The Effects of Auditor Tenure on Fraud and Its Detection

We examine the strategic effects of auditor tenure on the auditor's testing strategy and the manager's inclination to commit fraud. Most empirical studies conclude that longer tenure improves audit quality. Proponents of restricting tenure argue that longer tenure impairs auditor independence and a "fresh look" from a new auditor results in higher audit quality. Validating this argument requires testing whether the observed difference in audit quality between a continuing auditor and a change in auditors is less than the theoretically expected difference in audit quality without impairment. Our findings provide the guidance necessary for developing such tests. Our results show that audit risk (the probability that fraud exists and goes undetected) is lower in both periods for the continuing auditor than with a change in auditors. More importantly, we show that across both periods, expected undetected fraud is lower for the continuing auditor than with a change in auditors

Adoção do IFRS no Brasil: um terreno fértil para pesquisa sobre gerenciamento de resultados

We highlight aspects of the Brazilian operating and reporting environment that have led to ample opportunities for researchers to examine the topic of earnings management in financial reporting. In particular, we discuss the potential for research since Brazil has adopted a financial reporting system (IFRS) to replace its tax compliance system. Within that framework, we consider the role of other aspects of Brazil’s environment, including the recent influx of foreign investment, the ability to choose corporate structure, and the implications of inflation on the incentives and opportunities for earnings management. As a guideline to researchers in Brazil, we have also provided a discussion of the applicability of testing those earnings properties most often tested in relation to earnings management, paying particular attention to issues that would be of interest beyond Brazil’s borders.Esta pesquisa investiga aspectos do ambiente econômico em que são elaborados relatórios financeiros e contábeis, favoráveis ao estudo do gerenciamento de resultados. Em particular, o estudo discute o potencial de investigação acadêmica desse tópico no Brasil, país que adotou recentemente o IFRS, sistema internacional de relatórios financeiros, para substituir seu atual modelo de cumprimento das obrigações fiscais. Dentro desse quadro, foi considerado o papel de outras características do ambiente econômico brasileiro, como a atratividade recente de investimentos estrangeiros, a capacidade de escolha da estrutura societária e as implicações da inflação sobre os incentivos e sobre as oportunidades para o gerenciamento de resultados. Como orientação para pesquisadores no Brasil, este estudo discute a aplicabilidade do teste das propriedades do gerenciamento e dos ganhos vinculados a essa prática, com especial atenção para as questões de interesse para além das fronteiras do Brasil

The Interrelation between Audit Quality and Managerial Reporting Choices and Its Effects on Financial Reporting Quality

Two distinct lines of research have been dedicated to empirically testing how financial reporting quality (measured as the earnings response coefficient or ERC) is associated with management's choice of reporting bias and with audit quality. However, researchers have yet to consider how ERCs are affected by either the auditor's reaction to changes in the manager's reporting bias or the manager's reaction to changes in audit quality. Our study provides theoretical guidance on these interrelations and how changes in the manager's or the auditor's incentives affect both reporting bias and audit quality. Specifically, when the manager's cost (benefit) of reporting bias increases (decreases), we find that expected bias decreases, inducing the auditor to react by reducing audit quality. Because we also find that the association between expected audit quality and ERCs is always positive, changes in managerial incentives for biased reporting lead to a positive association between ERCs and expected reporting bias. When the cost of auditing decreases or the cost of auditor liability increases, we find that expected audit quality increases, inducing the manager to react by decreasing reporting bias. In this case, changes in the costs of audit quality lead to a negative association between ERCs and expected reporting bias. Finally, we demonstrate the impact of our theoretical findings by focusing on the empirical observations documented in the extant literature on managerial ownership and accounting expertise on the audit committee. In light of our framework, we provide new interpretations of these empirical observations and new predictions for future research

How Changes in Expectations of Earnings Affect the Associations of Earnings Overstatements and Audit Effort with Audit Risk and Market Price

In this study, we provide theoretical guidance for both analytical research and empirical research by considering how changing expectations of earnings affect a dishonest manager's strategy to overstate earnings and an auditor's strategy to exert effort in a two-period setting. We expect our study's insights on changing economic conditions to help shape future research. We model the manager type as either honest or dishonest, which allows us to differentiate audit risk from audit effort. The key takeaways for future research are the insights on how changes in payoffs and expected earnings affect the associations that involve earnings overstatements and audit effort with audit risk and market price. For instance, researchers typically assume audit effort and audit risk are negatively associated, but we find the association can be positive when, for example, the auditor chooses a period 2 strategy based on the changes in period 1 game parameters. The results of our study provide two additional key insights on the design of future empirical tests. First, by dichotomizing, we show the importance of estimating the intercept in the market pricing equation when studying earnings quality, because market price also adjusts for expected bias through changes in the intercept. Second, our multiperiod setting demonstrates that the effects from a change in the manager's or auditor's incentives in period 1 may reverse in period 2. Empirical studies typically examine the contemporaneous effects of these changes on market price and/or audit risk but fail to identify the cross-temporal effects we document in our study

The Effects of Fair Value on the Matching of Revenues and Expenses: The Case of Asset Revaluations

Researchers and practitioners have expressed concern that matching has declined over time, as evidenced by a decreasing association between revenues and expenses. They attribute this decline to the shift in financial reporting from a revenue–expense view that emphasizes matching to an asset–liability view that emphasizes the measurement of economic resources that incorporates more fair values. When revenues rise with inflation but the expenses remain tied to historical costs, the two streams tend to diverge. We hypothesize that upwardly revaluing the long-lived fixed operating assets resets the expense stream; thus, changes in revenues will be more closely associated with changes in expenses for firms that revalue than firms that do not upwardly revalue. Based on a sample of United Kingdom firms, we find evidence supporting our expectations, particularly in those higher inflationary industries

