Reaching Key Financial Reporting Decisions

Name: Reaching Key Financial Reporting Decisions | How Directors and Auditors Interact
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How Directors and Auditors Interact

Stella Fearnley Vivien Beattie Tony Hines(Autor*in)

Wiley (Verlag)

Erschienen am 26. Juli 2011

384 Seiten

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Beschreibung

The regulatory framework for financial reporting, auditing andgovernance has changed radically in recent years, as a result ofproblems identified from the Enron scandal and more recently fromthe drive to implement global standards. In a key regulatorychange, a company audit committee is now expected to play asignificant role in agreeing the contents of the financialstatements and overseeing the activities of the auditors. FinanceDirectors, Audit Committee Chairs and Audit Engagement Partners arerequired to discuss and negotiate financial reporting and auditingissues, a significant process leading to the agreement of thepublished numbers and disclosures, and to the issuing of theauditor's report which accompanies them, but which is entirelyunobservable by third parties.
Reaching Key Financial Reporting Decisions: How Directors andAuditors Interact is a fascinating, behind-the-scenesexamination of this closed process. The authors draw on the resultsof face to face interviews, and an extensive survey of financedirectors, audit committee chairs and audit partners, and presentnine company case studies highlighting the process of discussionand negotiation and the methods by which the agreed financialreporting outcome was reached. Detailed analysis of the casestudies:
* Allows those involved in the process to benchmark theirbehaviours against those of others
* Enables a comparison between the previous and currentregulatory environments to see what has changed, and sheds light onthe sorts of behaviours the current regulatory frameworkencourages
* Evaluates the effectiveness of the changed regulatory regime,providing evidence relevant to current policy debates concerningthe value of audit, IFRS and the relative merit of rules-basedversus principles-based accounting standards in relation toprofessional judgement and compliance
The unprecedented access and unique insights offered by thisbook make it invaluable for audit firm staff and partners, auditcommittee chairs and company directors involved in agreeing thepublished financial statements, as well as those who have aninterest in the financial statements, but do not have access to thenegotiation process.

