Ethics and Sustainability in Accounting and Finance, Volume II

Table of Contents

1. Frontmatter

2. Chapter 1. Introduction Chapter: Why It Is Time to Talk About Fraud Quadrangle: Negative Pressure, Unethical Rationalization, Unsufficient Control-Auditing, and Moral Erosion

   Kıymet Tunca Çalıyurt

   Abstract

   Changing codes, tightening laws, more disclosures, more control, additional software programs, additional reports….These new legal and initiative requirements against fraud, unfortunately, didn’t stop it in the business world. The solutions we have built on the “fraud triangle” in the business world for years couldn’t help decreasing fraud. Accepted fraud triangle in management and business with the corners; Negative Pressure, Unethical Rationalization, Unsufficient Control-Auditing should be redesign again as Fraud Quadrangle with a new corner named “Moral Erosion”. It’s time to talk about “Behavioral Fraud”, which is new but trending research area in academia. Accountants and auditors usually don’t like to talk about something out numbers, standards, laws like “behavioral”. And it is also completely a different specialization. Accountants, auditors adhere to laws and standards that there are no emotions and initiatives in their world however they have been talking about interdisciplinary issues such as biological risk, climate change, artificial intelligence recently. “Behavioral Fraud” is a new area that needs to be focused on and discussed by researchers in the specialization of accounting, auditing, computer science, auditing law, human resources and statistics. Behavioral Fraud will also lead new discussions on a static and dynamic approaches to leveraging biometrics for fraud detection. New Fraud Quadrangle will help us why some people like and succeed to cheat while others don’t or can’t in the same conditions.

3. Ethics and Sustainability in Finance and Risk Management

   1. Frontmatter

   2. Chapter 2. Investigation of the Effects of Environment on Financial Reporting

      Engin Demirel, İlknur Eskin

      Abstract

      Environmental accounting is a subdivision of social accountancy, which emphasizes accountability not only to shareholders but also to all stakeholders. Until the 1980s, environmental issues were investigated under the heading of social accounting concept. The examination of social and environmental problems in the same title comes from the fact that all living things are affected by environmental events. Accounting as an open system has tried to explain the interaction between people and the environment due to the increase in environmental problems, economic and technological developments, and legal and administrative regulations. In this context, one of the steps at the global level to solve environmental problems and protect the environment is to show the processes related to environmental values in the accounting system. Environmental accounting is defined as the reporting of the business activities of the environment in the accounting records. Accordingly, it is possible to examine environmental accounting from different perspectives concerning business. Financial accounting and cost accounting are discussed to account for the environmental effects of companies. In the research, financial accounting, cost accounting and management accounting relationship with the environment is discussed. Besides, the environmental reports on which the financial account obtained as a result of the “forwarding” function examined. This research also examines the content of these reports by providing information on the emergence and development of sustainability reporting and integrated reporting which provides an internationally accepted standard framework.

   3. Chapter 3. An Empirical Investigation of the Determinants of Market Efficiency in Borsa Istanbul

      Yusuf Varlı, Ebubekir Sıddık Şahin

      Abstract

      Following the last global financial crisis, efficiencies of stock markets have come to sight as a novel area of research. The question of what factors shape the efficiency of the stock market is naturally always of curiosity in theory and practice. In line with the framework of this curiosity, this study examines the determinants that play a crucial role in the efficiency of a certain stock market, Borsa Istanbul. Our study contributes to the literature by using five years and daily data for both individual and institutional investors. We here aim to specify the ten determinants of efficiency which are categorized under investor-based, market-based and country-based determinants. According to the three different regressions and VAR analysis, the model indicates the strong relationship between the efficiency and the specified determinants such as turnover, market volatility, the share of foreign investors, and interest rate.

