Category Archives: Accounting & Finance

Comments of the AFAANZ Auditing and Assurance Standards Committee on Proposed International Standard on Auditing 570 (Revised) Going Concern

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Abstract

The International Auditing and Assurance Standards Board (IAASB) issued for public comment Proposed International Standard on Auditing 570 (Revised) Going Concern. The Australian Auditing and Assurance Standards Board (AUASB) and New Zealand Auditing and Assurance Standards Board (NZAuASB) also called for comments. The Auditing and Assurance Standards Committee of AFAANZ prepared a submission, based on the findings reported in extant research, informing a number of the questions asked by the IAASB. This technical note presents the formal submission made to the IAASB.

Comments on Exposure Draft for Proposed ISSA 5000, sustainability assurance engagements by the Auditing and Assurance Standards Committee of AFAANZ

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Abstract

The Exposure Draft for Proposed International Standard on Sustainability Assurance (ISSA) 5000 has been issued by the International Auditing and Assurance Standards Board (IAASB) because there is increasing demand by stakeholders for assurance of sustainability information. Our recommendations include: (i) a more flexible approach to ethics and quality management instead of the requirements for standards that are at least as demanding as the accounting profession's standards; (ii) more differentiation between the requirements for limited as opposed to reasonable assurance and (iii) more cautious use of the term materiality and clearer definitions of the different materiality concepts to avoid potential confusion.

Volatility spillovers of cloud stocks: Evidence from China using the dynamic connectedness approach

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Based on daily data from 2013 to 2022, this study examines the spillover effects of volatility between cloud stocks and other asset classes (global stocks, treasury bonds, gold and crude oil) using the VAR connectedness approach. The results show that there is a significant spillover effect from global stocks and crude oil markets to the cloud stock market. The spillover effects become stronger whenever there are shocks such as economic crisis, turbulence in the international financial markets, COVID-19 and global inflation. However, nearly 91% of the variations of cloud stocks come from within, suggesting that the diversification/hedging value of cloud stocks is potentially high.

Confucian culture and cost stickiness

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Abstract

Cultural features may exert significant impact on firm behaviour. Through a sample of listed A-share firms on the Shanghai and Shenzhen Stock Exchanges, we find that Confucian culture may significantly lower firms' cost stickiness. Our mechanism tests suggest that ideologies of self-discipline and prudence embedded in Confucian culture may mitigate agency issues as well as overestimation of firm earnings. Furthermore, such impact is more pronounced among firms of lower shareholding by institutional investors or of weak internal control, which suggests that Confucian culture may help rectify the imperfection of corporate governance. Lower cost stickiness may also reduce firm risk.

An evaluation of the animal welfare accountability being demonstrated by global apparel companies

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This study evaluates apparel companies' accountability through assessing the quality of their disclosures pertaining to animal welfare. Content analysis is undertaken of annual reports, social responsibility reports, dedicated social responsibility webpages and apparel hangtags and labels collected from the world's largest public apparel companies. Results show that the quality of apparel companies' animal welfare disclosure generally falls short of what is expected by surrogate representatives/stakeholders of animals.

When it’s not personal but positional: The upside of CEO power

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We examine links between corporate cash holdings and types of CEO power, and how these affect firm performance, using agency and stewardship theories to distinguish two types of CEO power: one attributable to the CEO position, and one attributable to CEO personal characteristics. Measured as indices, we find positive associations with cash holdings for both types of power, individually and in combination, but only positional power with higher cash holdings is positively associated with firm performance. Our findings are shown to be robust and suggest that scrutiny of cash holdings by CEOs with high personal power may be prudent.

Do hometown CEOs treat their employees better? Evidence from China

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Employees are the most fundamental stakeholders in business operations, and safeguarding their rights and interests is an important manifestation of a firm's level of social responsibility. Little research has addressed whether hometown CEOs can affect employee-related CSR (E-CSR) and how the corporate ownership and regional economic development would moderate such an impact. Using an informal institutional perspective, we extend the literature on CEO characteristics by exploring the factors leading to employee welfare. Analysing a panel dataset of 1018 firms from Chinese A-share listed companies between 2008 and 2020, we find a positive relationship between hometown identity and E-CSR. Further research indicates that the effect is more pronounced in state-owned enterprises and underdeveloped areas. Against the backdrop of weak labour protection in China's labour market, we contribute to research on informal institutions and employee benefits in pursuing harmonious labour relations.

Investment centre manager’s multiperiod fairness perceptions and intertemporal dependency

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This paper explores the motivation of investment centre managers when their investment centre's performance is affected by decisions made by their predecessor. Through a qualitative case study of a Japanese manufacturer, the effectiveness of conventional remedies for motivational issues and further motivational issues caused by the same remedies, as identified in the extant literature, are examined. The field data underscore managers' multiperiod as opposed to period-by-period fairness perceptions as key to preventing the further motivational issues. This paper also demonstrates the potential usefulness of the vignette technique as a data collection method in qualitative accounting research.

Friendly boards and capital allocation efficiency

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This study examines the effect of friendly boards on capital allocation efficiency. We provide evidence that firms with friendly boards have a positive and statistically significant effect on capital allocation inefficiency. We find our results robust to different measures of friendly boards and capital allocation inefficiency, alternative model specifications, omitted variable bias, self-selection bias and other endogeneity concerns. We also show that the positive association between friendly boards and capital allocation inefficiency is lower in firms with high external corporate governance quality but higher in firms with high financial constraints. The findings imply that poor board monitoring and high agency conflicts in firms with friendly boards lead to high capital allocation inefficiency.