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Languages : en
Pages :
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Author:
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Category :
Languages : en
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Author: Tiffany Jo Westfall
Publisher:
ISBN: 9781339663920
Category :
Languages : en
Pages : 123
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Book Description
This study examines registrants' incentives to disclose internal control weaknesses (ICWs) voluntarily in IPO registration statements and their post-IPO financial reporting quality. Using a sample of initial public offering (IPO) registrants from 2005-2013, I find that increasing management's disclosure credibility, by hiring a new CEO in the IPO, is an incentive to include ICWs in IPO registration statements. I find that management does build credibility with underwriters evidenced by IPO registrants that disclose ICWs voluntarily are associated with higher IPO offer prices. The results suggest that registrants including voluntary ICW disclosures are more likely to receive an adverse SOX 404 auditor opinion. I find that registrants' voluntary ICW disclosures are informative and are associated with negative cumulative abnormal returns only when an auditor issues an adverse SOX 404 auditor opinion after the disclosure. IPO registrants that voluntarily disclose ICWs and receive unqualified SOX 404 auditor opinions appear to be successful in mitigating negative cumulative abnormal returns. My findings provide evidence that misstatements appear to outpace material weakness disclosures for the sample of IPO registrants. Overall, the findings suggest that managers seek to build credibility through voluntary disclosure of ICWs at the IPO, allowing managers to maximize the rewards at the IPO date (i.e., IPO offer price). However, managers suffer punishment from investors if subsequent events (i.e., SOX 404 material weaknesses) call into question the credibility of the disclosure. The post-IPO financial reporting quality results are timely and relevant to regulators because the relationship between misstatements and unqualified audit opinions is puzzling. Additionally, the JOBS Act allows IPO registrants to delay SOX 404 compliance for up to five years. Finally, this study's results are important to investors because the purpose of SOX 404 is to provide an advanced warning of financial reporting weaknesses.
Author: Chong-ŭn Yi
Publisher:
ISBN:
Category :
Languages : en
Pages : 146
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This dissertation investigates the economic determinants of firms' decisions to voluntarily disclose internal control weaknesses, and the economic consequences of such disclosures, in the context of companies' initial public offerings (IPOs) of equity securities. I find that IPO firms with greater potential litigation risk and restated pre-IPO financial statements are more likely to disclose internal control weaknesses over pre-IPO financial reporting. In addition, I find that voluntary disclosure of internal control weaknesses and the related remediation procedures is negatively associated with underpricing, indicating that ex ante uncertainty about the new issues' value is reduced. Further, IPO firms benefit from such voluntary disclosure through increased IPO proceeds. The results also suggest that the new internal control disclosure requirements under SOX sections 302 and 404 have induced IPO firms to voluntarily disclose internal control weaknesses, contributing to lower information asymmetry between IPO firms and uninformed investors.
Author: Emily Jing Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
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Book Description
I examine the change in voluntary IPO disclosure of internal controls after the JOBS Act. The JOBS Act postponed the compliance deadline of internal control audits after IPO. Simultaneously, it increased the number of small IPO firms with potential control weaknesses. I find that IPO firms are more likely to disclose internal controls after the JOBS Act. Further, post-JOBS IPO firms who are willing to disclose experience lower underpricing. This lower underpricing is not fully explained by the supplemental disclosure of remediation of control weaknesses. Finally, the increased disclosure of internal controls after the JOBS Act is not associated with worse accounting quality or more intensive SEC oversight on internal control issues. Collectively, these results are consistent with a dynamic view that as investors rationally update their beliefs of increasing “lemons” in the IPO population after the JOBS Act, IPO firms become more forthcoming with internal control disclosure.
Author: Khim Kelly
Publisher:
ISBN:
Category :
Languages : en
Pages : 67
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Book Description
We conduct an experiment where alumni participants from a Canadian accounting and finance undergraduate program assume they are in one of four regulatory regimes (manipulated between-subjects) and make investment potential evaluations for two firms (manipulated within-subjects): a firm disclosing no material weaknesses (No-MW disclosure firm) and a firm disclosing material weaknesses (MW disclosure firm) in internal controls over financial reporting (ICFR). We find evidence of configural information processing. For the No-MW disclosure firm, mandatory (versus voluntary) disclosure of ICFR material weaknesses and mandatory (versus voluntary) independent ICFR audit are substitutes in enhancing investment potential evaluations. However, for the MW disclosure firm, neither mandatory disclosure nor mandatory audit has any effect on investment potential evaluations. Supplementary experiments with undergraduate participants suggest that the pattern of configural information processing is a function of participants' knowledge of company disclosure incentives and the assurance value of an audit, wherein undergraduates with lower levels of knowledge are less able to perceive the effects of mandatory disclosure and mandatory audit on investment potential evaluations. Our findings have implications for regulators who are concerned about balancing the costs and benefits of different regulatory mechanisms.
