Ethics and Sustainability in Accounting and Finance, Volume III

Table of Contents

1. Frontmatter

2. Introduction

   1. Frontmatter

   2. Chapter 1. Introduction Chapter: Announcements by Related Institutions (CAQ, PCAOB, FRC, IFAC) on Auditing in COVID Times

      Kıymet Tunca Çalıyurt

      Abstract

      Due to the COVID-19 pandemic, many professionals have had difficulty performing their jobs. However, this has forced people to think about how jobs can be done “remotely”. Institutions related to the independent audit profession (IFAC, CAQ, PCAOB, and FRC) have announced new regulations on “remote auditing” one after another. At a time when many corporate executives are worried that fraud will increase, time will tell if “remote audit” contributes to this concern. In this study, the important ones among the regulations published by the institutions related to auditing were examined. As a result, even if the pandemic comes to end, “remote control” has entered our lives forever and the new regulations will be promulgated.

3. Good Governance in Accounting, Tax, Auditing, Fraud Examination

   1. Frontmatter

   2. Chapter 2. Is a Determination and Application of Joint Audit Procedures of Financial Statement and Tax Certification Audits Possible?

      Fatma Ulucan Özkul, Sedat Taşdemir

      Abstract

      In Turkey, there are currently two main types of audits conducted within two separate legislative frameworks. One of them is the financial statement audit under Turkish Commercial Law No. 6102 and Decree Law No. 660. The other is the tax certification audit of the annual corporate tax return and its attachments under Certified Public Accountancy and Sworn-in Certified Public Accountancy Law No. 3568. However, in application, most professionals have observed that there are many common aspects of both audits, including, among others, audit procedures and techniques, accounting principles, legislative rules, and the professionals who perform the audits. The purpose of this article then is to determine whether it is possible to jointly apply the audit procedures for both financial statement and tax certification audits. To this end, detailed surveys were prepared and carried out among professionals in the field, including these professionals’ responses, comments, and recommendations regarding whether the joint audit procedures in practice are applicable or not. Based on the research and survey results, which demonstrate that there are joint audit procedures applicable in both financial statement audits and tax certification audits, joint execution of these two audits is determined to be a feasible reality.

   3. Chapter 3. The Transition from Self-Regulation to Public Oversight in the Independent Audit: An Investigation of Developments by Accounting Sub-Culture

      Özkan Sarisoy

      Abstract

      Although the independent audit environment has changed from time to time, it has increased its importance in the capitalist economic system day by day. The patronage of the audit activity, which occasionally had significant criticism, was carried out by professional organizations with a recent self-regulation approach. At the beginning of the current century, the scandals that took place led to partial abandoning of self-regulation and led to the establishment of autonomous public oversight institutions authorized to oversee independent auditing. Public oversight institutions, which have been implemented in many countries, have followed different trends among countries. In this research, the various characteristics of the public oversight institutions of some selected countries were examined. Moreover, the similarities and differences between the countries were discussed in terms of subcultural dimensions. As a result of the descriptive research carried out, it is observed that public oversight institutions have been implemented in Anglo-Saxon culture before other countries. More similar approaches were seen in Anglo-Saxon and Northern European countries. In European countries with Mediterranean culture and Asian countries, the more different positions are observed.

   4. Chapter 4. Creating Auditable Environment: An Approach Towards Eliminating Fraud Opportunities

      Razana Juhaida Johari, Illyza Ibrahim, Sayed Alwee Hussnie Sayed Hussin

      Abstract

      According to the International Standard on Auditing 240 (ISA 240), “The primary responsibility for the prevention and detection of fraud rests with both those charged with governance and of the entity and management. It is important that management place a strong emphasis on fraud prevention, which may reduce opportunities for fraud to take place and fraud deterrence, which could persuade individuals not to commit fraud because of the likelihood of detection and punishment”. The key for management to prevent and reduce the risk of fraud is to entirely eliminate the opportunity for fraudulence to occur. This paper provides inputs to management in creating an auditable environment through the concept of auditability and the ways it is applicable as an approach to eliminate fraud opportunities. Auditability is the organizations’ capacity at presenting sufficient precise records to auditors. However, according to recent surveys, many organizations have yet to obtain a formal approach to fraud prevention although asset protection and activities that can promote the elimination of frauds can ensure the stability and continuance of a business. Therefore, this paper intends to highlight how an auditable environment can impede fraudulence as well as increase the accountability and transparency of the organizations. The importance of the auditability concept as an approach toward an auditable environment and challenges that should be addressed will be discussed in detail.

