Auditing Ecosystem and Strategic Accounting in the Digital Era

Supreme Audit Institutions (SAIs) are key institutions with their fundamental roles in ensuring efficiency, effectiveness, accountability and transparency in public administration. It is essential that they comply with universal principles and internationally accepted standards in order to be an effective and reliable actor in the public financial management and judicial system. As an umbrella organization of SAIs, International Organization of Supreme Audit Institutions (INTOSAI) adopted The Principles of Jurisdictional Activities of SAIs (INTOSAI-P 50) in 2019, to ensure a framework in line with universal norms for the judicial functions of these institutions. The aim of this study is to analyse the potential of these principles to develop the judicial role of SAIs and to compare current practices of the Turkish Court of Accounts(TCA) with these principles in order to explore the need for further improvement. Compared to INTOSAI Principles, the judicial activities of the TCA are mostly in line with defined requirements. Its jurisdictional power has a clear and strong basis in the Turkish Constitution and related laws and independence is one of its most important characteristics. The principles related to access to information, statute of limitations, the existence of legal remedies and the others related to judicial processes have a strong basis in law and regulations as well. However, some principles may not be always possible to fully implement for any SAI, such as fair and impartial judgment, the effectiveness of jurisdictional activities, quality control, and judgment in a reasonable timeframe. These principles are met at a certain level but need further development. TCA can achieve a better level of compliance with these principles by ensuring the continuity of its institutional transformation efforts and making these areas an element of the corporate development strategy.

Climate change is the challenge of the century where its damaging effects threaten many vulnerable locations throughout the world. For the last few decades, the issue has been the focus of international negotiations with efforts to promote action to reduce anthropogenic GHG emissions, known as the primary cause of climate change. Unfortunately, little progress has been achieved. In the meantime, it has become obvious that in addition to national and international efforts, local action is also essential to impact emissions. This goal is well expressed with the motto “think globally, act locally”. Therefore, to ease the problem and accelerate the solution, bottom-up approaches are now considered necessary for the global climate governance to succeed. Hence, local governments need to develop and implement local climate action plans which aim to reduce emissions. These plans require solid data about emissions based on verified information and acceptable carbon accounting practices. Since cities contribute two-thirds of all emissions, carbon accounting at the local level has thus become necessary to mitigate climate change. Therefore, creating such practices and improving the understanding of how and why cities differ in terms of sources of and approaches to emissions are essential for success in emissions reduction policies. Nevertheless, coordinated action requires a common and comparable carbon accounting at local levels. In this chapter, after an overview of how accounting can be utilized for carbon management in the context of local sustainability and climate change action, and revisiting applications of major cities globally, the experiences of major metropolitan municipalities in Turkey are explored. Collective interpretation of differentiated Turkish experiences has identified several issues as well as suggestions for policy making. Findings reveal the need is for large-scale improvement ranging from inventory development to effective implementation towards the aim of low-carbon cities.

Sustainability has become a critical issue in the twenty-first century for humankind. Nowadays, individuals, organizations and governments are increasingly involved in sustainable concerns such as climate change, social well-being, governance, economic welfare and environmental damage. Over the past few decades, the requirements of sustainability development have forced economic organizations to manage, measure and report the economic, social and environmental impacts and sustainability performance of their own operations. Sustainability accounting and reporting has been developed to help corporate management to achieve a balance between economic, social and environmental goals and values. This chapter focuses on contemporary developments in sustainability accounting and reporting. Firstly, the notion of corporate sustainability is discussed. Secondly, the developments in sustainability accounting and reporting are reviewed, with more emphasis on the sustainability reporting standards issued by the Global Reporting Initiative in 2016. Then carbon accounting and reporting and integrated reporting are introduced, which are the most recent developments in the sustainability accounting and reporting field.

The use of preventive and value-added administrative tools such as internal audit, corporate management, corporate risk management, strategic management, and internal control have also been on the agenda of the public sector. The growing environment of the public sector, the increasing needs, the demands of the citizens/stakeholders have further accelerated this situation and made a systematic infrastructure essential. The Public Finance Management and Control Law No. 5018, which aims to create added value through the economic, effective and productive use of public resources, is the most current version of this infrastructure. Processes such as transparency, accountability and balanced budgeting, which are among the issues that are closely examined by the public sector, should be supported by effective and productive inspection mechanisms. Only in this way they can create value. Internal auditors, who are the practitioners of the relevant audit activities in the public sector, continue their operations with this mission of the first degree. In the study, statements have been made on the necessity of internal audit within the framework of Public Financial Management and Control Law No. 5018 and the perspectives of internal auditors regarding their duties determined by law have been analyzed by the Analytical Hierarchy Process Method.

