Shireenjit Johl

Earnings management and the audit opinion: evidence from Malaysia

Purpose – This study aims to examine auditor reporting behaviour in the presence of aggressive earnings management (EM) in the context of the Asian Economic Crisis as it affected Malaysia. In the vein of Bartov, Gul and Tsui, the interaction between discretionary or abnormal accruals and audit quality (AQ), as indicated by auditor size and auditor industry specialisation, is examined.Design/methodology/approach – A logistic regression model adapted from various prior studies is utilised to test the hypotheses.Findings – As per earlier findings using Western data, Big 5 auditors in Malaysia appear to qualify more frequently than their non‐Big 5 counterparts when high levels of abnormal accruals are present. However, the interaction between auditor industry specialisation and abnormal accruals is not significant in predicting the incidence of qualification.Originality/value – This study extends the current literature on AQ differentiation and specifically it attempts to address the gaps in the literature wi...

Internal audit function, board quality and financial reporting quality: Evidence from Malaysia

Purpose - – The purpose of this paper is to test the impact of the internal audit function (IAF), an increasingly common internal governance mechanism, on a firms financial reporting quality. Specifically, this paper investigates the association between the quality of the IAF and abnormal accruals (as a proxy for financial reporting quality) and whether the board of directors play a role in moderating the relationship. Design/methodology/approach - – This paper uses a unique dataset of survey responses and archival data. Regression analysis was used to test their hypotheses. Findings - – Although their initial findings show an unexpected positive relationship between internal audit quality and abnormal accruals, this relationship is contingent on whether firms outsource their internal audit activities and/or whether they are politically linked. In estimations excluding outsourcing and political connections observations, this paper shows that the association between internal audit quality and abnormal accruals is negative and in particular internal audit organisational independence, financial focus audit activities and investment are associated with lower income-increasing (opportunistic) abnormal accruals. Next, when this paper interact board quality with internal audit quality, this paper finds although the lower ordered variables board quality and internal audit quality coefficients are negatively related to abnormal accruals, the interaction variable between these two variables is positively associated with abnormal accruals, indicating the possibility of a substitution relationship between board quality and internal audit quality. Research limitations/implications - – Their findings show that certain internal audit attributes play an important role in the financial reporting process and thus these findings are expected to inform the Institute of Internal Auditors and other regulatory bodies on the role of internal audit (being an important internal governance mechanism) in financial reporting, which in turn can assist in market/regulatory reforms/changes and inform the revised Malaysian Code of Corporate Governance. Originality/value - – This paper extends prior internal auditing literature by examining the relationship between internal audit quality and financial reporting quality in the context of a developing country, namely Malaysia, and whether the board of directors moderate the examined association.

Family Firms and Earnings Quality: Evidence from Top 500 ASX Companies

This paper investigates whether family firms have higher earnings quality compare to non-family firms in the Top 500 firms publicly listed in the Australian Securities Exchange (ASX). It also investigates whether there is an association between family ownership and earnings quality. It is hypothesized that family firms have higher earning quality compared to non-family firms in the ASX Top 500 companies. It is also hypothesized that there is a positive relationship between family ownership and earnings quality. The findings from this paper show that: (1) family firms are both prevalent and substantial and account for 20.90 percent of the companies in the ASX Top 500; (2) family firms (ownership) are associated with lower abnormal accrual (higher earnings quality) which is consistent with our conjectures and prior studies in the US; (3) there is a statistically significant negative association between family firms (ownership) and income increasing absolute abnormal accruals.

Remuneration Committee Existence and Effectiveness: A Study on Their Impact on Voluntary Narrative Executive Remuneration Disclosure

Voluntary disclosure in narrative format is generally seen as an important governance mechanism through which an organisation communicates with its stakeholders to provide information, gain legitimacy and demonstrate accountability. This paper investigates the relationship between the existence of a remuneration committee (RCX) and it’s effectiveness (RCE) on the voluntary disclosure of information relating to executive remuneration action in narrative format. Our study utilises data from Top 200 Australian Securities listed (ASX) firms and focuses on such disclosure during a critical period i.e. the global financial crisis years (2007 to 2011) when executive remuneration came into significant scrutiny. We find both the existence and effectiveness of a remuneration committee plays a significant role in the voluntary disclosure of executive remuneration in narrative format (VDER).