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Inhalt

Intro
Reaching Key Financial Reporting Decisions : How Directors and Auditors Interact
Contents
List of Figures
List of Tables
Foreword
Preface
Acknowledgements
Abbreviations
PART I THE BACKGROUND
1 Introduction and Background
1.1 What This Book is About
1.2 Recent Regulatory Changes
1.3 Contribution of This Book in the 2010/2011 Regulatory Environment
1.4 Research Approach
1.5 Outline of Book
1.6 Key Findings and Conclusions
2 Review of Relevant Literature
2.1 Overview
2.2 Regulation
2.2.1 Regulation Theory
2.2.2 Regulatory Policy and Structures
2.2.3 International Standards on Auditing (ISAs)
2.2.4 Ethical Standards for Auditors
2.3 IFRS
2.3.1 Rules versus Principles Debate
2.3.2 Complexity Debate
2.3.3 New Business Reporting Models
2.4 Audit Quality
2.4.1 Definition of Audit Quality
2.4.2 Audit Quality Research
2.4.3 Non-Audit Services
2.4.4 Auditor Tenure
2.4.5 Individual Audit Partner Effects
2.4.6 Survey Research
2.5 Enforcement
2.5.1 The FRRP
2.5.2 Audit Firm Review and Inspection
2.6 Corporate Governance and the Role of the Audit Committee
2.6.1 General Evolution of Audit Committees
2.6.2 The UK Corporate Governance System
2.7 Interactions and Negotiation in Non-Audit Settings
2.7.1 Theory
2.7.2 Empirical Studies
2.8 Interactions and Negotiation in Audit Settings
2.8.1 The Audit Setting
2.8.2 Archival Studies Using Public Data
2.8.3 Experimental Studies
2.8.4 Questionnaire Studies
2.8.5 Interview Studies
2.8.6 Link Between Audit Committee and Financial Reporting Quality
3 The Survey
3.1 Overview
3.2 Methods
3.3 Findings
3.3.1 Background Characteristics of the Companies
3.3.2 Audit Committees Characteristics
3.4 Interaction Issues
3.5 Financial Statement Changes
3.6 Summary
PART II THE CASE STUDIES
4 Case Studies
4.1 Introduction to the Case Studies
4.2 How the Case Companies were Selected and Approached
4.3 Broad Approach to the Grounded Theory Analysis
4.4 Writing Up Each Case (Matched Set of Interviews) -The Stories
4.5 Preliminary Within-Case Analysis: Attaching Labels to the Key Categories
4.5.1 Labelling the Concepts Described in the Stories
4.5.2 Preliminary Analysis of Context
4.5.3 The Interactions
4.5.4 The Outcomes
4.6 Within-case Analysis
4.7 Tabular Summary of Cases
5 Case 1-Sandpiper plc
5.1 Background to the Case
5.2 Corporate Governance
5.2.1 Attendees at the Audit Committee
5.2.2 Cycle of Meetings
5.2.3 The Chairman's Management of the Audit Committee and Key Relationships
5.2.4 The Nature of the Relationship
5.2.5 Satisfaction with Auditors and Partner Changes
5.3 Key Interactions Between Stuart, Duncan and Patrick
5.3.1 Audit Fees
5.3.2 The Accounting Treatment of Costs Associated with a Major Change in the Company's Computer System
5.3.3 Re-Organization Costs
5.3.4 Inventory Provisions
5.3.5 Dividends from Subsidiaries
5.3.6 Pension Liabilities
5.4 Contextual Factors and Analysis of the Interactions
5.4.1 Audit Related Interaction: Fee Negotiation
5.4.2 Financial Reporting Interaction: the Accounting Treatment of Costs Associated with a Major Change in the Company's Accounting System
5.4.3 Financial Reporting Interaction: Re-Organization Costs
5.4.4 Financial Reporting Interaction: Inventory Provisions
5.4.5 Financial Reporting Interaction: Accounting for Dividends from Subsidiaries
5.4.6 Financial Reporting Interaction: Pension Liabilities
5.5 Conclusions
6 Case 2-Kestrel plc
6.1 Background to the Case
6.2 Corporate Governance
6.2.1 Audit Committee Attendees
6.2.2 Cycle of Meetings
6.2.3 Chairman's Management of the Audit Committee and Key Relationships
6.2.4 The Nature of the Relationship with the Auditor
6.3 Key Interactions Between Philip, Guy and Barry
6.3.1 Valuation of Intangibles on Acquisition
6.3.2 Impairment Reviews
6.3.3 Financial Instruments -Treatment of Preference Shares
6.3.4 Financial Instruments -Hedging
6.3.5 Restructuring Costs
6.3.6 Fraud and Illegal Acts
6.4 Contextual Factors and Analysis of the Interactions
6.4.1 Financial Reporting Interaction: Fair Value on Acquisition
6.4.2 Financial Reporting Interaction: Impairment Reviews
6.4.3 Financial Reporting Interaction: Financial Instruments - Treatment of Preference Shares
6.4.4 Financial Reporting Interaction: Financial Instruments - Hedging
6.4.5 Financial Reporting Interaction: Restructuring Costs
6.4.6 Corporate Governance Issue: Fraud and Illegal Acts
6.5 Conclusions
7 Case 3-Mallard plc
7.1 Background to the Case