This study analyzes the impact of the adoption of International Financial Reporting Standards (IFRS) on information asymmetry from the perspective of mergers and acquisitions (M&A), which provides a convenient research setting for observing the market’s direct reaction to a takeover announcement. As M&A transactions come with waves that have different traits, the whole period of 1995–2005 is analyzed by considering the sixth merger wave, which took place in its entirety in this period, as the base wave. In other words, the whole period is divided into three (pre-sixth merger wave, sixth merger wave, and after sixth merger wave) subperiods. For each subperiod, we calculate excess cumulative abnormal returns (CAR), which are the proxy for information asymmetry. Target (acquired) firms, which are listed on stock exchanges in Australia, France, and the United Kingdom, are analyzed to reveal the effect of IFRS adoption on information asymmetry. Our outcomes robustly reveal that IFRS adoption does not have a statistically significant association with excess CAR figures. We further reperform analyses by only considering the period of the sixth merger wave in which IFRS adoption takes place, and this insignificant association remains the same. Overall, our outcomes do not provide evidence for the negative impact of IFRS adoption on information asymmetry.

The duties, responsibilities and expectations of accountants and auditors have become clearer today. A person’s knowledge of accounting, auditing, law and modern technology may be required to find solutions to some disputes encountered in both private and business lives. This need arises in the areas that constitute the intersection of law and accounting, especially fraud auditing. This situation has led to the emergence of forensic accountancy/forensic auditorship, which is a separate recognized area of expertise. The aim of this study is to uncover the relationship between forensic accountancy or forensic consultancy or their areas of expertise with fraud and fraud auditing. Stakeholders in need of forensic accountants are also diverse. These may include Lawyers, police and law enforcement agencies, insurance companies, banks, courts, business world, government representatives and government legal entities. The main difference between forensic accounting and classical accounting is that the former investigate and reveal accounting frauds with a systematic approach. Auditing, fraud auditing and forensic accounting are closely related fields. Auditing knowledge and expertise will be useful in fraud auditing and forensic accounting. Similarly, mastering the technical and scientific aspects of accounting will also have a positive effect on fraud auditing. The three main fields of activity of forensic accountancy are fraud auditing or investigative accountancy (administrative support), litigation support (legal support) and expert witnessing (expert testimony). It is possible to benefit from many practices such as techniques applied by the independent auditor in fraud auditing, planning, applied procedures, fraud risk indicators and documentation in forensic accounting studies. In most developed countries, there are organizations providing services in the field of forensic accounting and fraud auditing, and various titles given to them. Comparatively, even in areas not directly related to forensic accounting practice in Turkey, competent authorities to make arrangements in this area. Additionally, there are various regulations regarding forensic accounting profession in the legal system.

Business activities that are getting more and more complicated with the influence of many factors increase the importance and quality of internal control systems. Meanwhile, internal control systems need to be developed according to current assurance expectations. Traditional checklists have significantly met the assurance that managers need in simple structures. However, historical developments have increased the assurance expectations of external stakeholders to a strategic level. This study aims to examine the multi-dimensional evolution of internal control in line with changing assurance expectations and to establish a framework for measuring internal control performance. A case study examining the performance of internal control in Turkey from the paradigm of new institutional theory was conducted. In the study, interviews were granted to ten people who are competent in internal control in sectors where coercive, mimetic, and normative mechanisms are dominant. The data were analyzed within the scope of content analysis and with QDA Miner 5 Qualitative Data Analysis Software. In conclusion, it is seen that a strong institutional area has been formed in the context of internal control in Turkey. Besides, it is found that there is uniformity in macro-level carried by coercive mechanisms, but there are areas open to improvement in internal control practices and performance measurement.

Parallel to the increasing importance of the sustainability concept, the number of firms that issue sustainability reports has also increased. To ensure reliability and completeness of sustainability disclosures, the need for assurance of sustainability reports has arisen. The assurance of sustainability reports is a relatively new concept and has many challenges for auditors. Materiality consideration is one of the vital challenges for auditors during assurance process. There are many studies on materiality in the literature, but most of them have focused on financial statements audit. This study aims at examining the materiality concept in financial statements audit and comparing it to the materiality concept in assurance engagements on sustainability reports.

