nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2015‒04‒11
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. A Reexamination of Changes in Accounting Policy: Evidence from Japan By Masahiro Enomoto
  2. Republic of Uganda Report on the Observance of Standards and Codes : Accounting and Auditing By World Bank
  3. Protecting the organization against risk and the role of financial audit By Sylwia Bozek; Izabela Emerling
  4. An empirical study on students’ behaviour regarding creative accounting techniques By Diana Elisabeta BALACIU; Lucian CERNU?CA; Ioana Teodora ME?TER
  5. Selective Perceptions and Group Brainstorming: An Investigation of Auditors’ Fraud Risk Assessment By Desai, Naman; Gupta, Vishal
  6. The Effects of Fraud Risk Factors and Client Characteristics on Audit Procedures By Desai, Naman
  7. Exchange rate misalignments and the external balance under a pegged currency system By Blaise Gnimassoun
  8. Metodologie innovative nell’Accounting Education. La simulazione d’impresa. Indagine sulle motivazioni e aspettative degli studenti universitari di Forlí e Parma By Daniele Gualdi; Francesca Melagranati
  9. Adjustments of Capital Account Restrictions and Exchange Rate Regimes in East Asia By Yoshino, Naoyuki; Kaji, Sahoko; Asonuma, Tamon
  10. DebtRank: A microscopic foundation for shock propagation By Marco Bardoscia; Stefano Battiston; Fabio Caccioli; Guido Caldarelli

  1. By: Masahiro Enomoto (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: This paper reconsiders various hypotheses tested in the literature concerning income smoothing, the big bath, financial distress, debt covenants, management turnover, ownership structure, and auditors. The results show that changes in accounting policy have been carried out for income smoothing. The analysis also indicates a big bath accounting. A higher debt ratio produces more changes in accounting policy, resulting in both income decreases and increases. A higher bank ownership ratio leads to more changes in accounting policy, which decreases income. Banks serve as both shareholders and creditors. Banks’influence as creditors increases when the debt ratio increases. This paper finds that banks influence both income increases and decreases through changes in accounting policy. The evidence also shows that management turnover promotes income increases through changes in accounting policy, while an audit by a Big N firm effectively restrains accounting policy changes that increase income. I find that management changed its accounting policy depending on circumstances, even when the changes were clear from the disclosures and could be seen as earnings management.
    Keywords: Change in Accounting Policy, Earnings Management
    JEL: M41
    Date: 2015–03
  2. By: World Bank
    Keywords: Private Sector Development - Business Environment Banks and Banking Reform Private Sector Development - Competitiveness and Competition Policy Private Sector Development - Business in Development Finance and Financial Sector Development - Debt Markets
    Date: 2014
  3. By: Sylwia Bozek (University of Economics in Katowice); Izabela Emerling (University of Economics in Katowice)
    Abstract: In the contemporary economic reality and organization’s activities aiming at effectiveness and efficiency of functioning, a lot of significance is attached to a financial audit as an important instrument for protecting the organization against the risk factors. The aim of this article is to present theoretical and practical (on the basis of the examined example) aspects concerning the (internal) financial audit in the organization within the context of its assessment of the exposure to risk. The applied research methods are based on the method of conceptual analysis of the literature on the examined field, as well as on the case study of the auditing task. The results of the performed analyses and examinations allow to state that the financial audit constitutes an effective tool for protecting the organization against internal, as well as external risks. Each of the co-authors will contribute 50% of work to this article.
    Keywords: risk, risk identification, risk management, financial audit, internal audit
    JEL: D81 M42
    Date: 2015–04
  4. By: Diana Elisabeta BALACIU (University of Oradea, Romania); Lucian CERNU?CA (Aurel Vlaicu University of Arad, Romania); Ioana Teodora ME?TER (University of Oradea, Romania)
    Abstract: The scope of this study is to investigate the accounting master students’ attitude and perception regarding ethics and the existence and manifestations of creative accounting, in the context of harmonization of the Romanian accounting system. The sample of our research consists of accounting master student from three Romanian representative universities. Our survey regarding the students’ perception on the accounting practices is a descriptive one, we have used as an instrument of research the questionnaire. These were posted on an Internet page and also, we used the possibility of its direct approach, preserving the anonymity of the respondent. In order to attain our research’s objectives we have first presented a descriptive analysis of the answers, but tested some research propositions from a practical point of view as well. These show that there is a correlation between the master students’ tendency (as potential managers) to modify the accounting information and to distort the real image of financial reports and their ethical behaviour. We consider our study is valuable and attractive from the perspective of the elements of introspection and connection that it detects, in the context of a clear interest expressed by the authors in the students’ psychology and their irrational behaviour regarding their potential future decisions.
    Keywords: Creative accounting; ethics; risk propensity; student behaviour, International Financial Reporting Standards
    JEL: M41
    Date: 2015–04
  5. By: Desai, Naman; Gupta, Vishal
    Abstract: Individuals in an organizational context are routinely faced with complex problems that are not well defined and that challenge their cognitive capacities. To deal with such complex issues, decision-makers construct “belief-structures” which in turn create selective perceptions about information and events that prevent them from being overwhelmed by the amount and complexity of information. This study examines the impact of two important contextual variables; pressures and opportunities on auditors’ selective perceptions and fraud risk assessments. Research suggests that a situation relevant concept, norm, perspective, or cognitive process that is shared by a majority of the group members, will be exaggerated in a group setting where groups are trying to accomplish a task that does not have a normatively/demonstrably correct answer. In an audit setting, typically there are no normatively correct answers related to the weighting of different levels of pressures and opportunities while assessing fraud risk. Therefore we also examine how individual auditors’ selective perceptions affect group decisions. The results indicate that observed differences in individual auditors fraud risk assessments were significantly accentuated during group brainstorming. Thus, our findings suggest that, group brainstorming instead of reducing the influence of contextual characteristics on selective perception, actually accentuates that effect.
