Wendy Green

Evidence of an expectation gap for greenhouse gas emissions assurance

Purpose - This paper aims to examine whether an expectation gap exists between different stakeholders (i.e. emissions preparers, emissions assurers and shareholders) in relation to the assurance of greenhouse gas emissions. Further, the paper seeks to explore whether stakeholder expectations are influenced by the uncertainties inherent in the assurance engagement for different industry sectors (i.e. greenhouse gas emitter or greenhouse gas user entities). Design/methodology/approach - An experimental survey was used to address the stated aims. Three stakeholder groups: shareholders, greenhouse gas emissions preparers and assurers, completed a survey based on the greenhouse gas emissions assurance for either an emitter or user entity. Findings - The results provide support for the existence of an expectation gap in the emission assurance setting. Fundamental differences were identified between the stakeholder groups in relation to the responsibilities of the assurer and management; as well as the reliability and decision usefulness of the emissions statement. Moreover, the extent of the gap was found to differ between user entity engagements and emitter entity engagements. Research limitations/implications - The paper highlights the need for the assurance services profession and assurance standard setters to consider mechanisms to enhance the effectiveness of communicating the assurance function in this setting in order to enhance the credibility and social value of emissions assurance. Originality/value - The paper is the first to examine the expectation gap in the greenhouse gas emissions assurance context. It thereby also contributes to the literature on the expectation gap in the assurance of non-financial information. Moreover, the research findings provide standard setters with unique insights into areas to consider as they work toward the development of an international assurance standard for greenhouse gas emissions statements.

Are Industry Specialists More Efficient and Effective in Performing Analytical Procedures? A Multi-Stage Analysis

A substantial body of audit research has shown that auditor specialisation through training and experience in one main industry improves auditor judgements. However, because this research examines only one or two audit processes in isolation, it has not been possible to identify whether these improvements lead to gains over an entire task. Further, the comparison of auditors with very different industry specialisations has not allowed these studies to identify incremental gains of specialisation over task and domain experience within a specific industry. The purpose of this study is to examine incremental gains in auditor performance by specialist auditors over auditors with some industry experience (non-specialists) when both groups complete all stages of an analytical procedures task within the same industry. The results of a controlled experiment where both specialists and non-specialists had equivalent general and task-specific experience reveal that, while specialists do not exhibit superior performance in the initial hypothesis generation stage, differences do manifest in later stages. Compared to non-specialists, specialists had a more focused and efficient information search, were more able to generate the correct cause during the task, and identified the correct cause more often.

Factors that Influence Perceptions of Greenhouse Gas Assurance Provider Quality

This study investigates the key factors that influence perceptions of greenhouse gas (GHG) assurance provider quality. A survey questionnaire was completed by 53 participants, including all three parties to the GHG assurance relationship (i.e., preparers, users and assurers of GHG emissions reports) who rated the importance of 34 factors to their perception of assurance provider quality. Results indicate that perceptions of assurance provider quality in the GHG setting are primarily influenced by the ethics and integrity of the assurer as well as the assurance, GHG emissions and regulatory knowledge of the assurance team leader and the assurance team. Less importance was placed on the experience and industry-specific knowledge of the assurer and on the degree of communication between the assurer and the client. It is also found that there are significant differences in the factors that influence the perception of GHG assurance provider quality between preparers, users and assurers.

The value of audit qualifications in China

Purpose - The purpose of this paper is to determine whether audit opinions matter in China after the introduction of several key regulatory changes, specifically aimed at strengthening the confidence of investors in the audit function. Design/methodology/approach - The question is addressed by examining the market response to modified audit opinions of companies listed on the Shanghai Stock Exchange. Findings - In contrast to earlier research, this paper does not find evidence that modified audit opinions have significant information value to Chinese investors, despite the regulatory changes. However, when partitioning the sample by year, there is weak evidence of a stock price response to modified audit opinions in 2003. Examination of the impact of different types of audit opinions shows no consistent results. Research limitations/implications - The results reported in this paper must be considered in light of the limitations inherent in empirical analyses. That is, the relationships identified in this paper are indicative of potential earnings management or audit opinion shopping, however, the paper cannot provide the actual reasons for these empirical results. Practical implications - The results suggest the Chinese market is beginning to value audit opinions in the same fashion way as more developed markets. Originality/value - The paper refines market reaction models used in earlier studies through the introduction of additional explanatory variables, together with an improved methodology.

The split equity reform and corporate financial transparency in China

Purpose - The purpose of this paper is to report the impact of the Chinese capital market split equity (SE) reform in 2005 on the corporate financial transparency of Chinese listed companies. Design/methodology/approach - Using an International Financial Reporting Standards-based checklist, the paper investigates whether the post-reform 2005 annual reports of reformed companies improved transparency compared to pre-reform 2004 reports. The transparency of the reformed companies was also compared to a control group of companies unreformed on December 31, 2005. Findings - Results indicate that the SE reform increased corporate disclosures. Reformed companies had higher mandatory and voluntary disclosures in their post-reform 2005 annual reports compared to their pre-reform 2004 annual reports. In addition, the improvement in mandatory and voluntary disclosures for reformed companies is greater than that of the unreformed control group. Research limitations/implications - The SE reform provides a unique natural experimental setting in which to examine the impact of the SE reform, with its associated change in ownership structure and corporate governance, on corporate disclosure. Practical implications - The results of this paper suggest that the SE reform has had a positive effect on corporate financial transparency in China, thereby indicating the positive response to regulation in this emerging market. Further, the results suggest that as the proportion of government ownership falls, management has increased incentive to voluntarily supply additional information to the market. Originality/value - The SE reform is unique to China and this paper is the first to report on financial reporting disclosure implications of this reform.

