Independent monitoring and review functions in a financial reporting context

Abstract

Purpose Independent monitoring and review bodies have become a defining feature of the professional accounting and auditing space. Exactly how these institutions function to improve the quality of the corporate reporting or audit function is, however, poorly understood. Consequently, the purpose of this study is to provide empirical evidence on how the activities of an independent review process functions on individual preparers, auditors and those charged with an organisation’s governance. Design/methodology/approach The study is an interpretive one. Data are collected using semi-structured interviews and analysed by the researchers. Findings The review function performed by an independent body results in companies being more aware of the need for compliance with the applicable financial reporting standards. Independent reviews also act as a process of examination which functions at the level of the individual accountant, auditor or director. These subjects of regulation report an added sense of accountability to their respective employer and profession and a heightened awareness of the need for high-quality corporate reporting. Research limitations/implications Independent monitoring and review bodies are not just symbolic displays which reassure uninformed users that the quality of financial statements are sound. Examination of financial statements and identification of non-compliance with the applicable financial reporting standards drive actual changes in reporting practices. Originality/value This study complements the predominantly positivist financial reporting research which does not deal with precisely how the work of regulatory bodies operates on the subjects of regulation. The research makes an important practical contribution by providing empirical evidence in support of laws and regulations which promote independent review of the accounting profession.

Mandatory audit firm rotation: a critical composition of practitioner views from an emerging economy

“…It is also Africa's most diversified economy with established capital market systems in place. South Africa is frequently cited as a leader in corporate governance and is well regarded for its quality of financial reporting and external auditing practices [7] (Louw and Maroun, 2017;WEF, 2016). It also has a relatively long history of regulating minimum levels of audit quality with the result that it offers an established case for investigating the role of MAFR as part of the broader regulatory environment.…”

Evaluating Audit Quality Using the Results of Inspection Processes Performed by an Independent Regulator

“…Similar views have been expressed by the UK (FRC 2015), the European Community (European Commission 2010) and South Africa (IRBA 2016) where independent monitoring and inspection processes have become a defining feature of the audit market. These government interventions suffer from limitations but prior research suggests that, on average, external regulatory measures have the potential to change the attitudes of individual auditors (Canning and O'Dwyer 2013; Louw and Maroun 2017), encourage more detailed application of technical standards (Church and Shefchik 2011; Bishop et al. 2013) and result in more reliable audit opinions (Carcello et al.…”

Internet financial reporting adoption

“…There are minimal studies that link isomorphic forces to internet reporting except for Bananuka et al (2018) who identified industry pressures, client related pressures, regulatory pressures and employee-related pressures as some of those pressures that once imposed on the management and those charged with governance of financial institutions in Uganda to adopt IFR, then it will be adopted. Isomorphic forces have been linked to voluntary disclosures (Nyahas et al, 2017), adoption of international financial reporting standards (Aboagye-Otchere and Agbeibor, 2012;Nurunnabi, 2017;Louw and Maroun, 2017), auditing environmental matters (Chiang, 2010) and sustainability reporting (Amoako et al, 2017). The use of the internet in financial reporting can be explained by the various pressures from regulators and shareholders who are always demanding for detailed information about what takes place in an organization (Mokhtar, 2017).…”

“…Nurunnabi (2017) suggests that isomorphism especially coercive isomorphism should be more proactive to ensure a successful implementation of IFRS. Further, Louw and Maroun (2017) argue that isomorphic pressures are an important means for demonstrating how corporate reporting requirements can be enforced and are, therefore, more than just symbolic. Chiang ( 2010) conducted a study on Insights into current practices in auditing environmental matters and found that isomorphic forces are significant in planning an audit and this has to do with deciding on whether to audit environmental matters.…”

“…Isomorphism is the notion that firms in similar positions in a field encounter similar circumstances, and so they often construct similar responses to each other on these fronts (Amoako et al , 2017, p. 190). Isomorphism can be understood as a process of socialization in terms of which aspects of everyday life are codified, formalized and institutionalized, ensuring their general acceptance and rendering alternate practices unimaginable (Louw and Maroun, 2017; Meyer and Rowan, 1977). For this study, isomorphism is the constraining process forcing management and those charged with governance to behave like others facing the same set of environmental conditions.…”