Romlah Jaffar

Professional skepticism and auditors’ assessment of misstatement risks: The moderating effect of experience and time budget pressure

DOI: 10.14254/2071789X.2017/10-4/17 ABSTRACT. Background: This study employs a field experiment to examine the relationship between professional skepticism, experience, and time budget pressure on auditors’ assessment of risk of misstatement. In addition, the study examines the moderating effect of experience and time budget pressure on the relationship between professional skepticism and auditors’ assessment of risk from material misstatements; 2) Method: This study employs a multiple regression analysis on 248 auditors from both Big4 and non-Big4 firms; 3) The results indicate that professional skepticism and experience have positive effects while time budget pressure has a negative effect on auditors’ assessment of risk from material misstatements; and 4) The positive effect of professional skepticism on auditors’ assessment of risk from material misstatement is stronger among more experienced auditors than that among less experienced. On the other hand, the positive effect of professional skepticism on risk assessment is weaker when auditors work under high time budget pressure than that when they work under low time budget pressure. Additional analysis on the samples from the two selected areas, Kuala Lumpur and Selangor, produces consistent results indicating that the use of separate models for different samples is not necessary. Hence, the study uses a single model for the final analysis. The results provide a better understanding on whether the auditors are able to sustain professional skepticism with a given amount of relevant audit experience and under different levels of time budget pressure.

Kesan Pertukaran Pengurusan Tertinggi ke atas Harga Saham Syarikat Berkaitan dan Bukan Berkaitan Kerajaan

ABSTRAK Kajian ini dijalankan untuk melihat kesan pertukaran pengurusan tertinggi (PT) di Syarikat Berkaitan (SBK) dan Bukan Berkaitan Kerajaan (SBBK) ke atas harga saham. Ini disebabkan sebarang pertukaran yang berlaku bagi jawatan ini akan memberi impak kepada hala tuju syarikat kerana pengganti biasanya akan mengubah strategi syarikat. Perubahan ini seterusnya boleh mempengaruhi harga saham yang juga boleh dipengaruhi oleh asal usul pengganti. Amnya SBK di Malaysia, berbanding SBBK, dikawal secara langsung atau tidak langsung oleh kerajaan yang berupaya melantik ahli lembaga pengarah dan PT serta membuat keputusan utama berkaitan dengan SBK. Oleh itu, kesan pertukaran PT bagi kedua-dua bentuk syarikat ke atas harga saham mungkin berbeza. Berdasarkan Teori Kecekapan Pasaran Separa Kuat dan kaedah kajian peristiwa, data sekunder yang terdiri dari harga saham dan maklumat pertukaran telah diperolehi. Hasil kajian mendapati pasaran modal bertindak positif yang signifikan sebelum, semasa dan selepas pengumuman pertukaran. Namun begitu, perbandingan antara syarikat menunjukkan harga saham bagi SBK menunjukkan tindak balas positif sebelum pengumuman pertukaran dibuat, berbanding tindak balas positif untuk ketiga-tiga tempoh dalam kes SBBK. Penemuan ini menunjukkan pelabur SBK telah menerima maklumat terlebih dahulu sebelum pengumuman dan bertindak balas terhadap harga saham. Oleh itu pada tarikh pengumuman maklumat pertukaran sudah tidak mengejutkan lagi. Kajian juga mendapati asal usul pengganti berhubungan positif dengan harga saham. Namun ianya tidak memberi perbezaan ketara antara SBK dan SBBK. Kajian menyumbang kepada literatur dalam memahami reaksi pasaran modal terhadap perubahan PT terutamanya di SBK yang menguasai pasaran modal Malaysia. Kata kunci: Pertukaran pengurusan tertinggi; harga saham; syarikat berkaitan kerajaan; asal usul pengganti ABSTRACT This study was conducted to examine the effects of top management (TM) turnover in the Government (GLC) and the Non-Government-Linked Companies (NGLC) on share prices. Any turnover occurs in this positions will have an impact on the direction of the company because the successor mostly will change the companys strategy. This and the origin of successor might affect share prices. As compared to NGLC, GLC in Malaysia is controlled directly or indirectly by the Malaysian Government which has capability to appoint board of directors and TM as well to make decision on behalf of GLC. Therefore, the effects of TM turnover on share prices may differ between these companies. Based on the Semi Strong Efficient Market Hypothesis and an event study, secondary data, which consist of share price and top management turnover, were collected. The study revealed that the capital market would react positively before, during and after the announcements of TM turnover. However, the comparison between companies showed that the GLC’s share prices would react positively only prior to the announcement as compared to a positive reaction through out the three periods for NGLC. These findings show that the GLC investor had received the information ahead the announcement and react towards the share prices. Therefore on the announcement date, the information has not contained any surprise. This study also found, the origin of the succesor is positively related to share prices. However, capital market is indifferent on the origin of the successor of GLC and NGLC. Findings from the study contribute to the literature on market reaction towards the top management turnover, especially in the GLC, which control the Malaysian capital market. Keywords: Top management turnover; share price; government linked companies; successor origin

Chief Executive Officer/ Managing Director Succession and Value Relevance of Accounting Numbers

Apart from Board of Director, top management, including Chief Executive Officer or Managing Director is also considered as an important governance mechanism of the firm. CEO plays a major role in managing and controlling business operations, thus his/her succession may significantly affect firm performance. This study aims to examine the effect of top management succession on share price. Past studies, which used the event-study methodology to evaluate immediate investors’ reactions towards top management succession had their observations done over limited time frame (window periods). Succession may impact the share price beyond the window period because the investors may use information obtained from financial statements to evaluate new top management capabilities. This study contributes to the literature by examining the effects of top management succession on share price at the end of financial years. Book value of equity per share ( BE ) and earnings per share ( EPS ) on share price is regressed at three different points of time; year of top management change ( TMC ), a year after top management change ( TMC_1 ) and post occurrence years of top management change ( TMC_C ). Findings indicate that BE and EPS are value relevant. Findings also indicate that top management succession is not significantly related to changes in share price over a short period of time (transition year and a post transition year). However, over the longer period of time ( TMC_C ), our study indicates the top management succession is value relevant. Findings indicate that investors take a longer time to appreciate the new top management on their decision makings. Further analysis indicates that BE is regarded as value relevant by the investors after incorporating firm with outside successor; while EPS is value relevant for the firm with inside successor. This study supports the limited studies in Malaysia which indicate succession events have an implication on share price. Findings in this study may contribute towards strategic decision making in corporate management of public listed companies in Malaysia, specifically when board of directors are considering the top management replacement.