Mihai Carp

A Circular Causality Analysis on the Determinants of the Audit Fees within the NYSE-Quoted Companies

According to the International Standards on Auditing, audit fees are the amount that remunerates the financial auditor’s activity, the certification of financial statements. The Profession Code states that these fees should be calculated in an objective way and the auditor’s independence shouldn’t be influenced by them. This study aims to identify the determinants of the audit fees, by testing the existence of a circular causality in the connection between audit fees and the financial performance of a NYSE-quoted company. The analysis is based on a sample of the first 100 companies (NYSE quoted) of the Top 500 Fortune, except for the companies in the investment funds and insurances field. In the study there were tested and validated the following working hypothesis: “the level of the audit fees is mainly influenced by the company’s capacity to continue its activity”, “the prestige of the audited company contributes to the decrease of the audit fees” and “the reduced fees level, paid by the customer audited by one of the Big4 companies in this exercise, contributes to the future prestige increase”. For data analysis there were used linear regression analysis (simple and multiple) and the variance analysis (ANOVA). Research results indicate the existence of a circular causality, bidirectional, on the level of the relationship between audit fees and financial performance. For data processing, in the study there were used statistical software SPSS 19.0 and AMOS 16.0.

The Relevance of Financial Reporting on the Performance of Quoted Romanian Companies in the Context of Adopting the IFRS

Abstract This paper investigates, in an associative study, the value relevance of the comprehensive income in relation to that of net income, as a consequence of the application of IFRS in Romania, in companies whose securities are admitted for transactions on a regulated market, started with the fiscal year 2012. The paper also analyses in an empirical manner the influence of the Big 4 companies in the direction of improving the relevance of the reporting of the net income and of the comprehensive income for the investors on the financial market, the quality of audit being acknowledged, according to specialised literature, as a means for rendering the accounting figures more credible. The informational usefulness of the net income (pre-IFRS, 2011, and post-IFRS, 2012) and of the comprehensive income (post-IFRS, 2012) is examined on a sample of 65 companies quoted in the Bucharest Stock Exchange. The results of the empirical study confirm that the two categories of accounting results are significantly associated with the share price, reflecting an increased value relevance and usefulness for the investors on the Romanian financial market, after the adoption of the international accounting norms.

The Evaluation of the Investment Opportunity by Analyzing the Financial Structure Influence on Company Value

Triggered by the need to make decisions concerning the purchase or investment in new economic entities, with correct and detailed information on their status and economic development conditions, the due diligence process identifies ever better its role and meaning. Knowing the impact generated by the financing strategy on organizational values, as well as the factors that play a role in the process of evaluating the financial structure are essential elements that contribute to the success of such an approach. Based on a sample made up of 60 companies quoted in the Bucharest Stock exchange, this study aims to draw a series of mathematical models that could be used as instruments for the identification and quantification of the influences generated by the financial structure on the companies’ value. At the same time, this study attempts to identify the internal factors, specific to the company, that determine the composition of the financial structure, as well as the sense and intensity of their actions upon financial leverage. This paper introduces in the analysis the influence of specific activity to the indebtedness, reflecting the need for assessing the adequacy of financing strategies based on the activity filed of the enterprises. To obtain the research results, methods of data analysis were used such as: ratios technique, multiple linear regression analysis and linear regression analysis with alternative independent variables, ANCOVA type. Data processing was performed using SPSS 19.00 and AMOS statistical software.

Empirical Study on the Assessment of the Auditor's Responsibility Regarding the Risk of Financial Fraud

The recent famous financial frauds have demonstrated that in many cases the auditor was either responsible for or an accomplice in their manifestation. Thus, the auditor plays an important role in ensuring a true and fair view regarding the financial position and performance of the company. International standards on auditing indicate that the financial auditor’s main objective is to serve the stakeholders’ interests by expressing an independent, objective and competent opinion regarding the accuracy of information from financial statements. Also, according to audit standards, the auditor has the responsibility to assess fraud risk and how it could influence his opinion. The purpose of this study is to test if there is a connection between the affiliation of the client-company to an auditor who is member of Big4 and the incidence of financial fraud. The research results indicate the existence of a company profile that is defrauded or not defrauded. Starting from a series of factors associated to the financial auditor, a deterministic model was proposed in the study for estimating the probability of being defrauded. For the validation of the working hypotheses, a sample consisting of 200 defrauded and not defrauded companies was selected, quoted on New York Stock Exchange. Research results were obtained by processing the data with SPSS 19.0.

The Impact of Reported Financial Information on the Transfer Prices of Securities. Comparative Empirical Study

Abstract The present paper aims to achieve a comparative analysis of the informational contribution of the financial reports drawn by Romanian companies quoted on the autochthonous capital market, and the contribution to supporting the investment process brought by the financial statements drawn in an international context. The elements of the comparison are the levels of value relevance of the financial statements drawn according to US GAAP (for North America), respectively of the reports issued in conformity with the International Financial Reporting Standards (IFRS) (for the European regions). By using econometric models consecrated in specialized literature, respectively Easton & Harris (1991) and Ohlson (1995) , we identified a differentiated contribution according to the accounting norms and to the economic environment where companies perform their activity, for the financial data in making investment / disinvestment decisions. This stresses, after testing the first model, a stronger deterministic connection between financial-accounting information and the stock performance recorded for LSE quoted companies compared to those on the USA capital market, respectively quoted Romanian companies that report in conformity of IFRS. Drawing the financial statements according to RAS provides the investors in the non-regulated section of the Romanian stock market with a better informational basis than in the case of the equivalent clusters analyzed. The second model, based on prices, reveals an increased intensity of the connection in the case of Romanian companies quoted in the main section of the BSE, whose dimension exceeds the association observed in the context of the other stock markets.

