Effective corporate governance : experimental evidence on international auditors'judgments and the contribution of financial accounting education

1 Summary This dissertation deals with two major aspects of corporate governance that grew in importance during the last years: the internal audit function and financial accounting education. In three essays, I contribute to research on these topics which are embedded in the broader corporate governance literature. The first two essays consist of experimental investigations of internal auditors' judgments. They deal with two research issues for which accounting research lacks evidence: The effectiveness of internal controls and the potentially conflicting role of the internal audit function between management and the audit committee. The findings of the first two essays contribute to the literature on internal auditors' judgment and the role of the internal audit function as a major cornerstone of corporate governance. The third essay theoretically examines a broader issue but also relates to the overall research question of this dissertation: What contributes to effective corporate governance? This last essay takes the perspective that the root for quality corporate governance is appropriate financial accounting education. r develop a public interest approach to accounting education that contributes to the literature on adequate accounting education with respect to corporate governance and accounting harmonization. The increasing importance of both the internal audit function and accounting education for corporate governance can be explained by the same recent fundamental changes that still affect accounting research and practice. First, the Sarbanes-Oxley Act of 2002 (SOX, 2002) and the 8th EU Directive (EU, 2006) have led to a bigger role for the internal audit function in corporate governance. Their implications regarding the implementation of audit committees and their oversight over internal controls are extensive. As a consequence, the internal audit function has become increasingly important for corporate governance and serves a new master (i.e. the audit committee) within the company in addition to management. Second, the SOX (2002) and the 8th EU Directive introduced additional internal control mechanisms that are expected to contribute to the reliability of financial information. As a consequence, the internal audit function is expected to contribute to a greater extent to the reliability of financial statements. Therefore, effective internal control mechanisms that strengthen objective judgments and independence become important. This is especially true when external- auditors rely on the work of internal auditors in the context of the International Standard on Auditing (ISA) 610 and the equivalent US Statement on Auditing Standards (SAS) 65 (see IFAC, 2009 and AICPA, 1990). Third, the harmonization of international reporting standards is increasingly promoted by means of a principles-based approach. It is the leading approach since a study of the SEC (2003) that was required by the SOX (2002) in section 108(d) was in favor of this approach. As a result, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) commit themselves to the development of compatible accounting standards based on a principles-based approach. Moreover, since the Norwalk Agreement of 2002, the two standard setters have developed exposure drafts for a common conceptual framework that will be the basis for accounting harmonization. The new .framework will be in favor of fair value measurement and accounting for real-world economic phenomena. These changes in terms of standard setting lead to a trend towards more professional judgment in the accounting process. They affect internal and external auditors, accountants, and managers in general. As a consequence, a new competency set for preparers and users of financial statements is required. The basil for this new competency set is adequate accounting education (Schipper, 2003). These three issues which affect corporate governance are the initial point of this dissertation and constitute its motivation. Two broad questions motivated a scientific examination in three essays: 1) What are major aspects to be examined regarding the new role of the internal audit function? 2) How should major changes in standard setting affect financial accounting education? The first question became apparent due to two published literature reviews by Gramling et al. (2004) and Cohen, Krishnamoorthy & Wright (2004). These studies raise various questions for future research that are still relevant and which motivate the first two essays of my dissertation. In the first essay, I focus on the role of the internal audit function as one cornerstone of corporate governance and its potentially conflicting role of serving both management and the audit committee (IIA, 2003). In an experimental study, I provide evidence on the challenges for internal auditors in their role as servant for two masters -the audit committee and management -and how this influences internal auditors' judgment (Gramling et al. 2004; Cohen, Krishnamoorthy & Wright, 2004). I ask if there is an expectation gap between what internal auditors should provide for corporate governance in theory compared to what internal auditors are able to provide in practice. In particular, I focus on the effect of serving two masters on the internal auditor's independence. I argue that independence is hardly achievable