Diss. Techn. Univ. Berlin, 2005.

Thesis (Ph.D.)--RAND Graduate School, 2007. / Includes bibliographical references.

This diploma work deals with Continuous audit of financial statements. The goal of this work is to describe chosen methods and procedures of this kind of audit. The first part of the text belongs to the description of laws and rules accordind to financial accounting and financial audit. Procedures and methods used in financial audit are described in the second part of the text. I was able to gain such a knowledge of these procedures and methods while working as an assistant of financial auditor in Cyech Republic. This work should be useful for anyone who is thinking about becoming a financial auditor, or an assistant.

Between the years 1998 and 2002, the United States suffered a time in which several large companies engaged in fraudulent behavior which eroded investor confidence in the stock market and to some extent destabilized the economy. Audits, which were conducted to assess the validity and reliability of a company's financial statements, were not detecting the material misstatements in the statements. As a result, both the US Government and the accounting profession needed to come up with a way to prevent these immense frauds from occurring in the future. As a response to these large frauds, in 2002, the US Government passed the Sarbanes-Oxley Act of 2002 (SOX) and the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards No. 99(SAS No. 99) to improve investor confidence and the auditing function's ability to detect material frauds. The intent of this thesis was to look at the fraudulent factors associated with several recent corporate frauds and compare them to the standards set by SAS No. 99. Through the analysis conducted, this thesis looks at the relationships between pressures, opportunities, and rationalizations made during the act of fraud.

<p>Prior empirical research has shown that forward-looking statements can be particularly informative to investors (Li 2010; Muslu et al. 2014). However, the inherent uncertainty surrounding forward-looking statements may contribute to a delayed price reaction. This paper examines the market reaction to backward-looking statements and to forward-looking statements across a 60 trading-day horizon. I did not find evidence suggesting the inherent uncertainty of forward-looking statements contributes to a delayed price reaction. However, backward-looking statements are associated with a delayed price response. This result is consistent with Bernard and Thomas’s (1990) suggestion that post-earnings announcement drift is caused by investors not fully understanding how current earnings map into future earnings. I also provide evidence that, for the prepared remarks, investors have a stronger price reaction to net backward-looking tone than to net forward-looking tone. However, for the question-and-answer session, the opposite is true. Investors have a stronger price reaction to net forward-looking tone than to net backward-looking tone. This result suggests that managers should focus their prepared remarks on the prior performance of the firm and focus their responses during the question-and-answer session on the future performance of the firm. </p>

This thesis investigates the impact of certain identifiable subsets of accounting information on users’ decisions by examining share price revisions that occurred at the same time as the accounting information was released. The subsets examined are the announcements of new share issues, the release of contemporaneous earnings and dividend announcements, and the release of information about asset revaluations. Assuming that an adequate methodology can be designed, a significant share price revision is consistent with the notion that the accounting information cue has "information content". The distinction between accounting research and research in the basic disciplines of economics and mathematics/statistics is the emphasis in accounting on the institutional domain; that is research in accounting requires a "mapping" into the institutional domain in which accounting information is produced and used. This, in turn, provides a justification for the type of announcement effect studies described in the previous paragraph. Clearly the study of share price revisions requires a substantial data base of share prices. Part of this thesis is devoted to a description of the procedures used to establish this data base. The three major announcement effect studies use what is popularly described as the market model residual method of analysis. In the application of this model, some attention has been paid to problems of "thin" trading in the New Zealand environment in providing unbiased estimators of the market model parameters. The results of the application of this methodology are that share prices seem to react rapidly and (generally) unbiasedly to the announcement of bonus issues and contemporaneous earnings and dividend announcements. The size of the reaction in the week that the announcement is made is typically large. The larger is the unexpected component in the announcement of earnings, the larger is the share price revision. With regard to rights issues, no abnormal share price performance was found in the week that the rights issue was announced, although it was clear that companies announcing rights issues had been performing abnormally well over the year up to the announcement. Share price revisions did not appear to accompany the release of information about the current values of assets (usually land and buildings). However it is conceded that this subset of the overall research exercise is more difficult to undertake as there are difficulties in determining an appropriate announcement date, and in determining what the market’s expectations are with regard to the revaluation.

