William S. Hopwood

The influence of contrary information and mitigating factors on audit opinion decisions on bankrupt companies

The research described in this paper tests the use of contrary information and mitigating factors for the going-concern modification decision for soon-to-be bankrupt companies. Contrary information (i.e., information which questions the clients continued existence) includes, for example, defaults on debt. Mitigating factors are those which partially offset contrary information. In particular, given previous research (e.g., McKeown, Mutchler, and Hopwood [1991]) which reports an inverse relation between client size and the going-concern modification after controlling

An Evaluation Of Univariate Time-Series Earnings Models And Their Generalization To A Single Input Transfer-Function

The development of statistical models for accounting earnings has been an evolving process. Earlier studies used simple index and/or naive models (e.g., Ball and Brown [1968] and Brown and Kennelly [1972]) because of the lack of tools to deal with formal time series. Later, Dopuch and Watts [1972], Ball and Watts [1972], and others employed formal time-series models to annual earnings, and Collins and Hopwood [1980], Brown and Rozeff [1979], Foster [1977], Griffin [1977], and Watts [1975] did the same with quarterly earnings. While this research has produced some conclusions with respect to the time-series properties of earnings and how these may be used in predicting earnings, Brown and Rozeff [1978] and then Collins and Hopwood [1980] recently provided evidence that financial analysts can produce forecasts more accurate than those based on the ARIMA models alone. This suggests that other information may be useful in providing estimates of future earnings, when incorporated with knowledge of the time-series properties of earnings. The purpose of this study is twofold: (a) we first evaluate the models used in past studies of quarterly time series of earnings in order to determine whether they are systematically misspecified due to the omission of other information which is implicitly contained in a market earnings index-the evidence suggests that the misspecification exists, and (b) we introduce a transfer function model which utilizes the timeseries properties of both the index and earnings numbers. This model is obtained based on both theoretical derivation and inspection of data.

Security in a Web-Based Environment

Emphasizes that although electronic commerce continues to grow, with it come many problems including the worry of security over the Internet. Presents a systematic approach to developing and continuously improving Web security systems — allowing for enterprise‐wide controls regarding security risks. Goes into much detail regarding systems, security and design.

The role of shell entities in fraud and other financial crimes

The purpose of this paper is to review the use and application of shell entities, as they facilitate crime and terrorism, impede investigations and harm societies.,The study details the types and characteristics of shell entities, reviews actual cases to exhibit how shells are abused, outlines reasons shells disguise beneficial ownership and analyzes steps taken by countries and organizations to thwart the abuse of shell entities.,Many types of shell entities are used by white-collar criminals and are often layered in an intricate network which conceals the identity of beneficial owners. Nominees and bearer shares are used in tandem with shell entities to optimize concealment. Accountants, lawyers and trust and company service providers facilitate and promote the use and abuse of shell entities by lawbreakers. The G-8, Financial Action Task Force and G-20 have begun steps to improve ownership transparency, but the effort is moving at a modest pace.,The analysis makes clear the reasons for and means by which the wealthy and powerful, along with criminals, conceal trillions of dollars of income and wealth that remain untaxed and may be used for nefarious purposes. The paper is limited by the paucity of data on concealed assets and their beneficial owners.,The findings clearly show the need for more concerted action by national governments, organizations, the United Nations and law enforcement and to improve ownership transparency and information exchange regarding shell entities.,The findings demonstrate that shell entities used to conceal wealth prevent untold trillions in taxes from being collected by governments worldwide. This lack of revenue facilitates income inequality and skews national economic and fiscal policies. Also, more white-collar criminals and terrorist financiers could be brought to justice if ownership transparency is improved.,This study adds to the limited literature on shell entities, their characteristics and uses and abuses.

An Experimental Investigation into Reputation Effects and the Demand for Auditing Services

This research investigates the relationship between reputation and two types of agency costs, namely those associated with auditing and those associated with value-reducing activities of management resulting from their capitalizing on asymmetric information by misreporting income. A competitive-market model is used as a basis for developing and empirically testing hypotheses using an experimental-markets approach. This model includes (1) contracting between risk-neutral owners and risk-averse managers that allows risk sharing, (2) information asymmetry favoring managers over owners, (3) public financial reporting by managers, (4) the presence of endogenously-priced costly auditing that can be demanded by either management or owners, and (5) opportunities for managers to engage in value-reducing activities that are not directly observable by the owners. Two main hypotheses are set forth, both of which are found to be supported by formal statistical tests based on the data from the experimental markets as conducted in this study: (1) reputation effects reduce total agency costs. Further, these results show that agency cost reductions from reputation effects include both an increased rate of honest reporting by managers and a reduction in the demand for auditing by owners; and (2) the market rewards honesty and penalizes dishonesty in reporting.