Mohammad J. Abdolmohammadi

Intellectual capital disclosure and market capitalization

Purpose – This paper aims to develop a descriptive framework of the components of intellectual capital in annual reports. The paper also aims to investigate the effects of disclosure of intellectual capital on market capitalization.Design/methodology/approach – The components of intellectual capital are used as units of analysis to content analyze the annual reports of a sample of 58 Fortune 500 companies over the five‐year period of 1993‐1997.Findings – The frequency of disclosure of information about brand and proprietary processes has increased over the study period. The results also point to significant differences between the “new” and “old” economy sectors with respect to intellectual capital categories of brand and partnerships where there is more disclosure by “old” economy sector and information technology and intellectual property where there is more disclosure by the “new” economy sector. Finally, the results show a highly significant effect for the intellectual capital disclosure on market cap...

The Americas literature review on internal auditing

Purpose – By conducting the 2006 global Common Body of Knowledge (CBOK) study, The Institute of Internal Auditors (The IIA) attempts to better understand the expanding scope of internal auditing practice throughout the world. The purpose of this review of recent internal auditing literature in The Americas is to document how the internal audit function is changing in response to the shifts in global business practices.Design/methodology/approach – The literature in The Americas is reviewed with a focus on developments that have implications for the expanded scope of internal auditing and the changing skill sets of internal auditors. This focus has implications for CBOK 2006.Findings – The literature indicates a paradigm shift in the activities performed by internal auditors. The increasing complexity of business transactions, a more dynamic regulatory environment in the USA, and significant advances in information technology have resulted in opportunities and challenges for internal auditors. Although in ...

Personal attributes of expert auditors

Abstract Considerable effort has been expended on the development of systems which depend on the identification of experts. Some examples include the development of expert systems, as well as personnel selection, training, and promotion procedures. In each case, a key step is to select and analyze experts. However, little is known about the pattern of personal attributes associated with experts. This study explored the perceptions of expert auditors by three groups: managers/partners, seniors/supervisors, and auditing students. Subjects first listed all the attributes that they felt were important in an auditor. They then evaluated 20 attributes which might be associated with auditors. Unexpectedly, the results for the three groups were quite similar: cognitive/ knowledge attributes were most important, followed by self-presentation/ image attributes, and strategic/decision-making attributes; least important were personal appearance/style characteristics. There were a few differences between the groups, with managers and partners emphasizing how an expert thought over how he/she behaved; seniors and supervisors stressed strategic concerns over style; and auditing students focused on externally observable characteristics. The results have three implications. First, professionals can identify a consistent set of attributes they associate with experts. Second, there are some differences between the perceptions of experts, novices, and naive subjects that could be important. Third, the results have implications for defining and measuring expertise, for developing expert systems, and for establishing training, evaluation, and promotion procedures.

Monitoring Effects of the Internal Audit Function: Agency Theory versus other Explanatory Variables

This study investigates (1) whether agency variables are associated with the relative size of the internal audit function (IAF); (2) whether the IAF is complementary to other monitoring mechanisms such as independent board members and an active audit committee; and (3) the impact of the control environment on the relative size of the IAF. We use data from a sample of Belgian firms. We find evidence of a monitoring role for the IAF in corporate governance. Specifically, the relative IAF size is positively related to management share ownership. Also, we find evidence for a substitution effect between independent board members and the IAF. Finally, it turns out that a supportive control environment also has a positive impact on the relative size of the IAF. Our results can benefit companies interested in assessing the current size of their IAF and the role that it can play in corporate governance.

Ethical Cognition of Business Students Individually and in Groups

This study provides evidence regarding the level of ethical cognition of business students at the entry to college as compared to a national norm. It also provides comparative evidence on the effects of group versus individual ethical cognition upon completion of a business ethics course. The Principled Score (P-score) from the Defining Issues Test (DIT) was used to measure the ethical cognition of a total sample of 301 business students (273 entering students plus 28 students in a business ethics course). The results indicate that (1) business students are not significantly different from the national norms at entry to college and (2) group reasoning helps male students improve their P-scores significantly in the business ethics course at a loss of P-score (albeit not statistically significant) for female students.

Ethical Reasoning and the Use of Insider Information in Stock Trading

The cognitive developmental theory of ethics suggests that there is a positive relationship between ethical reasoning and ethical behavior. In this study, we trained a sample of accounting and finance students in performing competitive stock trading in our state-of-the-art trading room. The subjects then performed trading of stocks under two experimental conditions: insider information, and no-insider information where significant performance-based financial awards were at stake. We also administered the Defining Issues Test (DIT). Ethical behavior, as the dependent variable was measured in a binary scale: whether the subjects used insider information for trading of stocks or not. Ethical reasoning as measured by the DIT P-score indicated statistically significant effect on ethical behavior. The results have important implications for recruitment and training of professionals engaged in the use of financial markets for securities trading.