Empirical Study on the Efficiency of the Companies Financing Process through Statistical Analysis

The current economic context, characterized by strong slippages, at the real and financial flows, request, in order to maintain stability and favorable evolution of the enterprise, a fair and efficient substantiation of the decision process. Such need is found, especially, in the area of corporate finance. In this respect, managers must be given tools used in assessing the adequacy of existing financial structure construction and to indicate future directions of action regarding release of funds demand. This article addresses this area by focusing on two coordinates: the study of links that are established between the characteristics of entities (capital structure ratios, activity field) and the development of the dimension of corporate value, expressed by increase / decrease index of asset capitalization, obtaining in this way a profile of the enterprises related to the efficiency of the financing policy, and develop a mathematical model to classify firms in performance group, using the as the same efficiency criterion in choosing the financing sources. Data considered in the study are taken from financial statements of listed companies to Bucharest Stock Exchange, considering a sample of 80 units that constitute the working group. To achieve the research objectives were used as working methods: ratios technique, multiple correspondence factorial analysis, principal component analysis and discriminant analysis. Data processing was performed using the statistical software SPSS 19.00.

THE VALUE RELEVANCE OF FINANCIAL INFORMATION UNDER THE INFLUENCE OF COUNTRY RISKS. THE CASE OF THE INDIAN LISTED COMPANIES

Abstract In the decision-making process investors need quality financial information based on reported accounting numbers. Such numbers are present in financial statements and must meet a series of fundamental characteristics, such as relevance and faithful representation. The present paper aims to analyse and assess the value relevance of financial information on the financial market in India under the influence of the main country risk components (i.e. economic risk and freedom to set up businesses, corruption control, financial, fiscal, monetary and investment freedom). The research was carried out on a sample of companies listed on the regulated market in India between 2006 and 2014. The results of applying general linear models have shown that, over time, the country risk can have a significant influence on the value relevance of the financial statements reported at the financial market level.

IMPACT OF THE TRANSITION TO IFRS FOR THE ROMANIAN LISTED COMPANIES IN FINANCIAL DISTRESS

Abstract The transition to IFRS of the Romanian listed companies enables us to provide a comparison of some accounting data reported in the same period and that have been obtained according to different accounting regulations: RAS vs. IFRS. The aim of our paper is to establish if the listed companies in financial distress report a trend of changes due to the transition to IFRS that is different to the one established for the performant companies. Based on the data corresponding to the 2011 financial year (with available RAS and IFRS information), we have calculated Gray’s comparability index (for a series of financial indicators) in the case of the two groups of companies (one in financial distress and a performant one) and we have statistically tested the existence of significant differences between the values of the index for the two company categories. We have found out that some indicators evolve in the same manner (especially the balance sheet structure indexes), others maintain the same trend, but the significance of the variances are different (ROS, ROA, ROE and OI), and, finally, for another series of indicators, the trend of the change caused by the IFRS transition is different for the two groups of companies (leverage and equity).

Harnessing Financial Information in Investors Decissions: Accrual Accounting versus Cash Accounting☆

Abstract This study aims to analyze the influence of the value added of the information developed according on the two main accounting systems for investment decision making, with direct impact on the market capitalization of the listed companies. To obtain the research results, in the study were analyzed specific financial information, collected for a sample of 65 Romanian listed companies on the Bucharest Stock Exchange, between 2011 and 2013. For data analysis were used econometric models from the literature, based on the multiple regression analysis and adapted to the research objectives. At the level of the study, there was estimated and tested the influence of the information attained based on the use of cash accounting (quantified through the cash flow from operations, cash flow from investing and cash flow from financing) and based on the use of accrual accounting (quantified through the variation of the operating and net income) on the capital gains yield of listed companies. Research results show a growth of the value relevance of the information obtained based on the use of accrual accounting compared to the ones obtained as a result of cash accounting use, in the case of Romanian listed companies.

The Role of Global Performance in the Sustainability of Listed Companies Development

In a global economy which seems to reveal its own limits of growth, the economic entities face significant challenges, as regards the assurance of durability of its own activity in conditions of efficiency and economic stability. In this context the enterprises are forced to reorganize their development strategies, substituting objectives such as making profit, regardless of the consequences, with the aid of policies which should contribute to the safety of sustainability. Therefore, it is required the implementation of a global organizational performance which should include not only the economic dimension but also the results of the companies’ interest in the conservation of the surrounding envinronment and embracement of some personnel policies focused on the employees’respect, emancipation and superior training. Using financial and non-financial information with reference to the 80 companies listed on the Bucharest Stock Exchange, which represent the extracted sample, the present article aims to identify, analyze and evaluate, at the level of Romanian economy, the connections established betwwen the three dimensions which characterize the concept of global performance (economic, social and envinronmental). Furthermore, the aim here is to achieve a profile of the enterprise’s economic efficiency according to its involvement in social actions and protection of the envinronment.The present research includes in the analysis the funding policy adopted by the economic entities, as an explanatory variable. This is a major factor which motivates and facilitates a management strategy based on the integration of the three targeted segments. In order to carry out the objectives of the research there have been used the multiple correspondences factor analysis, the correlation analysis, and the multiple regression analysis with alternative variables (ANCOVA). The data has been processed using the SPSS.19 statistic software.