“…Perhaps the most important reason is that conventional auditing methodologies are based on the presumption that officials from the reporting entity will ‘…provide honest, objective and reliable responses to auditor queries’ (Connell, 2004, p. 334). A recent article exemplifies the flaw in this assumption, by illustrating the relative ease by which senior executives can withhold information from auditors when the objective is to manipulate reported results (Morrison, 2004). Hence, the problem is rooted in the information asymmetry that exists between the agents and the auditors; a problem that is exacerbated by the fact that auditing costs allow auditors to test only a limited set of transactions.…”
Section: Swedish Municipalities and The Accounting For Write‐offs Andmentioning
confidence: 99%
“……the most rigorous audit cannot uncover collusion to defraud even if an auditor were to look at every transaction rather than a small sample. The CPA has at best only a very imperfect window into a client (Morrison 2004, p. 372).…”
Section: Swedish Municipalities and The Accounting For Write‐offs Andmentioning
This article presents evidence suggesting that Swedish municipalities use discretion associated with the accounting for depreciation and asset write‐offs to manage externally reported financial performance. The general hypothesis that is proposed and tested is that they use this discretion for purposes of reporting small surpluses across accounting periods (i.e., smoothing). The article identifies two strategies for achieving this reporting objective, including the use of the discretion to (1) systematically increase expenses during reporting years when these can be absorbed by surpluses; and (2) to systematically increase them during periods when large deficits are reported. The latter strategy is referred to as the ‘big‐bath strategy’ and involves systematic ‘dumping’ of expenses on already poor results. Both strategies support the above reporting objective, by setting the stage for the reporting entity to more effectively reach the reporting objective in future accounting periods. Given the findings that are presented, it is recommended that accounting standard setters ought to consider a review of standards guiding the level of discretion and accompanying disclosure requirements.
“…Perhaps the most important reason is that conventional auditing methodologies are based on the presumption that officials from the reporting entity will ‘…provide honest, objective and reliable responses to auditor queries’ (Connell, 2004, p. 334). A recent article exemplifies the flaw in this assumption, by illustrating the relative ease by which senior executives can withhold information from auditors when the objective is to manipulate reported results (Morrison, 2004). Hence, the problem is rooted in the information asymmetry that exists between the agents and the auditors; a problem that is exacerbated by the fact that auditing costs allow auditors to test only a limited set of transactions.…”
Section: Swedish Municipalities and The Accounting For Write‐offs Andmentioning
confidence: 99%
“……the most rigorous audit cannot uncover collusion to defraud even if an auditor were to look at every transaction rather than a small sample. The CPA has at best only a very imperfect window into a client (Morrison 2004, p. 372).…”
Section: Swedish Municipalities and The Accounting For Write‐offs Andmentioning
This article presents evidence suggesting that Swedish municipalities use discretion associated with the accounting for depreciation and asset write‐offs to manage externally reported financial performance. The general hypothesis that is proposed and tested is that they use this discretion for purposes of reporting small surpluses across accounting periods (i.e., smoothing). The article identifies two strategies for achieving this reporting objective, including the use of the discretion to (1) systematically increase expenses during reporting years when these can be absorbed by surpluses; and (2) to systematically increase them during periods when large deficits are reported. The latter strategy is referred to as the ‘big‐bath strategy’ and involves systematic ‘dumping’ of expenses on already poor results. Both strategies support the above reporting objective, by setting the stage for the reporting entity to more effectively reach the reporting objective in future accounting periods. Given the findings that are presented, it is recommended that accounting standard setters ought to consider a review of standards guiding the level of discretion and accompanying disclosure requirements.
“…Yet, based upon historical data and the size, frequency and impact of financial market turmoil, additional governmental regulation appears to be a substantial, albeit insufficient part of the solution. Many would argue it has even been part of the problem (Morrison 2004). A case in point is the recent advice from the Office of the Controller of the Currency that Citicorp should have decreased their position in deceptive high‐risk investments they themselves created by quietly passing the risk to other institutions (Dash and Creswell 2008).…”
The role and evaluation of the modern corporation is being challenged by multiple stakeholders, changing markets and public expectations. Unfortunately, corporate governance, regulation and accounting have played a prominent role in business failure for the past decade resulting in a growing lack of public confidence in our markets. We present a new model that contributes to improving the quality of corporate information by providing not more, but better information through increased intelligibility of overall information, benefiting both the firm and its broad array of stakeholders. It has become apparent that boards, management and regulators have been unable to cope with the rise of business failures by adding increasing layers of regulation that have often served only to exacerbate the complexity and further cloud the transparency of needed information. We have identified a growing number of forward-thinking firms that have found alternative means to provide better and 9600 Garsington Road, Oxford OX4 2DQ, UK. information and strengthen their companies. We offer a stakeholder-centric model for improving information intelligibility based upon the extensive scope and variety of external input derived from the growing social movement organizations. With the added focus on intelligibility, these groups can help foster greater corporate responsibility, meaningful transparency, increased stakeholder benefits, and improved overall performance of the firm.
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