  6. By: Desai, Naman
    Abstract: There has been very little prior research examining how the prescriptions of SAS No. 99 map into the auditors’ fraud risk assessment process. SAS No. 99 asks the auditors to consider two major types of fraud (fraudulent financial reporting (FFR) and misappropriation of assets (MOA)) in the context of three major fraud risk factors (pressures, opportunities and rationalization). In this study we conduct an experiment to gain an understanding about the auditors’ perceived responsibility for detecting FFR versus MOA. Then we examine how auditors associate the two fraud risk factors (pressures and opportunities) with the two potential types of frauds mentioned in SAS No.99. Additionally we also examine the extent which the client size of an auditor affects the auditors’ perceived responsibility for detecting FFR and MOA and how the auditors associate pressures and opportunities with FFR and MOA. The results indicate that while all auditors focused equally on FFR; auditors of larger clients assessed a significantly lower responsibility for detecting MOA compared to FFR. On the other hand, auditors of smaller clients assumed equal responsibility for detecting FFR versus MOA. The results of this experiment also indicated that auditors of larger clients associated the risk of FFR more with high pressures, and the risk of MOA more with high opportunities, while auditors of smaller clients did not specifically associate the risk of FFR or MOA with either high pressures or high opportunities. Additionally the results suggest that auditors of larger clients assessed higher fraud risk and audit effort when pressure was high compared to when opportunity was high. This could be due to the fact that such auditors perceive greater responsibility for detecting FFR compared to MOA and they tend to associate high pressures with FFR and high opportunities with MOA. For the auditors engaged with smaller clients, there were no differences in the perceived responsibility for detecting FFR versus MOA, nor did they specifically associate FFR and MOA with either pressure or opportunity. As a result of which, there were no significant differences in their assessments of fraud risk and audit effort in the presence of high pressures or high opportunities.
  7. By: Blaise Gnimassoun
    Abstract: This paper analyzes the link between the exchange rate misalignments and the external balance under a pegged currency system focusing on the CFA zone. Having discussed and chosen an appropriate analytical framework, it addresses the issue of model uncertainty regarding the equilibrium exchange rate model before estimating currency misalignments. The results show that misalignments have a negative and asymmetric impact on the current account. While overvaluation of the CFA franc deteriorates the current account in the CFA zone, undervaluation does not improve it. Finally, our results highlight that the export concentration tends to exacerbate the overall negative impact of currency misalignments on the external balance. Thus, greater economic diversification is needed in an environment in which countries face both uncertainty in the terms of trade and uncertainty in the nominal exchange rate to conduct a proactive exchange rate policy.
    Keywords: Currency peg, Exchange rate misalignments, Current account, concentration of exports, Bayesian model averaging.
    JEL: F31 F32 C11
    Date: 2015
  8. By: Daniele Gualdi; Francesca Melagranati
    Abstract: Many authoritative scholars of Business Administration reported limits to teaching exclusively through frontal lectures, as traditionally taught in degree courses in Economics. The IFAC (International Federation of Accountants) recommends a less passive approach to teaching by providing more opportunities for participation to encourage greater involvement of the student in the learning process. Educational theories, such as constructivism, suggest providing learning environments that simulate real life. Among these is Virtual Enterprise (or Practice Firm), a method that applies a proactive teaching approach, founded on action oriented learning, and aimed at problem solving, teamwork, and critical thinking. The following research highlights the awareness in students from two Italian Schools of Economics, Forlí and Parma, of the benefits to studying more actively, and their motivations and expectations with respect to the teaching methodology of Virtual Enterprise
    Keywords: Virtual Enterprise; Practice Firm; Accounting Education; Constructivism
    JEL: A M
    Date: 2015–04–01
  9. By: Yoshino, Naoyuki (Asian Development Bank Institute); Kaji, Sahoko (Asian Development Bank Institute); Asonuma, Tamon (Asian Development Bank Institute)
    Abstract: This paper discusses adjustments of capital account restrictions and exchange rate regimes in East Asia. Monetary authorities have two options for these adjustments: gradual adjustments or rapid adjustments. We analyze the costs and benefits for both adjustment options in each area, i.e., capital account restrictions and exchange rate regime. The paper provides prominent country cases for each adjustment option to emphasize the benefits for policymakers. We then propose four transition policy options for East Asian countries aiming to relax capital account restrictions and increase flexibility in exchange rates from fixed regimes with capital account controls.
    Keywords: exchange rate transition; east asia; capital account controls; exchange rate transition policies
    JEL: F33 F41 F42
    Date: 2015–04–03
  10. By: Marco Bardoscia; Stefano Battiston; Fabio Caccioli; Guido Caldarelli
    Abstract: The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical "microscopic" theory of instability for financial networks by iterating balance sheet identities of individual banks and by assuming a simple rule for the transfer of shocks from borrowers to lenders. By doing so, we generalise the DebtRank formulation, both providing an interpretation of the effective dynamics in terms of basic accounting principles and preventing the underestimation of losses on certain network topologies. Depending on the structure of leverages the dynamics is either stable, in which case the asymptotic state can be computed analytically, or unstable, meaning that at least a bank will default. We apply this results to a network of roughly 200 among the largest European banks in the period 2008 - 2013. We show that network effects generate an amplification of exogenous shocks of a factor ranging between three (in normal periods) and six (during the crisis), when we stress the system with a 0.5% shock on external (i.e. non-interbank) assets for all banks.
    Date: 2015–04

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