Auditing Standards, Increased Accounting Disclosure, and

SFAC No. 8 addresses the cost constraint on useful financial reporting, “Cost is a pervasive constraint that standard setters, as well as providers and users of financial information, should keep in mind when considering the benefits of a financial reporting requirement.” (SFAC No. 8 BC 3.47) However, the ability to place a dollar value and fully enumerate a cost or benefit is almost an impossible task for standard-setters. Additionally, there is no way to successfully identify and measure all of the economic consequences associated with a new standard. The FASB should be applauded though for advancing uniformity in accounting standards, however; uniform financial reporting suggests a one size fits all approach. “Smaller, non-publicly listed firms (and their auditors) argue that accounting standards are formulated mainly for larger, publicly traded firms” and that “compliance costs are disproportionately higher and the

Baruch Lev and Feng Gu authors of “The End of Accounting and The Path Forward for Investors and Managers” indicate that over the past 110 years, the structure and content of financial reports has not changed, and that the role that these reports play in influencing the decisions of investors has greatly diminished. Lev and Gu make a case that non-transaction events that are not captured by the financial reports such as those disclosed through 8-k filings with the Securities and Exchange Commission (“SEC”) have a greater impact on stock prices, and thus more useful to investors. In addition, they suggest that one of reasons for the decline in usefulness of financial reports stems from the increase of estimates that has made its way into these reports (Lev and Gu 2016).

In today’s global economy, investors must rely on information provided by the various companies listed on the stock exchanges in order to determine if a company is a good investment, or a poor one. In order to make informed decisions, investors want to see financial statements that have been proven to be correct; they do not want to risk losing the amounts they have invested if they were to choose to invest in a company that was not being truthful about their financial standings. To reduce this risk, publicly traded companies must have and audit of their annual financial statements. These audits are meant to reduce the risk of misleading numbers skewing how the company is

Abstract The complexity of business environment necessitates a set of required disclosures in a timely fashion. The full disclosure principle under U.S. GAAP is based on a vague definition that cannot be clearly implemented. The cost of disclosures can be significantly large and can have a negative impact on companies’ future earnings (small businesses). The purpose of this article is to examine the disclosure establishment of pre and post Enron, the effect of those disclosures on both corporations and on potential investors and to examine whether financial reporting quality

ABSTRACT: Recent accounting scandals have resulted in regulatory initiatives designed to strengthen audit committee oversight of corporate financial reporting and have led to a concern that U.S. GAAP has become too rules-based. We examine issues related to these initiatives using two experiments. CFOs in our experiments exhibit

immerman, 1990, Badertscher, 2011, Dechow, 1995, Healy and Wahlen, 1999). Although earnings management is not a new phenomenon, the emerging of the fraud cases such as Enron, Lehman Brothers, and other instances of financial fraud have again put this topic in the spotlight. Emerging concerns over earnings management have led to new disclosure requirements and the implementation of corporate good governance codes such as the Sarabanes Oxly Act (SOX), tabaksblat and other corporate good governance codes to reduce this phenomenon within firms.

Introduction. The authors study the financial scandals and the recent financial crisis to demonstrate the gap between market processes and accounting standards. The IFRS and U.S. GAAP differ in contrary nature of accounting standards. GAAP is considered as rule-based standards, while IFRS viewed as a principle-based. Therefore, the professional judgment on financial improprieties is highly important (p. 479). The main objective of the research is to specify the impact of ethical setting on judgment and decisions of accountants. The code of ethics and systematic ethics trainings can diminish the inconsistencies from accounting policies. The study is important due its analysis of mechanisms and alternatives of decision-making, and the influence of code of ethics on chief officers’ strategic choices (pp. 484-485). The authors focuses on the problem: how accounting standards contribute to the professional judgment, company financial performance, and earning management. The authors discuss issues that arise because of the unethical financial reporting.

In Taiwan, every audit report requires the disclosure of both the audit firm and the audit engagement partner’s name (Huang, 2009). The fact that many large economy countries like Taiwan follows the standard shows that this rule is effective in enhance audit quality as well as the public trust in audit at a certain degree. An audit partner plays a very important role in the quality of the audit. They primarily responsible for the final audit quality even though audit quality is the result of the whole audit team. Therefore, having audit engagement partner’s name disclosed will hold an audit partner more responsible for the audit report. The partners will have to make sure their audit team really perform effective audit work, which results in a higher audit quality. Moreover, financial report users will feel more comfortable to reliance on the audit report when they know in confidence the person who holds accountability for the audit report is. The ultimate purpose of the PCAOB is to improve the quality of financial reporting and its benefits to users. For the same reason, making the U.S auditing standards compatible with its global counterparts would improve audit quality and usefulness, especially since many U.S companies practice internationally.

