PurposeThis study examines the effect of auditing and the integral approach to interim reporting on cosmetic earnings management, referred by Kinnunen and Koskela as earnings manipulative behavior to report earnings numbers to achieve key cognitive reference points represented by N×10k.Design/methodology/approachUsing Benford's Law, the analysis employs 182,278 positive quarterly earnings observations and 103,470 negative quarterly observations for all publicly listed US companies from 1993 to 2003.FindingsThe empirical results show that firms tended to engage in cosmetic earnings management in each of the four fiscal quarters. More importantly, it was found that the degree of cosmetic earnings management is significantly less severe in the fourth fiscal quarter, which is the only quarter audited, than any of the previous quarters. This result suggests that the auditor plays an important role in reducing the cosmetic earnings manipulative behavior.Originality/valueThe findings of the study add more evidence to the ongoing debate about the effectiveness of auditing in preventing earnings management.
The rapid escalation of technology and the use of computers in business practice result in more information technology (IT) auditing and internal control standards and guidelines to assist auditors in their roles and responsibilities. Several organizations, such as the American Institute of Certified Public Accountants (AICPA), the International Federation of Accountants and the Information Systems Audit and Control Association (ISACA), have issued standards in this area to be observed by their members in performing an IT audit. This paper traces the evolution of US IT auditing and internal control standards in financial statement audits and discusses their significance for the auditing profession. We primarily focus on the discussion of the IT audit standards issued by the AICPA and ISACA. As the use of computers in business data processing gets more widespread and the integration of IT in business processes gets more intricate, we expect to see more pronouncements of IT audit standards in the future. Auditors should well understand these pronouncements, standards and guidelines when performing an IT audit.
In the U.S., sustainability accounting reporting is developing and becoming more prevalent in public companies. This paper reviews accounting literature and Dow 30 companies' websites, presents a comprehensive view of the landscape of sustainability accounting reporting, and identifies seven issues of the reporting frameworks of sustainability accounting, i.e., (1) definitions, (2) measurements and disclosures, (3) motivations, (4) compliance, (5) enforcement, (6) standardization, and (7) the ultimate effect on reliability and comparability.An archival analysis approach is used to summarize and compare Dow 30 sustainability accounting reporting frameworks and information disclosed in 2015 annual reports and websites. The most popular framework is the Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines. Some companies developed sustainability accounting reporting frameworks and others did not disclose any information regarding sustainability accounting reporting. Although the GRI framework is the most used, external assurance is present in only a few companies.
This paper identifies potential data problems of using accounting databases. To examine data errors, two commonly used accounting databases-Value Line and Compustat are compared in their qualitative and quantitative features. Data is examined using seven variables over a period of eleven years. Differences found in the data for 1981 are further analyzed by comparing sample data to figures directly drawn from financial statements. Substantial data differences are found. Most of which are attributable to definitional discrepancies and others to direct measurement error. For example, 39.5% of the depreciation figures and 23.2% of the inventory numbers were discrepant by more than 1% of the absolute value of the measure. The paper also comments on the selection and usage of accounting databases and discusses shortcomings that should be expected in using accounting databases. Finally, recommendations are presented for dealing with these problems to preparers of databases as well as standard setters.
The objective of this paper is to examine the development of sustainability accounting and reporting in practice, and to observe the reporting patterns and standards followed through a survey on reporting frameworks of U.S. large companies (Dow-Jones 30 companies). This paper first reviews and summarizes the recent literature in sustainability accounting research, particularly in sustainability accounting reporting. Further, the paper provides a survey on sustainability accounting reportingframe works of 30 U.S. Dow-Jones companies. The findings of this study confirm the increasing trend of sustainability reporting among large publicly traded firms, which is suggested by prior accounting research.However, we observevarious reporting formats and patterns among these 30 Dow-Jones companies.Thisimplies that the lack of uniformity of sustainability reporting and assurance might reduce the comparability, effectiveness and accuracy of sustainability accounting reporting.
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