This research investigates the corporate governance disclosure behavior of Indonesian corporations, specifically those with type II agency problems. Poor corporate governance practices in family and government corporations have been attributed as the primary cause of the 1990s Asian financial crisis in Indonesia. Prior research also cited unique governance structures in most Asian countries, including Indonesia. Agency theory refers to these corporations as corporations with type II agency problems. Using agency theory, this research analyzes corporate governance disclosure of the top 100 Indonesian publicly listed family and government corporations. The UNCTAD corporate governance disclosures benchmark was used in the analysis of the disclosures. All disclosures in the annual reports were categorised using this list, i.e., whether the disclosure was present or absent in each list. To extend the analysis, this research also considers the nature of those disclosures (mandatory and voluntary). The first part of this research documents the corporate governance disclosures in the Indonesian family and government corporations. The second part analyzes whether type II agency problems are influential on corporate governance disclosures in Indonesia. This research reveals that government corporations disclose more information than family corporations. This research provides a starting point for the analysis of corporate governance disclosures in corporations with type II agency problems in Indonesia. Future research may consider doing a longitudinal analysis of these disclosures and may also consider to include multivariate regression analysis by including agency-problems variable to analyze whether those variables are influential on corporate governance disclosures in Indonesia.

In this paper, the effect of gender diversity in board and independent audit teams on banks’ earnings management behavior (EMB) is analyzed. I use the data of a sample of 308 firm-year observations that comprise of Turkish banking sector from 2003 to 2018, which is analyzed using panel least squares regressions. First, the null EMB of banks which operate in Turkey is tested. The relative effect of gender differences in the board of directors-BoDs and the independent audit teams on EMB is tested. Gender differences are proxied by the gender of the CEO (chief executive officer), the ratio of female members in the BoDs, and the gender of the lead auditor. The results reveal that banks manage earnings by using loan loss provisions. After testing EMB, gender effects are analyzed and implications are made. According to the results, the gender of both the CEO and the lead auditor has a significant effect on EM of behavior of the banks. The accrual level is higher, and EM behavior is constrained for companies audited by female lead auditors or female CEO board members. The multiple regression results of whole gender effects are mixed. The paper finds evidence of the mitigating effect of CEO’s and lead auditor’s gender on EMB. However, the evidence reveals that the board’s female members’ ratio is not associated with a propensity for earnings management. Results of the integrated analysis show that companies of which audited by female lead auditors and executed by male CEOS have higher loan loss provisions level that reverses the EMB of banks operating in Turkey.

Underlying the myriad numbers of Policies, Procedures, Pronouncements, Protocols, Regulations, & Rules of the AICPA, PCAOB & SEC is the single and essential element of the Best Practices execution of the Certification Audit: The required certification-the audit opinions-must be based upon valid audit evidence created in the time frame of the audit. As most all of the audit evidence must be drawn from Client-datasets, before ANY audit testing occurs, these Client-datasets must be vetted for Relevance, Reliability & Veracity. We suggest that this requires (i) the audit InCharge to posit a priori a Profile Expectation re: each Client Dataset, and (ii) to inferentially test the Expectation against the Client’s AIS-Reality before the Client-dataset is accepted in the creation of audit evidence. We term this Vetting of the Client’s Datasets-the Effectiveness-Phase. As for the Efficiency-Phase, the auditor must employ Decision Support Systems. In this chapter, we discuss: The P-value as the DSS-Inference-Machine, Transformation Screens, A Re-Performance & Re-Calculation Protocol, Newcomb & Benford Profiling, Frontier-Analyses using Tukey-EDA: Whisker Box-Plots, and AIS-Forms Integrity Screening using GAP-Analyses. These DSS-platforms are programmed in VBA-Open access Excel™; the ensemble of these processing functionalities are the Audit-Vetting DSS. Each AVDSS-platform is herein discussed and illustrated with actual audit datasets. The AVDSS is available as a download with no cost and no restriction on its use.

Voluntary information is provided by companies beyond the mandated by regulation because of several reasons. Voluntary disclosure is referred to supplementary information presented by companies with the obligatory information to decrease the information asymmetry between management and shareholders. Voluntary disclosure is needed to indicate the performance of the company, to decrease the information asymmetry, to elucidate the difference of interests between the stockholders and the management, and to make corporate insiders accountable. This study seeks to achieve two main aims: measuring and assessing the voluntary disclosure level in the annual reports of listed banks in Borsa Istanbul during the period from 2013 to 2017, as well as, trying to examine if the voluntary disclosure level in the annual reports has been increased significantly during the study period. The current study adopts a self-constructed un-weighted disclosure index including 64 items to measure the voluntary disclosure level in 65 annual reports of 13 listed banks in Borsa Istanbul during a 5-year period. This study applied content, descriptive, and correlation analyses to analyze the research data. The results showed that the extent of voluntary disclosure in listed banks in Borsa Istanbul was high, with an overall average of 77%. Also, there was a significant improvement in the voluntary disclosure level during the study period.