   5. Chapter 5. How to Secure a Country’s Sustainability from the Venom of Corruption?

      Nafsiah Mohamed, Nur Shafiqa Kapeli, Intiyas Utami

      Abstract

      Corruption has the potential to compromise the sustainability of a country. To date, only a few countries are said to have been successful in preventing corruption, while the rest are still struggling to meet their objectives, and Malaysia is one of them. This is discouraging because numerous resources have been allocated for such preventive measures, but the results of their implementation have been disappointing. As a result, the purpose of this study is to identify the root cause of the above. To achieve this purpose, interview sessions were held with representatives from various government departments who were engaged in the creation of anti-corruption initiatives as part of the Government Transformation Programme (GTP). The findings indicate that what has occurred is the product of inadequately designed anti-corruption initiatives, which prevent the initiatives from working effectively. This is a factor that has been overlooked in Malaysia's fight against corruption. The study contributes to the growing body of literature on Malaysia's anti-corruption initiatives. Furthermore, the analysis is useful in assisting initiative makers and regulators in developing successful anti-corruption initiatives.

   6. Chapter 6. The Determinants of Audit Committee Effectiveness: An Empirical Work on Turkish Financial Industry

      Hatice Sarac, Kiymet Caliyurt, Sezer Bozkus Kahyaoglu

      Abstract

      The major aim of this empirical work is to examine Audit Committee Effectiveness (ACE) from the perspective of financial institutions listed at Borsa Istanbul (BIST) and regulated by Banking Regulation and Supervision Agency (BRSA). A Questionnaire is designed by using Likert Scale with the principle of measuring attitudes by asking the professionals working in board of directors, audit committees, risk committees, risk management, compliance units, internal audit, and/or internal control functions of financial institutions in Turkey. This questionnaire is developed to analyze their response to a series of statements about characteristics of Audit Committee Effectiveness (ACE). Structural Equation Model (SEM) approach is used for the survey data, and policy recommendations are made depending on the empirical results. The research findings reveal that the characteristics of an effective audit committee are an essential instrument for the board of directors. The empirical findings challenge key public expectations of Audit Committees, including the notion of “management oversight and performance evaluation.” The study highlights the potential for corporate governance in financial institutions to consider the contribution of audit committee members within the context of promoting the best corporate governance practice.

4. Ethics and Sustainability in Finance

   1. Frontmatter

   2. Chapter 7. An Analytical Study of Financial Status of Masala Bonds Issuing Companies

      Renu Jatana, Mehjabeen Barodawala

      Abstract

      Masala bonds or rupee-denominated bonds are a recent development in the Indian bond market which has the capability of attracting both investors and issuers. Unlike other debt instruments which raise funds from Indian investors, masala bonds are an innovative type of debt which are issued to raise funds from overseas market in Indian Rupee. By the way of these bonds, issuers are protected from currency risk as the risk is being transferred to the investors buying these bonds. International Finance Corporation (IFC), a private sector investment arm of the world bank named, issued, and listed masala bonds on the London Stock Exchange (LSE) in November 2014 in order to meet the requirement of funds needed for infrastructure development projects in India. HDFC is the first Indian Corporate to issue Masala Bonds in July 2016 followed by NTPC which is the first Indian state-owned Corporate to issue Green Masala bonds for environmental development projects. This paper tries to understand the impact of masala bonds on the capital structure of the issuing company by the way of the debt-equity ratio and the company’s performance on the basis of EPS.