Author: Robert J. Sonnelitter, Jr.
Publisher: CCH
ISBN: 9780808091165
Category : Business & Economics
Languages : en
Pages : 438
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Book Description
CCH's SOX 404 for Small, Publicly Held Companies enables you to successfully and efficiently make the internal control assessment required by Section 404 of the Sarbanes-Oxley Act. In particular, this book will help non-accelerated filers-those companies that have outstanding securities with a market value of less than $75 million-with the challenging and time-consuming SOX 404 requirements. This addition to the CCH reference library gives you the tools for the evaluation, planning documentation, risk assessment, testing, and reporting necessary for successful compliance with Section 404. It focuses on the SEC's rules for an assessment of internal controls and the PCAOB's requirements for independent auditors. The free, companion CD-ROM accompanying this book includes workpapers and checklists as well as primary source material from the SEC and PCAOB to make your research and reporting as quick and cost-efficient as possible. SOX 404 for Small, Publicly Held Companies and the accompanying CD-ROM address all that is necessary to perform an assessment of internal controls over financial reporting as well as an assessment of disclosure controls. Book jacket.
Author: Mukesh Garg
Publisher:
ISBN:
Category :
Languages : en
Pages : 356
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Book Description
This thesis draws on agency theory to primarily investigate whether CEOs' and CFOs' voluntary certification of internal controls over financial reporting (hereafter, ICFR) is associated with audit fees and value relevance of Australian financial reports. The thesis also examines whether corporate governance and audit quality are associated with the likelihood that firms provide the CEOs' and CFOs' voluntary ICFR certification. While agency theory predicts that firms with high agency costs are less likely to implement sound internal control procedures, however, sound corporate governance and higher audit effort provides avenues to mitigate such high agency costs. This theoretical framework is used to examine three Research Questions. CEOs' and CFOs' voluntary ICFR certification is a recommendation within the Australian Securities Exchange Corporate Governance Council Best Practice Recommendations. The ICFR certification states that the integrity of financial reports is formed on the soundness, efficiency and effectiveness of firms' risk management systems and internal compliance and controls (hereafter, CERTDISC). While disclosure of ICFR certification is not mandated, if there is a non-compliance of the recommendation, that information has to be disclosed in the annual report with an "if not why not" approach. Studies in a mandatory disclosure setting in the US find internal control deficiency is related to several firm level outcomes. For example, it is found to be negatively associated with earnings quality (Doyle, Ge and McVay, 2007b; Ashbaugh-Skaife, Collins, Kinney and LaFond, 2008; Chan, Farrell and Lee, 2008), positively associated with audit fees (Raghunandan and Rama, 2006; Hoitash, Hoitash and Bedard, 2008; Lu, Richardson and Salterio, 2011) and positively associated with cost of equity (Beneish, Billings and Hodder, 2008; Ashbaugh-Skaife, Collins, Kinney and Lafond, 2009). The inferences drawn from studies in a mandatory setting may not be applicable in a voluntary environment where disclosures of good news as opposed to bad news, are affirmative and not assured by an external auditor. Three specific related Research Questions are examined in this thesis: (1) Are corporate governance and audit quality associated with ICFR certification and disclosure? (2) Is ICFR certification and disclosure associated with audit fees? (3) Is ICFR certification and disclosure value relevant? This thesis aims at establishing a view on the effect of CERTDISC on audit fees and the value relevance of CERTDISC by investigating whether firms with strong corporate governance and audit quality implement CERTDISC and whether auditors and investors are affected by CERTDISC. Prior studies show that the effectiveness of the board and audit committee positively affects voluntary disclosures and the quality of ICFR (Klein, 2002; Leuz, Nanda and Wysocki, 2003; Beekes, Pope and Young, 2004; Agrawal and Chadha, 2005; Farber, 2005; Ashbaugh-Skaife, Collins and LaFond, 2006; Doyle, Ge and McVay, 2007a). Sound, effective and efficient ICFR reduces the auditors' control risk which, in turn, according to the audit risk model, increases detection risk. Firms with high detection risk (the risk that the auditor's testing procedures will not be effective in detecting a material misstatement) require less audit effort and therefore lower audit fees, ceteris paribus. The thesis is conducted using a sample of 498 Australian listed firms in 2004, the year post the introduction of CERTDISC provisions. In testing first Research Question it is found that firms audited by big-4 audit firms are associated with CERTDISC. Moreover, it is found that the positive association between corporate governance and CERTDISC is stronger for firms audited by big-4 auditors consistent with agency theory. In the audit fee tests to address Research Question 2, it is found that while CERTIDISC has no significant main effect on audit fees, corporate governance has a significant positive main effect. This suggests firms with strong corporate governance are likely to demand higher audit effort also consistent with agency theory and a study by Carcello, Hermanson, Neal and Riley Jr (2002). However, when CERTDISC and