Michael Kend

Materiality in the context of audit: the real expectations gap

Purpose - This paper seeks to focus on the issue of materiality judgements and the need for public disclosure of materiality levels. Insights about the concept of materiality are drawn from the words of users of audited financial reports, auditee managements, suppliers to the market for audit services and auditing standard setters and regulators. Design/methodology/approach - This paper reports findings arising from face-to-face office interviews with individuals representing identified groups of stakeholders in the market for audit services about the issue of “materiality” as this concept is applied in auditing. The interviews canvassed many issues related to audit as part of a larger project entitled “The future of audit”. Findings - In general, stakeholders perceive that the concepts involved in audit materiality are not well understood and they point to the difficulty in providing educative materiality about it, especially in relation to qualitative materiality, to retail investors in particular. There are mixed views as to whether the actual level of tolerable error, as per one of the meanings of materiality in the audit space, should be disclosed, with some feeling that it might be detrimental or dangerous. Practical implications - If incremental information about materiality is to be disclosed, the issue of where, what to whom, by whom and when arise. Various suggestions are made by stakeholders in respect of these questions. Originality/value - The paper concludes by drawing from the insights gained by the authors through the comments of participant stakeholders to make recommendations that deal with the issue of audit materiality.

Governance, firm-level characteristics and their impact on the client’s voluntary sustainability disclosures and assurance decisions

Purpose – The purpose of this study is to consider three distinct bodies of literature and uses stakeholder theory as the premise of this study. The first deals with corporate sustainability reporting and voluntary disclosure behaviour, and corporate governance at the firm level, the second deals with the decision to utilize assurance services (voluntary adoption) and the third relates to the choice of auditor/assurance provider. Design/methodology/approach – This study investigates these issues using archival data from some of the Top 200 listed companies in 2010 from the countries Australia and the UK. The final matched-pair sample consists of 220 listed companies. Findings – The study finds that audit client size and the strength of corporate governance structures are significant in explaining the decision to produce a standalone sustainability report. Whereas few of these variables provide any explanatory value on the voluntary decision to assure the sustainability report, the existence of an active a...

Client industry audit expertise: towards a better understanding

Purpose – The purpose of this paper is to consider the supply of audit firm industry specialisation in the market for statutory audits of publicly traded companies in Australia. The purpose of this study is to seek to gain a better understanding of the dynamics within the market for industry specialist audit services.Design/methodology/approach – A structured interview process is used to investigate certain issues with the suppliers of industry specialist audit services (in this case all the then Big 5).Findings – This paper found that industry specialisation involves the Big 5 audit firms developing a specialised knowledge of what clients do within any given industry and the issues and audit risks they face. The Big 5 have industry “focus” groups that are responsible for providing “leading edge” practices to their clients. According to many of the auditor interview respondents, the large number of Australian Stock Exchange (ASX) classifications has meant that audit firms have sought a more manageable mea...

The CLERP 9 Audit Reforms: Benefits and Costs Through the Eyes of Regulators, Standard Setters and Audit Service Suppliers

Over the past decade or more Australia amongst other jurisdictions has experienced substantial reforms to auditing regulation in an effort to boost public confidence in the auditing profession. This paper aims to examine whether these changes in the Australian regulatory environment for audits have (a) provided enhanced confidence in reported financial data, (b) impacted audit costs and (c) not limited competition in the market for audit services. Using qualitative interview data, this study reports on the perceptions of auditors, auditing standard setters and regulators in relation to the CLERP 9 reforms to the Australian auditing regime in the later part of the 2000s. A theoretical framework is developed to evaluate whether these reforms are substantive enough in nature to effect public confidence in reported financial data and market competition in audits.