   3. Chapter 8. Information Asymmetry Problematic and Voluntary Disclosure in Companies

      Fevziye Kalıpçı Çağıran, İdris Varıcı, Fevzi Serkan Özdemir

      Abstract

      Information considered as one of the most valuable elements of today’s world is an integral part of changing and transforming living conditions. Although the information is an important asset for companies, it is also extremely important for information users. The public disclosures made by the companies have an important role in meeting the detailed information needs of the parties interested in the companies. Information asymmetry can occur between the parties, as the managers have more information about the current situation and future perspectives of the companies than the investors. At this point, information asymmetry between company and information users can be reduced with public disclosure. The purpose of this study is to examine how voluntary disclosure affects information asymmetry. In this context, 138 companies operating in the industrial index of Borsa İstanbul in Turkey were taken into consideration. As a result of the multiple linear regression analysis (stepwise method), it is found that as the voluntary disclosure levels of companies increase, the information asymmetry decreases. In addition, the Tobin Q ratio has a negative and significant effect on information asymmetry. Also, the effect of the Market Value/Book Value ratio on information asymmetry is found to be positive and significant.

   4. Chapter 9. The Financial Crisis Phenomenon and the 2008 Global Finance Crisis

      Hande Çan, Meltem Okur Dinçsoy

      Abstract

      One of the most important developments which adversely affect economies in the globalized world is the financial crises, such as money crisis, banking crises, external debt crises, and systemic financial crises, arising due to various reasons. The reasons of crises can be also listed as unsustainable macroeconomic structure, asymmetric information, moral hazard, financial liberalization, herd psychology, and pandemics. The financial crises emerging in the period in which financial integration formed after 1990, turned into a structure engulfing all economies in waves by coming to a state of structure whose violence and impact area expand rapidly. The 2008 crisis, an important example of financial crisis, which started in mortgage industry in the USA and spread rapidly to the global economy. Also, unlike the previously known classical banking crises, the inclusion of large-volume derivative products in this crisis and the problems related to derivative products spread very rapidly to other parts of the world during the 2008 Global Crisis. The credit rating agencies received criticism in the 2008 Crisis as received in the 1997 Asian Crisis. In particular, the financing of these institutions by banks and other financial institutions reduces the possibility of objective evaluation. They did not take into account the market risk and liquidity risk for the investors trading in the secondary market during the rating process. In addition, the rapid increase in notes and the high amount of payments to be made within the scope of CDO increased the liquidity crisis. As a result, financial liberalization, macroeconomic instability, and weak financial structure under the globalized world make the economies more vulnerable, sensitive and/or insecure to financial crises.

5. New Technologies In Accounting and Finance

   1. Frontmatter

   2. Chapter 10. Impact of AI and Block Chain on Accounts, Finance, Valuations and Auditing—Indian Perspective

      Eish Taneja, Suneel Arora

      Abstract

      In recent times, audit has gone through a complete makeover with newer concepts like auditing using artificial intelligence and with block chain concepts being used in business, money settlements, etc. and hence block chain audits and using block chain to audit have become imperative. With so many changes happening in India during the Covid times with March end in India is also Fiscal year end, this Covid has brought in revolution and as Kurzeweil law captures, brought in much desired revolution at a faster pace being the need of hour. The artificial intelligence usage has impacted valuations of the companies also in a positive manner. The research has captured about 120 plus interviews conducted on the best practices adopted and how they could ensure the completion of timely audit and statutory compliances along with conducting the annual board and general meetings and some companies having declared dividends also.

   3. Chapter 11. From Conventional Methods to Contemporary Neural Network Approaches: Financial Fraud Detection

      Mustafa Reha Okur, Yasemin Zengin-Karaibrahimoglu, Dilvin Taşkın

      Abstract

      This chapter provides insights on the underlying reasons to replace the conventional methods with contemporary approaches—the neural network-based machine learning methods—in financial fraud detection. To do this, we perform a systematic literature review on the evolution of financial fraud detection literature over the years from traditional techniques toward more advanced approaches such as modern machine learning methods like artificial neural networks. Additionally, this chapter provides concise chronological progress of the fraud literature and country-specific fraud-related regulations to draw a better framework and give the idea behind the corpus. Using the metadata in the existing literature, we show both benefits and costs of using machine learning-based methods in financial fraud detection. An accurate prediction using contemporary approaches is essential to minimize the potential costs of fraudulent financial activities for stakeholders, reduce the adverse effects of fraudsters’ and companies’ fraudulent activities, and increase trust in capital markets via continuous fraud risk assessment of companies.