   4. Chapter 4. Impact of Non-financial Disclosure Scores on the Cost of Equity Capital: Evidence from European Data in the Light of the Subprime Crisis

      Jocelyn Husser, Elisabeth Paulet

      Abstract

      This chapter explores the relationship between social, governance and environmental disclosure scores, on one hand, and the cost of capital, on the other. Its originality is the focus on the quality of corporate social responsibility (CSR) disclosure by studying global CSR at the same time as its three constituent dimensions. The empirical data it uses comes from Euronext SBF 120 companies over the period 2006 through 2011. The longitudinal study covers two separate periods (2006–2008 and 2009–2011). The corporate social responsibility disclosure scores (global, environment, social or governance) have an influence on the cost of capital. Moreover, financial analyst recommendations did, on the other hand, help lower the cost of capital. Lastly, the study shows that since 2009, financial analysts have increasingly taken the quality of CSR information disclosure into account in their Euronext SBF 120 stock recommendations.

   5. Chapter 5. Profile of the Entrepreneur of Triunfo-Pe Counters

      Cristina Glória Lima da Silva, Zaidiana Lemos Zaidan, Emanuel Ferreira Leite, Emmanuelle Leite Cientista

      Abstract

      Entrepreneurship is a term that is gaining its space with the progress made over the years. Thus, the current scenario requests individuals with the capacity to contribute to improvements, but also ready to break paradigms and generate wealth in the environment in which they operate. It is important to note that the participation of women in business and in the labor market is growing day by day. Women are becoming increasingly important, for occupying extremely relevant positions in companies, which before was only the competence of the men. In the matter of undertaking it is not merely opening a business, it also comes to incorporate innovations, offer more employment opportunities, take calculated risks, plan goals, have differentiated views, among other attributes. In this scenario occurs the need to have more professional entrepreneurs who contribute with improvements to the society and have in themselves a competitive advantage, this differential is composed of entrepreneurial skills considered unique in each individual. Accounting has been an important tool combined with management that cares about business success. Therefore, the study of the entrepreneur professional who works in the accounting area is relevant inasmuch as shows the great importance of entrepreneurship to society and to the accounting practices in these professionals daily life. Thus, this study aimed to identify the entrepreneurial profile of accounting professionals located in the city of Triunfo, in the state of Pernambuco. The specific objectives of the research consisted of analyzing entrepreneurship starting from its concept, highlighting the successful entrepreneur, with that came the necessity of pointing out the most frequent entrepreneurial skills in the interviewed professionals, in view of that, to identify whether there occurred entrepreneurship of necessity or opportunity. To meet the proposed objectives, this work proceeds with a survey alongside three accountants, who are also management, of accounting offices located in the city of Triunfo—PE. The methodology used to obtain the results followed with field research with the professionals of the mentioned city, characterizing it as quantitative and qualitative field research, as well as bibliographic, with the use of questionnaires applied to the managers. It was possible to find in the accountants interviewed that the most present entrepreneurial skills in their profiles were achievement motivation, self-control, and problem-solving. We can verify that those are characteristics that directly or indirectly contribute to improvements in these managers’ enterprises. However, they are lacking the propensity to take risks and influencer skills, it was verified that they presented a very low level in these skills, it is pertinent to say that unfortunately, they do not have completely the entrepreneurial profile. Regarding the business opening, in one of the research objectives it can be ascertained that only an accountant opened the business due to a good opportunity she found in the city, however, the other two counters interviewed said they have opened the offices, which manage, out of the need they were facing at the time.

   6. Chapter 6. Value Relevance of Intangibles: A Literature Review

      Ömer Faruk Güleç

      Abstract

      Value relevance can be defined as the association between accounting values and market values and it is one of the most important quality attributes of financial reporting. Recognizing, measuring, and reporting the intangible assets properly has become gradually more important due to the increasing importance of intangibles in the statement of financial position and the shift from a tangible-based economy to an intangible-based economy. Value relevance of intangibles examines how well accounting treatments of intangibles are related to stock market values and it is a controversial and heavily debated issue in the literature. Thus, the purpose of this study is to demonstrate how valuable intangibles and to provide useful information about the value relevance of intangibles by reviewing the most cited literature. For this purpose, the study investigates R&D expenditures, goodwill, patents, brands, and advertising expenditures by comparing the results of the studies. According to the results, while IFRS adoption is expected to provide more comparable and high-quality information, the overall value relevance of intangibles has generally declined after the IFRS. In addition, capitalizing the R&D expenditures seem to be more value relevant than the expensed portion. These results are also consistent with the other intangibles such as patents and brands.