corporate governance variables are tested for interaction effect, it is found that there is a significant positive interaction effect between CERTDISC and corporate governance on audit fees. Further analysis of the interaction effect suggests that the effect of CERTDISC on audit fees is conditional on corporate governance. In point of detail, it is found that at low levels of corporate governance, there is a negative association between CERTDISC and audit fees but at progressively higher levels of corporate governance, the effects of CERTIDISC become weaker. In other words, CERTDISC has a negative effect on audit fees only for firms with low corporate governance. The results from the examination of the value relevance of CERTDISC for addressing Research Question 3 suggest that CERTDISC is positively associated with share price. More specifically, it is found that the value relevance is more prominent for firms with higher information asymmetry proxied by three measures namely audit by big-4 versus non-big-4 audit firms (non-big-4 client firms are assumed to be associated with higher information asymmetry), bid-ask spread and stock liquidity. These results suggest that investors find CERTDISC most useful for firms with high information asymmetry. Findings suggest that costly ICFR audit environment similar to that in the US under Section 404 of Sarbanes Oxley Act, 2002 may not be required as the market is able to recognize the information conveyed by the existence of ICFR. Finally, from the theoretical point of view, this thesis provides evidence consistent with theoretical predictions in agency theory. More specifically, agency theory predicts that stronger internal controls and a commitment by top management (tone at the top) to implement ICFR procedures reduces potential agency conflicts between managers and shareholders thus resulting in higher firm valuation, ceteris paribus. This thesis contributes to the extant literature on ICFR by investigating a unique unaudited and voluntary ICFR certification and disclosure regime. The findings have implications for investors when making an investment decision as it informs them of the reliance they can place on CERTDISC. The thesis also provides some information to the corporate regulators on whether an alternative to the regulation (Section 404 of Sarbanes Oxley Act, 2002) adopted by the US should be considered in Australia. Finally, the thesis adds to the audit fee literature by showing that both corporate governance and ICFR certification affect audit fees. It also adds to the "value relevant" literature by showing that ICFR certification information is value relevant to investors for a sample of Australian listed firms, and that the extent of value relevance depends on the information environment; ICFR is less relevant for firms with big-4 auditors and for firms with low information asymmetry.
Author: Dan A. Simunic
Publisher: Canadian Certified General Accountants' Research Foundation = Fondation de recherche de l'Association des comptables généraux licenciés du Canada
ISBN:
Category : Business & Economics
Languages : en
Pages : 90
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Book Description
A fundamental question with respect to the market for audit services is whether or not such services are homogeneous across suppliers ... In this monograph, we review the basic principles and findings concerning differentiated product markets as they have been developed in the economic literature. Using Lancaster's characteristics framework, we posit that the audit service contains several attributes which are valued by top management. A key attribute is "credibility", which is communicated by an audit firm's brand name and is identified with the power of an auditor's test ... We posit that, along with other product characteristics, the power of test varies systematically across audit firms. Hypotheses concerning the demand for different audit service specifications (qualities) are developed in a context where companies are changing their capital structure through an initial public offering of common shares. These hypotheses are tested using a sample of 469 U.S. corporations which first "went public" during 1981. The results are consistent with the existence of differential audit services.
Author: Kim Ittonen
Publisher: University of Vaasa
ISBN: 9524762560
Category : Auditing
Languages : en
Pages : 211
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Book Description
Tiivistelmä: Tilintarkastuskertomukset ja osakemarkkinat.
Author: Agyemang, Otuo Serebour
Publisher: IGI Global
ISBN: 1522596097
Category : Business & Economics
Languages : en
Pages : 330
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Book Description
Virtually all developing, transitioning, and emerging-market economies are faced with one pressing concern at the moment: how to establish the groundwork for long-term economic performance and competitiveness in a diverse market. However, without the existence of good corporate governance in these economies, small enterprise will cease to exist in developing countries. Corporate Governance Models and Applications in Developing Economies is a collection of innovative research that contributes to the better understanding of corporate governance models by documenting the structures, principles, tenets, case studies, and applications for the development of good business practices in developing economies. While highlighting topics including risk management, financial distress, and insider trading, this book is ideally designed for corporate managers, executives, economists, strategists, investors, shareholders, students, researchers, academicians, business professionals, and policymakers.