The Effects of Fraud Risk and Management Representation on Auditors' Hypothesis Generation

Hypothesis generation is considered to be critical to the effectiveness and efficiency of diagnostic processes in auditing. Using a between‐subjects experimental design, this work examines the impact of fraud risk and the availability of a non‐misstatement management explanation on auditors’ hypothesis generation performance. The context is when managers undertake analytical procedures at the planning stage of the audit. The results indicate that auditors are sensitive to increased fraud risk by generating more fraud hypotheses, while the number of misstatement hypotheses generated is not affected by fraud risk. The availability of a non‐misstatement management explanation was found not to interfere with auditors’ hypothesis generation performance, but facilitated the generation of proportionately more misstatement and fraud hypotheses from the same transaction cycle as that indicated by the management explanation. Together, these findings provide some insights on the sensitivity of auditors’ hypothesis generation to fraud risk and whether this sensitivity could be undermined by the availability of management representations.

Determinants of greenhouse gas assurance provider choice

Purpose n n n n nThis paper surveys corporate officers responsible for greenhouse gas (GHG) reporting and assurance to determine the attributes that influence their choice between an accounting and a non-accounting GHG assurance provider. Differences in the relative importance of these attributes between those selecting accounting and non-accounting assurers are also explored. n n n n nDesign/methodology/approach n n n n nA survey questionnaire was completed by 25 corporate officers responsible for reporting and voluntarily assurance of GHG emissions in Australia. The questionnaire asked the respondents to indicate the relative importance of 41 company and assurer attributes in influencing their assurance provider choice. n n n n nFindings n n n n nResults indicate that attributes related to the assurance provider, such as team and team leader assurance knowledge, reputation, objectivity and independence, are more influential than attributes related to the nature of the company or the nature of the GHG emissions. Attributes such as geographical dispersion of operations were found to be differently important to this decision between companies purchasing assurance from accounting and non-accounting firms. n n n n nResearch limitations/implications n n n n nThe study’s main limitation is the small number of participants. Future research may extend this study by exploring the conditions under which companies voluntarily assure GHG emissions as well the motivations of responsible officers in their assurer choice. n n n n nPractical implications n n n n nThis paper provides valuable insights to GHG assurers to assist their understanding of the attributes that are important to potential GHG assurance clients. n n n n nOriginality/value n n n n nThe study makes unique contributions to the assurer choice literature by not only addressing this issue in the context of the dichotomous GHG assurance market but also by addressing it from the perspective of the assurance purchaser.

Special treatment regulation in China: potential unintended consequences

Purpose - The purpose of this paper is to trace the behaviour of Chinese companies receiving a special treatment (ST) designation in order to determine the extent to which the application of this regulation may have led companies to engage in activities conducive to the removal of the ST designation. In particular, the paper examines evidence of opinion shopping or earnings manipulation by these companies. Design/methodology/approach - Empirical analysis of annual report databases for Chinese-listed companies, including statistical significance testing relating to ST companies. Findings - Most ST companies have removed the ST status by the third year after the initial ST designation. Compared to non-ST companies, ST companies losing the ST status are more likely to engage in practices indicating earnings manipulation. Also, compared to non-ST companies, ST companies are more likely to change auditors after an initial or second year of ST designation. However, while this behaviour suggests opinion shopping, auditor switching for the ST companies is not associated with losses becoming profits nor with improved audit opinions. Research limitations/implications - The results reported in this paper must be considered in light of the limitations inherent in empirical analyses. That is, the relationships identified in this paper are indicative of potential earnings management or audit opinion shopping; however, the study cannot provide the actual reasons for these empirical results. Practical implications - The results suggest the ST regulation did not lead to unintended consequences in terms of auditor switching by ST companies to improve either their reported earnings or their audit opinion. Originality/value - The ST status is unique to China and this paper is the first to report on potential reporting and audit quality implications of this regulation.

Does repetition impair auditors' judgments?

Purpose - The purpose of this paper is to examine whether the repetition effect bias noted in prior psychology literature impacts auditor judgments. Were auditors to succumb to this bias, repeated statements would be perceived to have higher validity than single exposure to the same statement, potentially impairing subsequent judgments, including audit opinions and thereby undermining audit quality. Design/methodology/approach - Multiple explanatory hypotheses, including repeated explanations, were evaluated by audit seniors in an experimental analytical procedures setting where the nature (error or non-error) and number (six or ten) of explanations was varied. Findings - Auditors were not found to exhibit a repetition effect (measured as an absolute increase in perceived validity) however differences did occur in their judgments owing to both the nature and number of explanations considered. Consistently the likelihood for repeated items on short lists was increased and on longer it was decreased, while for non-errors it was increased and for errors it was decreased. Practical implications - These results suggest that audit quality could be impaired if auditors do not consider a broad set of plausible explanations, particularly where they receive repeated non-error explanations. Originality/value - No prior study has addressed this issue in this context.