   7. Chapter 7. Risk Management in the Insurance Company

      Tzvetelina Andreeva

      Abstract

      Risk is at the heart of any activity. Its diversification and management turn into value. Risk (risks) is also at the core of the business of an insurance company that offers insurance protection against risks under certain conditions. Risk management is seen as a consistent application of management approaches, methods to identify, analyze, assess, eliminate or limit the observed risk. The object of research is the insurance company. The subject of research is risk management. The aim of the article is to study and systematize the insurance company’s risk management concept along with the types of risks inherent in the non-life insurance company. The possible forms (methods, tools) for managing the risk of the insurance company are outlined. For the purposes of risk management, the article highlights the importance of information on risk development, the calculation of insurance premiums—the price of the insurance product, the allocation of reserves, reinsurance, investment and other.

4. Ethics and Sustainability in Banking

   1. Frontmatter

   2. Chapter 8. Evaluating the Effectiveness of the Coordination Between Internal Control and Internal Audit: A Survey-Based Analysis on Turkish Banking Sector

      Mustafa Tevfik Kartal, Serpil Kılıç Depren

      Abstract

      Audit is the process which evaluates the suitability of operations of a company according to the rules. In this process, firstly, the rules related to the operations should be identified. Secondly, necessary information for these operations should be obtained. Thirdly, there is a comparison with this information and the rules to understand whether the company performs effectively or not. In this step, all deficiencies related to the company can be identified. Fourthly, these deficiencies are sent to necessary department managers. Another important point of the audit is that there will be a periodic control to see if these deficiencies are corrected or not. Banks are the companies in which audit works are conducted by different parties. There is an internal audit department that makes a control for the operations of the banks for a period. In other words, it gives independent assurance about the effectiveness of the operations made by personnel of the banks. In addition, internal control department makes also audit works for ongoing process. Similar to the internal auditors, internal control personnel also work in the banks. Also, there are external auditors and state auditors. As it can be seen above, there are many audit works in the banks which are performed by different parties. However, if the similar works are made by these parties, this situation has a decreasing effect on the effectiveness of the works because all parties will consume time for the same works. Therefore, there should be coordination between assurance providers. Within this context, Performance Standard 2050 emphasizes that audit works should be coordinated and hence audit works can be conducted more effectively. It is clear that coordination between assurance providers is very significant. The purpose of this study is to evaluate the effectiveness of the coordination between internal control and internal audit departments in Turkish banking sector. In order to reach the stated aim, a research was made with employees who work in internal audit and internal control departments and chi-square test was used to analyze survey responses. According to results, there are some deficiencies regarding coordination of audits. Almost all cases that are questioned in the survey are controlled by both internal control and internal control departments. However, these participants think that audit works are coordinated. This result shows that there is a communication problem between internal control and internal audit departments. To provide full coordinated audit works between internal control and internal audit departments, it is appropriate that banks should take corrective actions. In this context, issues stated in our study will have bank guiding characteristics.

   3. Chapter 9. Indian Banking Scenario and SBI Mega-Merger

      Renu Jatana, Mehjabeen Barodawala

      Abstract

      Banking system remains focal point in the financial setup of any developing country. They play a dynamic role in the economic development of a country. The growth story of an economy depends on the robustness of its banking industry. Today, Indian banking industry is a lifeline of the economy which has converted the hopes and aspirations of millions of people into reality. SBI, the oldest bank of India, has now also become the largest bank after the merger with its associates and Bhartiya Mahila Bank in April 2017. With this merger, SBI entered into the league of top 50 global bank with the total asset book of Rs. 37 lakh crores. This merger is a test case for a bigger consolidation to follow in the public sector bank planned by the government. In this paper, emphasize on how the Indian banking scenario has changed and what all challenges banking industry will face after the mega-merger of SBI with its associate banks.

   4. Chapter 10. Definition and Classification of Financial Statement Fraud

      Iavor Bachev

      Abstract

      The literature review represents an organization of existing information published on a certain topic, which is used to provide a summary of existing knowledge and ideas. It is based on the relevant information and theories that apply to the understanding of the nature, occurrence, and control of financial statement fraud. The research has reviewed the needed definitions and concepts in order to establish the relevant context. The following chapter consists of the literature review.