7.2 Corporate Governance
7.2.1 Attendees at Audit Committee
7.2.2 Cycle of Meetings and Issues Discussed
7.2.3 The Chair's Management of the Audit Committee and Key Relationships
7.2.4 Nature of the Relationship with the Auditor
7.3 Key Interactions Between Jack, Paul and Gerald
7.3.1 Audit Fee
7.3.2 Accounting for a Complex Transaction
7.3.3 Business Review
7.3.4 Financial Instruments -Hedging
7.3.5 Going Concern
7.3.6 Impairment of Assets
7.4 Contextual Factors and Analysis of the Interactions
7.4.1 Audit Fee
7.4.2 Financial Reporting Interaction: Accounting for a Complex Transaction
7.4.3 Financial Reporting Interaction: Business Review
7.4.4 Financial Reporting Interaction: Financial Instruments - Hedging
7.4.5 Financial Reporting Interaction: Going Concern
7.4.6 Financial Reporting Interaction: Impairment of Assets
7.5 Conclusions
8 Case 4-Finch plc
8.1 Background to the Case
8.2 Corporate Governance
8.2.1 Attendees at Audit Committee
8.2.2 Cycle of Meetings
8.2.3 The Chair's Management of the Audit Committee and Key Relationships
8.2.4 Tendering
8.2.5 Nature of the Relationship
8.3 Key Interactions Between Ben, Robert and Damien
8.3.1 Audit Fees Following a Tender
8.3.2 Notional Interest on Unwinding of Deferred Consideration
8.3.3 Earnings Per Share
8.3.4 Share-based Payments
8.3.5 Treatment of Tax Credits on Exercise of Options
8.3.6 Revenue Recognition and Provisioning on Contracts
8.3.7 Valuation of Intangible Assets on Acquisition
8.3.8 Segmental Reporting
8.3.9 Business Review
8.4 Contextual Factors and Analysis of the Interactions
8.4.1 Audit Related Interaction: Audit Fees Following a Tender
8.4.2 Financial Reporting Interaction: Notional Interest on Unwinding of Deferred Consideration
8.4.3 Financial Reporting Interaction: Earnings Per Share
8.4.4 Financial Reporting Interaction: Share-based Payments
8.4.5 Financial Reporting Interaction: Treatment of Tax Credits on Exercise of Options
8.4.6 Financial Reporting Interaction: Revenue Recognition and Provisioning on Contracts
8.4.7 Financial Reporting Interaction: Valuation of Intangible Assets on Acquisition
8.4.8 Financial Reporting Interactions: Segmental Reporting
8.4.9 Financial Reporting Interaction: Business Review
8.5 Conclusions
9 Case 5-Cormorant plc
9.1 Background to the Case
9.2 Corporate Governance
9.2.1 Attendees at Audit Committee
9.2.2 Cycle of Meetings and Issues Discussed
9.2.3 The Chair'sManagement of the Audit Committee andKey Relationships
9.3 Key Interactions Between William, Dave and Simon
9.3.1 Identification of Intangibles on Acquisition of Eagle
9.3.2 Impairment of Goodwill on Acquisition of Eagle
9.3.3 Deferred Tax Asset Resulting from Eagle Losses
9.3.4 Provision on Inventories
9.3.5 Business Review
9.3.6 Misreporting in Eagle
9.4 Contextual Factors and Analysis of the Interactions
9.4.1 Financial Reporting Interaction: Identification of Intangibles on Acquisition of Eagle
9.4.2 Financial Reporting Interaction: Impairment of Goodwill on Acquisition of Eagle
9.4.3 Financial Reporting Interaction: Deferred Tax Asset Resulting from Eagle Losses
9.4.4 Financial Reporting Interaction: Provision on Inventories
9.4.5 Financial Reporting Interaction: Business Review
9.4.6 Corporate Governance Interaction: Misreporting in Eagle
9.5 Conclusions
10 Case 6-Pochard plc
10.1 Background to the Case
10.2 Corporate Governance
10.2.1 Attendees at Audit Committee
10.2.2 Cycle of Meetings
10.2.3 The Chair's Management of the Audit Committee and Key Relationships
10.3 Key Interactions Between Peter, Alan and Henry
10.3.1 Presentation of Cash Flow Statement Under IFRS
10.3.2 Inventory Valuation
10.3.3 Contingent Liabilities
10.3.4 Fair Value on Acquisition
10.3.5 Restructuring Costs
10.3.6 Segmental Reporting
10.3.7 Control Weakness
10.4 Contextual Factors and Analysis of the Interactions
10.4.1 Financial Reporting Interaction: Presentation of Cash Flow Statement
10.4.2 Financial Reporting Interaction: Inventory Valuation
10.4.3 Financial Reporting Interaction: Contingent Liabilities
10.4.4 Financial Reporting Interaction: FairValue onAcquisition
10.4.5 Financial Reporting Interaction: Restructuring Costs
10.4.6 Financial Reporting Interaction: Segmental Reporting
10.4.7 Corporate Governance Interaction: Control Weakness
10.5 Conclusions
11 Case 7-Woodpecker plc
11.1 Background to the Case
11.2 Corporate Governance
11.2.1 Attendees at the Audit Committee
11.2.2 Cycle of Meetings
