeting. Further, a positive relationship is found between audit quality and internal audit function characteristic, which is size of internal audit function. Apart from contributing to the literature on corporate governance and audit quality, this study may serve as an input for the regulator to encourage strict enforcement for Malaysian-listed companies to incorporate corporate governance practices especially on audit committee composition and internal audit function. Finally, it highlights the call for continuous education for directors, to become more resourceful in order to improve relationship with auditors