5. Ethics and Sustainability in Accounting

   1. Frontmatter

   2. Chapter 11. Islamic Finance and Sustainability Reporting: The Mediator Role of Green Accounting

      Adel M. Sarea

      Abstract

      The paper is to explore the relationship between (Islamic Finance) and (Sustainability Reporting), The Mediator Role of (Green Accounting). A quantitative survey was developed and validated. A total of 87 responses were collected from Accounting, Finance, and Banking Department at Ahlia University (Bahrain) and used for the analysis. The results show that (Islamic Finance) in terms of Murabahah financing (sale by cost mark-up plus), Mudaraba financing (silent partnership), and Musharakah financing (joint venture partnership) has a significant association with attitudes to lead toward the need of (Sustainability Reporting). The results also indicate that (Green Accounting) strengthen the positive association between (Islamic Finance) and (Sustainability Reporting). The paper adds value to the literature on Islamic Finance, sustainable reporting by looking at role of Green Accounting in promoting friendly environment.

   3. Chapter 12. Sustainability Accounting in Turkey

      Birsel Sabuncu

      Abstract

      Sustainability accounting, which arises as a result of the failure of the traditional accounting system to meet the information needs for corporate sustainability, has been examined in this study. Through sustainability accounting, which may be useful for companies by transferring useful information, in addition to collecting, classifying and recording documents, sustainability information has also been included in its contents. As a new concept, sustainability accounting has come to the fore because traditional accounting is not sufficient enough to convey information for corporate sustainability. Sustainability accounting in Turkey is subject to a voluntary basis. Developing a sustainability accounting system which increases the reliability and transparency of the enterprises on social and environmental issues enables more accurate determination of product costs and efficiency in resource utilisation. In the traditional approach to accounting, the use of natural resources is neglected and economic development will accelerate with the inclusion of sustainability accounting as it is not enough for companies to use this method alone.

   4. Chapter 13. The Effects of Digital Transformation Process on Accounting Profession and Accounting Education

      Bilal Zafer Berikol, Mustafa Killi

      Abstract

      Information and Communication Technology (ICT) has been developed very rapidly, so our age has been characterized as the information age. Rapid technological developments cause significant changes in micro and macroeconomic levels. With the rapid change in ICT, mobilization has become a valuable tool in our age when knowledge is the most valuable asset. ICT can be described as a range of information, electronics and telematics technologies, using modern microelectronics, telecommunications, and computing to improve all kinds of appliances, techniques and processes that influence different areas of human life. Recently, associated with the digital transformation process, many enterprises have begun to use modern cost and management accounting tools through institutional integrated information systems. ICT competencies are one of the basic technical skills required by accounting graduates. To meet this requirement and help students to be ready for working life, the accounting programs of universities are required to include ICT software tools in accounting courses. Studies show that integrated information technologies are used in accounting courses as limited. Students who take accounting education must be educated to know the data analytics for analyzing masses of big data, to be knowledgeable about data security and cybersecurity, to be prepared for developments in transition to digitalization. The profession of accounting is one of the professions that have to keep up with the change in the world which is in the process of rapid digitalization. It is thought that it is important to ensure equipped with the latest technology of students who are studying in the field of accounting. New technologies emerging in current accounting education are required to support the learning development of students. Therefore, the use of digital technology tools used in accounting in accounting education processes should be encouraged. Digital technologies must play a supportive role in development in the learning process of students in accounting education. In some universities, these information technology tools and systems are used to assist teaching in accounting courses to teach their students to accounting concepts at the basic level. In this study, Documentary Research Method, which is one of the qualitative research approaches, was used. Documentary Research Method; It refers to collecting and organizing previously obtained, archived, organized, and documented data from various sources (library, internet, etc.) with an archive search, establishing meaningful connections on the data instead of operational analysis and making some inferences. Thus, it is aimed to contribute to the literature with this study.