The Commitment to Income-Decreasing Accounting Choices as a Credible Signal to Reducing Information Asymmetry: The Case of Asset Revaluations

Bagnoli and Watts (2005) proposed that a manager could reduce information asymmetry by choosing an income-decreasing accounting choice that signals the firm's relatively good future prospects. A limitation in testing this theory is that most income-decreasing accounting choices over time reverse such that aggregated earnings would be the same, regardless of the choice. One income-decreasing accounting choice that never reverses is the choice of upward asset revaluation, where the resulting gains are recognized through other comprehensive income and reduce future earnings by increasing future depreciation expense. In the United Kingdom, prior to FRS15, firms had the option to upwardly revalue on a one-time basis. FRS15, and subsequently International Financial Reporting Standards, however, require those firms that upwardly revalue precommit to revalue on a consistent basis. This precommitment sacrifices future reporting discretion, which, according to the aforementioned study, serves as a costly signal of a firm's relatively good future prospects that reduces information asymmetry. The choice not to upwardly revalue, therefore, serves as a signal of a firm's relatively poor future prospects and also reduces information asymmetry, but this choice does not require precommitment such that the reduction in information asymmetry would be less than the choice to precommit to upward revaluations. Using a propensity-score matched-pair design on a sample of United Kingdom firms to test our predictions during the period requiring precommitment, we find lower forecast dispersion, lower return volatility, and a lower cost of capital for firms that precommit to upward asset revaluations, relative to those firms that choose not to upwardly revalue their operating assets

Optimasi Portofolio Resiko Menggunakan Model Markowitz MVO Dikaitkan dengan Keterbatasan Manusia dalam Memprediksi Masa Depan dalam Perspektif Al-Qur`an

Risk portfolio on modern finance has become increasingly technical, requiring the use of sophisticated mathematical tools in both research and practice. Since companies cannot insure themselves completely against risk, as human incompetence in predicting the future precisely that written in Al-Quran surah Luqman verse 34, they have to manage it to yield an optimal portfolio. The objective here is to minimize the variance among all portfolios, or alternatively, to maximize expected return among all portfolios that has at least a certain expected return. Furthermore, this study focuses on optimizing risk portfolio so called Markowitz MVO (Mean-Variance Optimization). Some theoretical frameworks for analysis are arithmetic mean, geometric mean, variance, covariance, linear programming, and quadratic programming. Moreover, finding a minimum variance portfolio produces a convex quadratic programming, that is minimizing the objective function ðð¥with constraintsð ð 𥠥 ðandð´ð¥ = ð. The outcome of this research is the solution of optimal risk portofolio in some investments that could be finished smoothly using MATLAB R2007b software together with its graphic analysis

Differential cross section measurements for the production of a W boson in association with jets in proton–proton collisions at √s = 7 TeV

Measurements are reported of differential cross sections for the production of a W boson, which decays into a muon and a neutrino, in association with jets, as a function of several variables, including the transverse momenta (pT) and pseudorapidities of the four leading jets, the scalar sum of jet transverse momenta (HT), and the difference in azimuthal angle between the directions of each jet and the muon. The data sample of pp collisions at a centre-of-mass energy of 7 TeV was collected with the CMS detector at the LHC and corresponds to an integrated luminosity of 5.0 fb[superscript −1]. The measured cross sections are compared to predictions from Monte Carlo generators, MadGraph + pythia and sherpa, and to next-to-leading-order calculations from BlackHat + sherpa. The differential cross sections are found to be in agreement with the predictions, apart from the pT distributions of the leading jets at high pT values, the distributions of the HT at high-HT and low jet multiplicity, and the distribution of the difference in azimuthal angle between the leading jet and the muon at low values.United States. Dept. of EnergyNational Science Foundation (U.S.)Alfred P. Sloan Foundatio

Penilaian Kinerja Keuangan Koperasi di Kabupaten Pelalawan

This paper describe development and financial performance of cooperative in District Pelalawan among 2007 - 2008. Studies on primary and secondary cooperative in 12 sub-districts. Method in this stady use performance measuring of productivity, efficiency, growth, liquidity, and solvability of cooperative. Productivity of cooperative in Pelalawan was highly but efficiency still low. Profit and income were highly, even liquidity of cooperative very high, and solvability was good

Juxtaposing BTE and ATE – on the role of the European insurance industry in funding civil litigation

One of the ways in which legal services are financed, and indeed shaped, is through private insurance arrangement. Two contrasting types of legal expenses insurance contracts (LEI) seem to dominate in Europe: before the event (BTE) and after the event (ATE) legal expenses insurance. Notwithstanding institutional differences between different legal systems, BTE and ATE insurance arrangements may be instrumental if government policy is geared towards strengthening a market-oriented system of financing access to justice for individuals and business. At the same time, emphasizing the role of a private industry as a keeper of the gates to justice raises issues of accountability and transparency, not readily reconcilable with demands of competition. Moreover, multiple actors (clients, lawyers, courts, insurers) are involved, causing behavioural dynamics which are not easily predicted or influenced. Against this background, this paper looks into BTE and ATE arrangements by analysing the particularities of BTE and ATE arrangements currently available in some European jurisdictions and by painting a picture of their respective markets and legal contexts. This allows for some reflection on the performance of BTE and ATE providers as both financiers and keepers. Two issues emerge from the analysis that are worthy of some further reflection. Firstly, there is the problematic long-term sustainability of some ATE products. Secondly, the challenges faced by policymakers that would like to nudge consumers into voluntarily taking out BTE LEI