the business. Audit quality refers to different denotations in various business sectors; hence in this paper deliberations of audit quality are limited to professional audit firms within the scheme of Australian Securities and Investments Commission (hereinafter ASIC). Due to the complexity

The PCAOB proposed auditing standard, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, as a result of recent outreach projects concerning the usefulness of the audit report (PCAOB 2013b). Through these projects, the PCAOB discovered that investors and other financial statement users view current audit reports as lacking in significant information. The PCAOB’s surveys suggest that investors and other financial statement users would like information on the most significant matters the auditor addressed to be included in the audit report. More specifically, they desire information that the auditor is required to communicate, to the

These regulations are mandatory and set the rules that all accounting firms must follow. The Sox Act of 2002 modified the existing laws set by the Securities Exchange Act of 1934, and its purpose was to prevent widespread scandals in accounting from reoccurring. The amended alterations under ”Title VIII of the act (Corporate and Criminal Fraud Accountability) increased penalties to $5,000,000 in fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation” (Addison-Hewitt, & B2B, 2003a). Also within this area it “imposes penalties of fines and/or imprisonment up to 10 years on any accountant who knowingly and willfully violates the requirements of maintenance of all audit or review papers for a period of 5 years” (Addison-Hewitt, & B2B, 2003b). Before the scandal of Enron, companies found practicing illegal accounting without serious consequences had little to no effect on moral behavior. While the laws and regulations are clearly spelled out; those caught violating these laws will lose their license or certificate to practice, and any ethical violations will be referred to the appropriate law enforcement agencies while the serious violations

There is a significant incentive for companies to reduce information asymmetry via their cost of equity capital, namely that their market valuation could increase as investors better understand the risks and performance of the company. These two papers document the relationship between the quality of financial reporting and the cost of equity capital. Francis, LaFond, Olsson and Schipper (2004) use a number of measures to capture the quality of financial reports, whereas Artiach & Clarkson (2014) focus on just one measure of financial reporting quality. Notably they find different results for the one information quality measure they have in common, conservatism of financial statements. Francis et al (2004) find it has no relationship with

The primary responsibility of the audit committee is to serve as an independent and objective body to monitor a company’s financial reporting process and internal control system (BRC, 1999). In order to properly serve one’s role as an independent audit committee member, one must be free from all personal connections and/or material financial connections to the company or the company’s key executives (Persons, 2009, peer reviewed). A typical expectation of audit committee effectiveness is that independent audit committee members or directors would warrant a lower likelihood of financial restatements. This expectation is supported through prior investigation of empirical evidence (Abbott et al., 2000, peer reviewed; Beasley et al., 2000, peer reviewed). Specifically, Abbott et al (2004, peer reviewed) and Persons (2009, peer reviewed) both find a negative correlation between audit committee independence and the likelihood of financial reporting restatement. These studies support the idea that an independent audit committee contributes positively to the quality of financial reporting and effective monitoring of internal controls.

International standards on auditing were set to provide guidance for audits conducted all over the world. As globalization becomes more prevalent, it is essential that these standards are set to provide guidance in the conductions of audits internationally. Even though there are international standards, each country can develop their own set of standards and adopt some of the aspects of the international standards on auditing. However, there is no requirement that the standards set in a particular country have to be completely identical to those provided by the IAASB. Both the US and China are powerful world leaders with their hands in investments all around the globe. As there is always a risk of financial reporting fraudulency, it is essential that each country has their own standards when it comes to conducting an audit in their country. In the US, the American Institute of Certified Public Accountants (AICPA) established Generally Accepted Auditing Standards (GAAS) to be used as guidance for the CPA’s who are engaged to perform an audit. However, after the the Sarbanes Oxley Act of 2002, the Public Company Accounting Oversight Board (PCAOB) was created to oversee the audits of public companies in order to protect stakeholders interest in the preparation of informative, accurate and independent audit reports. Even non-U.S. public accounting firms that audit or play a substantial role in the audit of U.S. issuers, brokers, and dealers are subject to oversight by the

As part of its mission, the Auditing Standards Board (ASB) – senior technical body of the AICPA – issues Statements on Auditing Standards (SASs). To assure compliance with standards of AICPA, Rule 202 under the Code of Professional Conduct requires that any AICPA member who performs a non-issuer audit must comply with standards set by the ASB. In 2007, a ground-breaking project was initiated by the ASB, to ensure clarification of its standards to make them understandable, easy to read, and simple to apply. As part of this important process, the ASB revised all SASs in accordance with traditions of clarity by using the corresponding International Standards on Auditing or ISAs. Nearly all clarified SASs vary from