The objective of this research is to investigate the materiality and volatility of comprehensive income for non financial firms in a non US environment. As the FASB and IASB are planning to require the reporting of comprehensive income in a single performance statement, it is important to resolve the issues surrounding the materiality and the volatility of comprehensive income. This study investigates the materiality of comprehensive income and its components in relation to total comprehensive income and closing equity for 37 non financial companies listed on the NZX from 2003 to 2008. Moreover, the cumulative impact of comprehensive income on equity over time is investigated. Further the volatility of comprehensive income is compared to the volatility of net income. This study also investigates the impact of the change to NZ IFRS on comprehensive income The results show that other comprehensive income is material in relation to total comprehensive income, but not in relation to closing equity. Moreover, some components of comprehensive income have a cumulative effect over time on closing equity. Comprehensive income is more volatile than net income. However, these findings are due to asset revaluations, which is the most dominant component of other comprehensive income. Though, all components of comprehensive income are significant for some firm year observations. Further, the move to NZ IFRS affects the materiality of some components of other comprehensive income and reduces the volatility of comprehensive income compared to net income. This study provides evidence that other comprehensive income is material for non financial firms in a non US environment. This suggests that it should be displayed clearly in the financial statement in order to be taken into consideration by financial statement users. Further, this study provides evidence that the difference in volatility between comprehensive income and net income in New Zealand can be avoided by choosing the cost method when measuring assets after recognition.

This thesis reviews the evolution of interim reporting in New Zealand. The attempts to regulate interim reporting by the stock Exchange Association of New Zealand and the lobbying behaviour of affected parties are documented. The regulation of interim reporting is interpreted as a series of self-interest actions by the affected parties. In 1973 semiannual reports were mandated for all firms listed on the New Zealand stock Exchange. However, the content of these reports, was not specified until 1976. The extent of voluntary reporting practice prior to 1973 is recorded. The major empirical analysis of the thesis examines the association between corporate characteristics and the voluntary disclosure of semiannual earnings during the period 1973 to 1976. The analysis shows that firms with high semiannual earnings disclosures have more shares issued, have paid an interim dividend, carry relatively less inventory, are in a more seasonal industry and have a greater earnings forecast error. Assets in place, political costs of disclosure and competitive costs of disclosure are not found to be associated with the level of semiannual earnings disclosure. Sensitivity analysis indicates that the significance of the explanatory variables depends on firm size and upon the threshold level of disclosure.

This is a study of earnings quality, examining whether components of earnings based on New Zealand (N.Z.) accounting classification systems have different information parameters. The N.Z. environment provides a unique opportunity to examine a period with no legislative backing of accounting standards and a flexible accounting standard. Combined, this gave mangers the ability to clearly identify earnings components they considered to be differentially informative. Informativeness is assessed by the ability of current period earnings to predict next period earnings and the contemporaneous relation between returns and earnings. The results indicate that disaggregated reported earnings are more informative than aggregated earnings in a non-trivial way. In one of the sample periods disaggregated earnings explained 29% of the variance in returns, more than twice the explanatory power of aggregated earnings. N.Z. accounting standard setters replaced SSAP7 with FRS7 in 1994 contending that the discretion available to mangers reduced the informativeness of earnings. Not only do the results not support that contention but earnings informativeness has fallen since FRS7 came into effect, suggesting that standard setters should revisit that decision. The results also have implications for the content and form of the N.Z. Stock Exchange (NZSE) preliminary announcement. "Unusual earnings" reported to the NZSE by companies are shown to be differentially informative to investors yet the NZSE does not always identify these components when the preliminary announcement is summarised and disseminated to market participants. To summarise, the effective codification of earnings brought about by FRS7 has reduced the informativeness of earnings – locking differences between components into total earnings. The N.Z. results beg the question as to whether similar economic events are locked into the COMPUSTAT summary earnings variables for U.S. data.

This thesis investigates the impact of certain identifiable subsets of accounting information on users’ decisions by examining share price revisions that occurred at the same time as the accounting information was released. The subsets examined are the announcements of new share issues, the release of contemporaneous earnings and dividend announcements, and the release of information about asset revaluations. Assuming that an adequate methodology can be designed, a significant share price revision is consistent with the notion that the accounting information cue has "information content". The distinction between accounting research and research in the basic disciplines of economics and mathematics/statistics is the emphasis in accounting on the institutional domain; that is research in accounting requires a "mapping" into the institutional domain in which accounting information is produced and used. This, in turn, provides a justification for the type of announcement effect studies described in the previous paragraph. Clearly the study of share price revisions requires a substantial data base of share prices. Part of this thesis is devoted to a description of the procedures used to establish this data base. The three major announcement effect studies use what is popularly described as the market model residual method of analysis. In the application of this model, some attention has been paid to problems of "thin" trading in the New Zealand environment in providing unbiased estimators of the market model parameters. The results of the application of this methodology are that share prices seem to react rapidly and (generally) unbiasedly to the announcement of bonus issues and contemporaneous earnings and dividend announcements. The size of the reaction in the week that the announcement is made is typically large. The larger is the unexpected component in the announcement of earnings, the larger is the share price revision. With regard to rights issues, no abnormal share price performance was found in the week that the rights issue was announced, although it was clear that companies announcing rights issues had been performing abnormally well over the year up to the announcement. Share price revisions did not appear to accompany the release of information about the current values of assets (usually land and buildings). However it is conceded that this subset of the overall research exercise is more difficult to undertake as there are difficulties in determining an appropriate announcement date, and in determining what the market’s expectations are with regard to the revaluation.