if the internal audit function serves two masters with conflicting priorities. The second essay provides evidence on the effectiveness of accountability as an internal control mechanism. In general, internal control mechanisms based on accountability were enforced by the SOX (2002) and the 8th EU Directive. Subsequently, many companies introduced sub-certification processes that should contribute to an objective judgment process. Thus, these mechanisms are important to strengthen the reliability of financial statements. Based on a need for evidence on the effectiveness of internal control mechanisms (Brennan & Solomon, 2008; Gramling et al. 2004; Cohen, Krishnamoorthy & Wright, 2004; Solomon & Trotman, 2003), I designed an experiment to examine the joint effect of accountability and obedience pressure in an internal audit setting. I argue that obedience pressure potentially can lead to a negative influence on accountants' objectivity (e.g. DeZoort & Lord, 1997) whereas accountability can mitigate this negative effect. My second main research question - How should major changes in standard setting affect financial accounting education? - is investigated in the third essay. It is motivated by the observation during my PhD that many conferences deal with the topic of accounting education but very little is published about what needs to be done. Moreover, the Endings in the first two essays of this thesis and their literature review suggest that financial accounting education can contribute significantly to quality corporate governance as argued elsewhere (Schipper, 2003; Boyce, 2004; Ghoshal, 2005). In the third essay of this thesis, I therefore focus on approaches to financial accounting education that account for the changes in standard setting and also contribute to corporate governance and accounting harmonization. I argue that the competency set that is required in practice changes due to major changes in standard setting. As the major contribution of the third article, I develop a public interest approach for financial accounting education. The major findings of this dissertation can be summarized as follows. The first essay provides evidence to an important research question raised by Gramling et al. (2004, p. 240): "If the audit committee and management have different visions for the corporate governance role of the IAF, which vision will dominate?" According to the results of the first essay, internal auditors do follow the priorities of either management or the audit committee based on the guidance provided by the Chief Audit executive. The study's results question whether the independence of the internal audit function is actually achievable. My findings contribute to research on internal auditors' judgment and the internal audit function's independence in the broader frame of corporate governance. The results are also important for practice because independence is a major justification for a positive contribution of the internal audit function to corporate governance. The major findings of the second essay indicate that the duty to sign work results - a means of holding people accountable -mitigates the negative effect of obedience pressure on reliability. Hence, I found evidence that control .mechanisms relying on certifications may enhance the reliability of financial information. These findings contribute to the literature on the effectiveness of internal control mechanisms. They are also important in the light of sub-certification processes that resulted from the Sarbanes-Oxley Act and the 8th EU Directive. The third essay contributes to the literature by developing a measurement framework that accounts for the consequences of major trends in standard setting. Moreovér, it shows how these trends affect the required .competency set of people dealing with accounting issues. Based on this work, my main contribution is the development of a public interest approach for the design of adequate financial accounting curricula. 2 Serving two masters: Experimental evidence on the independence of internal auditors Abstract Twenty nine internal auditors participated in a study that examines the independence of internal auditors in their potentially competing roles of serving two masters: the audit committee and management. Our main hypothesis suggests that internal auditors' independence is not achievable in an institutional setting in which internal auditors are accountable to two different parties with potentially differing priorities. We test our hypothesis in an experiment in which the treatment consisted of two different instructions of the Chief audit executive; one stressing the priority of management (cost reduction) and one stressing the priority of the audit committee (effectiveness). Internal auditors had to evaluate internal controls and their inherent costs of different processes which varied in their degree of task complexity. Our main results indicate that internal auditors' evaluation of the processes is significantly different when task complexity is high. Our findings suggest that internal auditors do follow the priorities of either management or the audit committee depending on the instructions of a superior internal auditor. The study's results question whether the independence of the internal audit function is actually achievable. With our findings, we contribute to research on internal auditors' judgment and the internal audit function's independence in the frame of corporate governance.