Effects of education and intervention on business students' ethical cognition : A cross sectional and longitudinal study

In this study, we present evidence on the changes inethical cognition of business students over afour-year period. We use the Principled Score(P-score) of the Defining Issues Test to measure thischange. Specifically, we first compare the P-scores ofstudents at the entry to, halfway through, and shortlyafter graduation from a business school to analyze theeffect size of education on ethical cognition.Secondly, for a sample of students in an electivebusiness ethics course, we compare P-scores at thebeginning, and at the end of the semester to analyzethe effect size of specific intervention course onethical cognition.Prior studies in liberal arts fields have reportedhigh effect sizes from four-year college education onethical cognition, while a few studies have reportedonly moderate gains for business students. Consistentwith the liberal arts studies, our results indicatestatistically significant gains, and high effect sizesfor business students as well. Similarly, priorstudies have reported moderate gains in the P-scorefrom intervention courses in various fields. Ourresults indicate only low to moderate effect sizes forbusiness students. Importantly, while the gain waslow, and statistically insignificant for femalestudents, it was moderate, and highly significant formale students. Implications for education and researchare discussed.

A review of prior common body of knowledge (CBOK) studies in internal auditing and an overview of the global CBOK 2006

Purpose – The 2006 global common body of knowledge (CBOK) study is part of an ongoing research program that will broaden the understanding of how internal auditing is practised throughout the world. At the core of the 2006 CBOK study are three surveys of internal auditors worldwide regarding their professional activities. This paper reviews past CBOK studies and introduces the 2006 CBOK research project.Design/methodology/approach – The findings of prior CBOK studies are reviewed, and additional topics are identified to develop the topical areas to be covered in CBOK 2006.Findings – Past CBOK studies covered many of the same topical areas. Recent changes in The Institute of Internal Auditors Professional Standards, introduction of new technology, and the expanding complexity of business operations require new knowledge and skills for internal auditors. CBOK 2006 will be designed to address these issues.Originality/value – By presenting an overview of past CBOK studies and discussing the rationale for the ...

Factors Associated with the Use of and Compliance with the IIA Standards: A Study of Anglo‐culture CAEs

Chief audit executives (CAEs) are required to use and comply with The International Standards for the Professional Practice of Internal Auditing (Standards). However, this study finds that 13.5 percent of CAEs in Anglo-culture countries do not use the Standards. Furthermore, of those who use the Standards a significant number fail to comply with specific standards. Multivariate tests of data from CAEs in this study show that ‘Length of IIA membership’ and ‘Internal auditing certification’ are positively associated with use. Other significant variables are ‘Superseded by local/government regulations or standards,’ ‘Not perceived as value added by management/board’ and ‘Compliance not expected in the country’ that are inversely related to use. The length of training is also positively associated with compliance, while other significant variables are internal audit certification, ‘Standards are too costly,’ ‘Not perceived as value added by management/board’ and ‘Inadequate internal audit staff’ that are negatively associated with compliance. The paper ends with a discussion of the implications of these results for practice and research.

Factors associated with the internal audit function's role in corporate governance

Purpose - The purpose of this paper is to investigate several variables that are theoretically associated with the internal audit function (IAF) having an active role in corporate governance. Design/methodology/approach - The paper uses responses from 782 US Chief Audit Executives (CAEs) in the CBOK (2006) database for the investigation. The paper makes the assumption that an IAF has only one CAE, thus the dataset represents 782 US IAFs. Findings - It is found that an IAF having an active role in corporate governance is significantly and positively associated with the use of a risk-based audit plan, existence of a quality assurance and improvement program, and audit committee input to the audit plan. Control variables such as stock exchange listing, firm size, the existence of an internal control framework, and a CAE with an internal auditing qualification also are positively associated with the IAF having an active role in corporate governance. Research limitations/implications - A limitation of this study is that CAE perceptions may deviate from actual practice. Also, the sample is limited to the US CAEs who are also IIA members, thus it may not reflect the views of non-members and the CAEs from other countries. Practical implications - The results have implications for CAEs who wish to increase the chance for their IAFs to play an active role in corporate governance. The IIA may benefit from these results in its supporting role for the internal auditing profession. Originality/value - The study is complementary to the literature on the existence and size of the IAF and reveals several avenues for further research.