11.2.3 The Chair's Management of the Audit Committee and Key Relationships
11.2.4 Tendering
11.2.5 Nature of the Relationship with the Auditor
11.3 Key Interactions Between Richard, Horace and Edward
11.3.1 Inventory Valuation
11.3.2 Breach of Internal Controls in an Overseas Subsidiary
11.3.3 Valuation of Intangible Assets on Acquisition of a Subsidiary
11.4 Contextual Factors and Analysis of the Interactions
11.4.1 Financial Reporting Related Interaction: Inventory Valuation
11.4.2 Corporate Governance Related Interaction: Breach of Internal Controls in an Overseas Subsidiary
11.4.3 Financial Reporting Related Interaction: Valuation of Intangible Assets on Acquisition of a Subsidiary
11.5 Conclusions
12 Case 8-Raven plc
12.1 Background to the Case
12.2 Corporate Governance
12.2.1 Cycle of Meetings and Attendees
12.2.2 The Chair's Management of the Audit Committee
12.2.3 Communication with the Auditors
12.2.4 Nature of the Auditor-Client Relationship
12.2.5 Satisfaction with Auditors and Partner Changes/Tendering
12.3 Key Interactions Between Trevor, Norman and Ivan
12.3.1 Accounting for a Complex Transaction
12.3.2 Disclosures Relating to Potential Future Losses in a Subsidiary, Chestnut
12.3.3 Business Review Disclosures
12.4 Contextual Factors and Analysis of the Interactions
12.4.1 Financial Reporting Interaction: Accounting for a Complex Transaction
12.4.2 Financial Reporting Interaction: Disclosures Relating to Potential Future Losses in a Subsidiary, Chestnut
12.4.3 Financial Reporting Issue: Business Review
12.5 Conclusions
13 Case 9-Ostrich plc
13.1 Background to the Case
13.2 Corporate Governance
13.3 Key Interactions Between Matthew, Victor and Luke
13.4 Contextual Factors and Analysis of the Interactions
13.4.1 Financial Reporting Interaction: Valuation of Intangibles on Acquisition
13.4.2 Financial Reporting Interaction: Share-based Payments
13.4.3 Financial Reporting Interaction: Business Review
13.4.4 Financial Reporting Interaction: Segmental Reporting
13.5 Conclusions
PART III CROSS-CASE ANALYSIS AND CONCLUSIONS
14 Views of Interviewees on the Regulatory Framework
14.1 Introduction
14.2 Financial Reporting Issues
14.2.1 International Financial Reporting Standards (IFRS)
14.2.2 Other Regulation Relating to Disclosures in the Annual Report
14.2.3 Financial Reporting Review Panel (FRRP)
14.3 Auditing Issues
14.3.1 Ethical Standards
14.3.2 International Standards of Auditing (ISAs)
14.3.3 Audit Inspection Unit (AIU)
14.4 Corporate Governance
14.4.1 Audit Committees
14.4.2 Other Aspects of Corporate Governance
14.5 Summary
15 Attributes and Procedures of the Audit Committee and the Audit Committee Chair: Evidence
15.1 Overview
15.2 The Audit Committee
15.2.1 Membership and Attendance
15.2.2 Financial Experience and Understanding
15.2.3 Interviewees' Views on IFRS
15.3 The Role of the Audit Committee Chair
15.3.1 Dealing with Accounting Problems
15.3.2 Level of Engagement
15.4 Issues Discussed at Audit Committee Meetings
15.4.1 Range of Issues
15.4.2 Audit Planning
15.4.3 Audit Fees
15.5 Conclusions and Contribution to the Academic Literature
16 Cross-case Analysis and Theory Development
16.1 Introduction
16.2 Summary of Interaction Attributes
16.3 Summary of Cross-case Analysis
16.4 A Revised Grounded Theory of Financial Reporting Interactions -Overview
16.5 General Company/Audit Firm Context
16.5.1 Quality of Primary Relationships
16.5.2 Company Circumstances
16.5.3 Audit Firm Circumstances
16.5.4 Company Buyer Types
16.6 Specific Context
16.6.1 Interaction Issues
16.6.2 Goals and Objectives of Parties
16.6.3 Third Parties
16.6.4 Other Specific Contextual Factors
16.7 International Regulatory Regime
16.8 National Regulatory Regime
16.9 Interactions (Core Category)
16.9.1 Interaction Events
16.9.2 Interaction Tactics and Strategies
16.9.3 Interaction Outcome
16.9.4 Interaction Consequences
16.10 Outcome Determinants
16.11 Comparison with Extant Literature
16.11.1 Beattie et al. (2001)
16.11.2 Other Literature
17 Conclusions
17.1 Overview
17.2 The Regulatory Setting
17.3 Evidential Base and Structure of Findings
17.4 The Nature of Financial Reporting Interactions Between FDs, ACCs and AEPs
17.5 The Interaction Process
17.6 Interaction Outcomes
17.7 The Regulatory Framework
17.8 The ACC and the Audit Committee
17.9 Policy Implications
17.10 Limitations and Implications for Future Research and Regulatory Interest
References
Index

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