6. Environmental Issues in Accounting and Finance

   1. Frontmatter

   2. Chapter 12. Sustainability Reporting in the Oil and Gas Sector: Implementation in Greece

      Athanasios Mandilas, Dimitrios Kourtidis, Ioanna Pantelidou, Dimitrios Chatzoudes

      Abstract

      This chapter investigates whether and how Greek oil and gas companies apply the “Global Reporting Initiative” (GRI) standards on their Corporate Social Responsibility Reporting. Based on the framework of the Global Reporting Initiative, this chapter provides the reader with insights into the oil and gas company reporting level in Greece. An issue emerging in this research is the poor level of economic, social, and environmental reporting on behalf of the eight companies of the sample, something that may be indicative of their overall financial situation, culture, and/or lack of strategic thinking.

   3. Chapter 13. Global Climate Risk Index and Firm Performance: Evidence from Turkish Firms

      Hakan Cavlak, Yasin Cebeci, Necati Güneş, Ömer Faruk Tan

      Abstract

      Climate change, which currently has a multidimensional effect on many factors such as national economies and firms, will continue to be the most substantial global risk in the next decade according to the World Economic Forum’s 2020 Global Risks Report. Although firms strive to reduce the risk of climate change with various tools, it continues to affect firms’ performance. Therefore, the impact of climate change risk on governance, accounting, and finance is being frequently discussed in recent years. In this study, the impact of the Global Climate Risk Index (CRI)—compiled and published by Germanwatch (Kreft and Eckstein 2014)—on firm performances is analyzed. 167 manufacturing firms listed in Borsa Istanbul (BIST) are considered. The time span for the study is between 2006 and 2018. All data are obtained from Thomson Reuters Datastream and Thomson Reuters Eikon. The panel fixed effect model is used for the analysis. The results of the study indicate that there is a negative and significant relationship between Return on Assets (ROA) and CRI. In addition, firms reduce their total debt when CRI increases. Finally, when the CRI increases, the tendency of firms to pay dividends declines and their cash holding tendency increases.

   4. Chapter 14. Roles of Accountants and Scientists in the Assurance of Greenhouse Gas StatementsGreenhouse gas statements

      Anup Kumar Saha, Istemi Demirag

      Abstract

      This chapter chiefly explores the role of accountants in greenhouse gas (GHG) assurance process, especially in the absence of any existing or upcoming relevant assurance standards. In this regard, we critically discuss the characteristics and patterns of GHG emissions statements, motivation of getting such statements assured, and factors influencing the selection of accountants and/or scientists to certify those GHG statements. Unlike non-accounting background assurers, professional accountants enjoy a monopolistic power in financial audits. We argue that because of their experience with financial audits, the assurance market could be more lucrative for accountants, than for non-accountant assurers.

   5. Chapter 15. Recruitment Techniques by Auditing Companies

      Aysun Atagan Çetin

      Abstract

      This study aims to examine the recruitment process of audit professionals in audit firms by utilizing the transparency reports issued by the firms. The argument put forward by the study is that in the recruitment process of the members of the audit team, different application conditions are observed compared to other occupational groups. In the analysis part of the study, the reports of the audit firms that prepared Transparency Report according to Article 36 of the Independent Audit Regulation were used. In the transparency reports, 79 of 83 audit firms that audited for Public Interest Entities (PIE) and have access to the transparency report included the human resources department and recruitment process. 278 criteria determined by the audit firms that were examined within the scope of the study as personnel selection criteria were structured and subjected to cluster analysis. The obtained clusters are named as “Personal Criteria”; “Professional Criteria” and “Academic Criteria”.

7. Backmatter