6. Ethics and Sustainability in Auditing

   1. Frontmatter

   2. Chapter 14. Evaluation and Rating of Corporate Governance and Internal Auditing in Turkish Public Companies

      Arzu Cevahir, Kıymet Tunca Çalıyurt

      Abstract

      The aim of this study is to determine the perception levels of the public companies regarding the importance of the internal control system and to investigate the awareness of the internal control systems by evaluating the existing applications of the internal control units for the internal control system. The study consists of four chapters. In the theory part of the research, the concept of internal control, analysis tools, and components of internal control as a system is mentioned. Then the regulations concerning internal control in Turkey and in the world were discussed. Finally, in the research section, the evaluation of the awareness of internal control over 47 public enterprises and the conclusions reached within the scope of the subject were presented and recommendations were made.

   3. Chapter 15. New Paradigm in Auditing: Continuous Auditing

      Hülya Boydaş Hazar

      Abstract

      Organizations are losing substantial amounts of money and facing immeasurable ethical repercussions because of fraud. Regulatory requirements in auditing are increasing with the rate of fraud to boost the investor confidence. The volume and variety of data being created in the organizations are forcing auditors to find more effective and efficient methods as they face the challenges. Once a year audits where sampling is used on audit evidences are not sufficient in the modern business environment. The concept of continuous auditing is the answer to this paradigm. Continuous auditing is considered to be any audit method where the audit is performed on continuous basis. The fundamental idea is that the audit of a transaction is done as it is happening or in a very short time, and a report is issued after the audit. As a result, the anomalies are detected and the audit report is written in real time. The frequent analyses of data enable auditors to perform control and risk assessments in real time or near real time. Continuous control assessment refers to the audits performed on the controls. Continuous risk assessment refers to the identification of systems and processes with risk above the acceptable risk level. In continuous auditing, all the audit activity is done in the electronic environment where only the digital analysis tools and techniques are used. Audit tests are performed on the audit data and the audit report is created by the computer system. The auditor himself develops or uses audit package software to perform audit procedures. As a result, all the records are analyzed easily and quickly on big data in a relatively short time. Initial set up of the continuous audit software requires time and relatively a high level of expertise. However, the same modules may be used repeatedly lowering the cost of continuous auditing in the long run. Moreover, continuous auditing allows remote access to company data which enables auditors to perform the audit activity without going to the site of audit. This lowers the audit cost and increases the time efficiency. Continuous audit applications require substantial set-up efforts. Most of the work is done in the system design and pre-implementation stages. Once the audit model is created, it can be used by iterating the modules. The fundamental stages of continuous auditing are development of the audit model, automation of audit methods, data analysis and reporting. The concept of continuous auditing is very new and implementation methods are in the research stage. This audit method is not yet widely used and presents significant difficulties in implementation. With the continuation of research in this field and the development of information systems, the problems experienced in the implementation of continuous auditing practices will be eliminated and its use will increase.

   4. Chapter 16. Enhancing Risk Management Procedures in Audit Firms: Acceptance & Continuance

      Stoyan Deevski

      Abstract

      The purpose of this paper is to look into the problems of risk management policies and procedures at audit firms. The paper starts with an introduction to the importance of establishing formal risk management policies and procedures at audit firms and how it is related to the increasing expectations of investors, creditors and other stakeholders. Governments impose ever more stringent regulations in an attempt to respond to those expectations. The author points out some basic principles of risk management policies at audit firms and analyses how the problems can be approached. One of the most important points is that there is a strong need for well-designed policies and procedures even before the client relationship has started. The author presents some important (in the author’s view) policies and procedures, which would help audit firms manage and control business risk arising from accepting clients and engagements that should not have been serviced either due to regulatory restrictions, or due to the fact that the relationships create independence, ethics or similar issues. The paper concludes with a note on the importance of implementing proper acceptance and continuance policies as part of the broader risk management process of ensuring long-term profitability and business continuity of audit firms.

7. 17. Correction to: Ethics and Sustainability in Accounting and Finance, Volume II

   Kıymet Tunca Çalıyurt

8. 18. Correction to: Definition and Classification of Financial Statement Fraud

   Iavor Bachev

9. Backmatter