Audit firms consider branding as an added value and an element for charging a price premium. This research studies the effect of audit firms’ brand reputation, brand predictability, and brand competency on consumers’ decision on willingness to pay a price premium for audit services, as mediated by audit firms’ brand credibility and perceived uniqueness. It compares the organizations’ attitudes toward audit fees between Turkey, as a stable emerging market example, and Yemen, as an unstable emerging market example. Data were collected from a total of 400 organizations operating in both countries (200 from Yemen and 200 from Turkey), that were audited in the last two years. They were analysed using factor analysis and structural equational modelling. The analysis results led to the following conclusions: There are no effects of brand reputation and brand predictability on the consumer’s decision on willingness to pay a price premium for audit services in both countries, but brand competency has an effect on the consumer’s decision on willingness to pay a price premium for audit services only in Turkey. In Yemen, brand credibility has a mediating role between brand predictability and consumer decision on willingness to pay a price premium for audit services, and perceived uniqueness has a mediating role between brand competency and consumer decision on willingness to pay a price premium for audit services. The only mediating role in Turkey is played by perceived uniqueness between brand predictability and brand competency as independent variables and consumer decision on willingness to pay a price premium for audit services as a dependent variable. This chapter contributes to pricing strategy, and audit firms’ management fields. It presents insight for audit firms’ managerial practices in emerging markets.

The quality of an audit becomes visible as the auditor inspects the correspondence level between the established criteria and the presented information by using the International Standards on Auditing (ISA). The way of applying ISAs may differ in variety of situations in accordance with the auditor’s professional judgement. In this manner, trying to evaluate the quality of audits and how high quality audits can be achieved needs to be set by several indicators in accordance with International Quality Control Standard 1 (ISQC 1). Audit quality indicators are a combination of qualitative and quantitative measures, there is no single measure of audit quality. The use of Information Technologies (IT) through business methods and internal controls has preferably increased its importance for those same information technologies to be used in auditing and assurance services. New areas of auditing and assurance services have opened up with the digitalization process of the world. There has been argument about whether the IT will replace the accounting profession, whether IT systems will replace auditors. It is indisputable that using IT systems in auditing process increase the quality of the audit without increasing the time spent on the audited data. However, this introduces new technological and business risks that the auditor will need to assess. Accordingly, the expectation from the quality of auditing has increased, but what about the results of the regulatory bodies? Enhanced discussions, in turn, may strengthen audit quality. This chapter explains the key elements that create an environment for audit quality focusing on the audit deficiencies related to the inspection reports from the world’s audit regulators. Building/enhancing trust via audit quality cannot be formulized by algorithms or particular standards or obligations. The meaning of evaluation of audit quality depends on the conditions facing the auditor. Measuring professional skepticism, due care or professional judgement are critical factors affecting audit quality. For this reason a comparison is made between Turkish Oversight Authority (KGK) and International Forum of Independent Audit Regulators (IFIAR) inspection reports.

Technological developments have played a major role in supporting all sectors, globally. These developments have impacted sectors ranging from sports and healthcare to transport. Technology has reduced the level of fraud and dramatically increased liability at all levels. Financial tracking using technology can help reduce public sector corruption amounting to around $2 trillion, or around 2% of global GDP. The better the financial monitoring systems, the better the chances of stronger economic development. Cryptocurrency uses cryptography to ensure transaction security by identifying the users of the currency in each transaction as opposed to traditional payment methods such as banknotes and coins. Although most cryptocurrencies are anonymous and it is not possible to identify the user, it is technologically possible to add an identification number that does not make the crypto anonymous. Governments can use blockchain technology to their advantage not only to facilitate payments, but also to keep them authorized and secure. Cryptocurrencies are a much more efficient payment method than other existing methods. They have become even more reliable and efficient. This chapter maintains that not only can crypto make payments easier, but it can also prove to be a useful way to reduce fraud and corruption around the world. This can reduce execution costs and, based on information already available on transactions, the effectiveness and efficiency of spending can be measured.