Use of social media by university accounting students and its impact on learning outcomes

ABSTRACT The proliferation in the use of social media, such as Facebook and Twitter, among university students is well documented. With many universities providing student resources in formats suitable for iPad, laptop, and mobile phone use, the use of social media for university activities has become easier. This study explores the use of social media by university accounting degree students to support their academic activities in an informal setting. It explores the impact these media have on learning outcomes. Our findings suggest that university accounting degree students use social media for a number of academic-related purposes. Students establish and maintain fluid mentor/mentee relationships around academic activities related interactions through the social media. We have found that the use of Social Media is significantly associated with students’ grades.

The perceived motivations behind the introduction of the law on external audit in Vietnam

Purpose Over the past 20 years, external auditing activities and practices in Vietnam have developed quickly. An important milestone is the first Law on External Audit No. 67/2011/QH12 which has been passed by the National Assembly of Vietnam on 29 March 2011. The purpose of this paper is to understand the perceived motivations in regard to the introduction of the Law on External Audit, through the eyes of various key stakeholders. There has been genuine public interest concerns regarding audit quality in Vietnam as prior academic research has indicated, and this is the first study to examine whether the new audit reforms where introduced specifically to deal with those concerns. Design/methodology/approach Face-to-face semi-structured interviews were conducted with 45 key stakeholders during 2014 in both Ha Noi and Ho Chi Minh City, Vietnam. Findings The study finds that the Law on External Audit was introduced because it holds the highest form of regulatory authority in Vietnam, and the lower level Decrees that existed before the law did not even detail the audit firms’ responsibilities resulting in low audit quality. Also, the new Law was introduced to add more credibility and trust in the external audit function in Vietnam, and to reduce unfair price competition. However, some of our findings indicate that the Governments’ motivations were not all purely public interest related. A theoretical framework is developed to evaluate whether these reforms are substantive enough in nature to effect public confidence in reported financial data and audits. Originality/value External auditing plays a crucial role in any market-based economy. In a developing economy, audit quality is often perceived to be lower than in a developed economy. Therefore, it is not uncommon to observe governments in developing economies producing tighter regulations for the auditing and assurance market to help attract more foreign investment and to establish credibility and more trust. In Vietnamese context, the current study conveys that the new audit reforms not only were introduced with genuine public interest concerns but also were a mechanism to protect the government’s interests.

Segment reporting in a developing economy: The Indian banking sector

Purpose - The purpose of this paper is to investigate the value relevance of segment information for both public and private sector banks in India. In doing so, this paper examines a rapidly developing economy and perhaps its most critical sector during this period of strong economic growth. Design/methodology/approach - In this study uses the simplified Ohlson model, for a sample of 136 private sector and public sector banks for the period 2007-2010 in India. Findings - The paper finds that public sector banks have higher share prices, higher earnings and more equity compared with private sector banks. Segment earnings data is highly value relevant for both sectors; however, segment equity data is only marginally value relevant for Indian banks. The number of segments is also value relevant and associated with higher share prices. Originality/value - The results of this study contribute additional evidence to the literature on segment reporting by studying the effect of adoption of segment reporting in an emerging market. Findings from the paper are particularly relevant as India is currently in the process of changing its segment reporting requirements and moving to an IFRS-based segment standard.

The CLERP 9 Audit Reforms: Benefits and Costs Through the Eyes of Regulators, Standard Setters and Audit Service Suppliers: The CLERP 9 Audit Reforms: the Benefits and Costs

Over the past decade or more Australia amongst other jurisdictions has experienced substantial reforms to auditing regulation in an effort to boost public confidence in the auditing profession. This paper aims to examine whether these changes in the Australian regulatory environment for audits have (a) provided enhanced confidence in reported financial data, (b) impacted audit costs and (c) not limited competition in the market for audit services. Using qualitative interview data, this study reports on the perceptions of auditors, auditing standard setters and regulators in relation to the CLERP 9 reforms to the Australian auditing regime in the later part of the 2000s. A theoretical framework is developed to evaluate whether these reforms are substantive enough in nature to effect public confidence in reported financial data and market competition in audits.