In recent years, several revolutionary developments related to information and communication technologies have been carried out. Important advances regarding the rapid creation of digital infrastructure in every field have made the Internet an indispensable part of people’s lives. These developments have not only changed the life of humanity, but also the ways in which business and other processes are executed. Nowadays, these types of activities can easily be performed in the online environment. The advent of computers and the Internet has significantly changed the way things are done in businesses and how financial information is transmitted. The number of businesses that use the Internet to perform their activities and publish their financial reports is growing rapidly in real time. In this real-time reporting, continuous auditing has become a necessity in order to ensure the accuracy and reliability of the information provided. The transformation provided by information technologies provides transparency and ease of access to information. For this reason, “Continuous Auditing” gains importance against the risks and dangers that may arise in the operation of such systems. In addition to the positive aspects of the Internet, it has also caused risks such as fraud, security and data theft to arise. The increase in such risks and the rapid increase in the rate of realization has caused people to focus on solutions to these problems. For this purpose, blockchain technology which offers a high level of confidence has been developed. The purpose of this study is to explain the concepts of continuous auditing and blockchain technology, to indicate the importance and superiority of these concepts, and to explain their connections with internal audit and among themselves. Additional aims of this study include a correct introduction to the concepts of blockchain technology and continuous auditing, elimination of the deficiency in national literature related to these concepts, and a presentation of a wider perspective.

Digital transformation is the modification resulting from new opportunities technological advancements in all areas of life presents. These new technologies are also used in audit activities. These new technologies used in audit activities are called Computer Assisted Audit Tools and Techniques (CAATTs). Those have emerged to help auditors look for irregularities in data files and to enable more analyses to be done in less time with more evidence at a lower risk level. By using CAATTs, the auditor is able to filter, define and create equations, identify gaps, make statistical analysis, identify peer records, classify, sort, summarize, merge, and match. The fact that the auditor reaches the results by analyzing the sample chosen in the audit activities may cause the concerned parties to approach these results with suspicion. Instead of selecting and analyzing samples, using CAATTs, the auditor may also analyze the entire data. Concurrent with new technological developments, the scope of CAATTs applications is also advancing. Artificial Intelligence (AI), as an automated system that can generate algorithms, occupies a center stage in these developments. It is observed that 4 concepts are emphasized for AI. These concepts are acting like human, thinking like human, rational thinking, and rational behavior. These factors facilitated the inclusion of AI in audit activities. The emergence of AI will include human-like activities in the auditing process. In general, it is considered that the technology applied to the audit allows the activities to be carried out more effectively. In reality, there are contradictions about the use of AI in audit activities. Some researchers support the use of this new technology in the auditing process, while others are skeptical. Those, who view the use of AI with skepticism, state that the professional judgment of the auditor can be ignored with the utilization of AI. For this reason, how to limit the use of AI in audit activities is discussed. Firstly, the study explains CAATTs applications and the concept of AI and how AI is included in accounting and auditing activities. Secondly, the advantages and disadvantages of using AI in the auditing processes are evaluated. Lastly, the use of AI and CAATTs in audit process and specific application suggestions for different audit areas are discussed in detail in the context of suggested audit batches.

Humankind encountered a pandemic about a century ago, and the world has become a global market with extreme rivalry thenceforth. This competition paves the way for new and productive management systems in order to take advantage in market. Just-in-time (JIT) is a system, which creates enormous benefits for companies, that aims continuously to reduce costs that are waste and avoidable. By means of this, companies acquire advantages such as enhancing profits, inventory reductions, return on investment through cost reductions, and quality developments. When everything is ordinary, companies could make significant progress with the JIT system. Nowadays, humanity is struggling with a new pandemic, which is named Covid-19. Countries are taking precautions to minimize the spread rate of the pandemic within the limits of the healthcare systems. Thus, the economic effects of the pandemic could be enormous for countries and companies. We will determine how an effective system like JIT, could be affected from an unordinary crisis and become a disadvantage for a company in a conceptual framework. This study aims to investigate the practicableness of the Just-in-time system amidst a pandemic under a cost accounting perspective and unveil probable advantages and disadvantages of the system by taking into consideration technological advances such as the Internet of Things and big data analytics.

In this paper, the existence of accounting value relation in the information technology sector was investigated. The validity of the Ohlson model was used in the study in which annual data for the period of 2006–2019 were used. Kao panel cointegration test and FMOLS panel cointegration estimator methods were used in analysis. According to the results obtained, the market value per share (MVPS) acts with both the profit per share (PPS) and the book value per share (BVPS) in long run. Accordingly, when PPS shows an increase of 1%, an increase of 1.51% is observed in the share price. On the other hand, a 1% increase in BVPS causes a 0.18% increase in the share price. Therefore, it is understood that profitability has more importance than book value on share prices. Finally, it has been proven that investors can use the Ohlson model in their investment decisions.