Rifaximin treatment for the irritable bowel syndrome with a positive lactulose hydrogen breath test improves symptoms for at least 3 months.

BACKGROUND: While rifaximin was able to improve symptoms in patients with irritable bowel syndrome (IBS) in phase III trials, these results are yet to be repeated in phase IV studies. AIM: To evaluate the treatment response to rifaximin in IBS patients in a phase IV trial. METHODS: IBS patients underwent lactulose hydrogen breath testing (LHBT). LHBT-positive patients were treated with rifaximin for 14 days. Prior to treatment as well as at week 4 and 14 following the start of rifaximin treatment, patients completed a questionnaire assessing symptom severity on a Likert scale from 0 to 10. RESULTS: One hundred and six of 150 IBS patients (71%) were LHBT-positive and treated with rifaximin. As assessed at week 4 following commencement of the therapy, rifaximin provided significant improvement of the following IBS-associated symptoms: bloating (5.5±2.6 before the start of the treatment vs. 3.6±2.7 at week 4, P<0.001), flatulence (5.0±2.7 vs. 4.0±2.7, P=0.015), diarrhoea (2.9±2.4 vs. 2.0±2.4, P=0.005) and abdominal pain (4.8±2.7 vs. 3.3±2.5, P<0.001). Overall well-being also significantly improved (3.9 ± 2.4 vs. 2.7 ± 2.3, P < 0.001). Similar improvements in IBS symptoms were obtained at week 14. Eighty-six per cent of patients undergoing repetitive LHBT (55/64) tested negative at week 4. CONCLUSIONS: We found a high percentage of LHBT-positive IBS patients. IBS-associated symptoms (bloating, flatulence, diarrhoea, pain) were improved for a period of 3 months following 2 weeks of treatment with rifaximin. We conclude that rifaximin treatment alleviates symptoms in LHBT-positive IBS patients.

Characterization of Fas (Apo-1, CD95)-Fas ligand interaction.

The death-inducing receptor Fas is activated when cross-linked by the type II membrane protein Fas ligand (FasL). When human soluble FasL (sFasL, containing the extracellular portion) was expressed in human embryo kidney 293 cells, the three N-linked glycans of each FasL monomer were found to be essential for efficient secretion. Based on the structure of the closely related lymphotoxin alpha-tumor necrosis factor receptor I complex, a molecular model of the FasL homotrimer bound to three Fas molecules was generated using knowledge-based protein modeling methods. Point mutations of amino acid residues predicted to affect the receptor-ligand interaction were introduced at three sites. The F275L mutant, mimicking the loss of function murine gld mutation, exhibited a high propensity for aggregation and was unable to bind to Fas. Mutants P206R, P206D, and P206F displayed reduced cytotoxicity toward Fas-positive cells with a concomitant decrease in the binding affinity for the recombinant Fas-immunoglobulin Fc fusion proteins. Although the cytotoxic activity of mutant Y218D was unaltered, mutant Y218R was inactive, correlating with the prediction that Tyr-218 of FasL interacts with a cluster of three basic amino acid side chains of Fas. Interestingly, mutant Y218F could induce apoptosis in murine, but not human cells.

Predicting prognosis using molecular profiling in estrogen receptor-positive breast cancer treated with tamoxifen.

Background: Estrogen receptor positive (ER+) breast cancers (BC) are heterogeneous with regard to their clinical behavior and response to therapies. The ER is currently the best predictor of response to the anti-estrogen agent tamoxifen, yet up to 30-40% of ER+ BC will relapse despite tamoxifen treatment. New prognostic biomarkers and further biological understanding of tamoxifen resistance are required. We used gene expression profiling to develop an outcome-based predictor using a training set of 255 ER+ BC samples from women treated with adjuvant tamoxifen monotherapy. We used clusters of highly correlated genes to develop our predictor to facilitate both signature stability and biological interpretation. Independent validation was performed using 362 tamoxifen-treated ER+ BC samples obtained from multiple institutions and treated with tamoxifen only in the adjuvant and metastatic settings.Results: We developed a gene classifier consisting of 181 genes belonging to 13 biological clusters. In the independent set of adjuvantly-treated samples, it was able to define two distinct prognostic groups (HR 2.01 95% CI: 1.29-3.13; p = 0.002). Six of the 13 gene clusters represented pathways involved in cell cycle and proliferation. In 112 metastatic breast cancer patients treated with tamoxifen, one of the classifier components suggesting a cellular inflammatory mechanism was significantly predictive of response.Conclusion: We have developed a gene classifier that can predict clinical outcome in tamoxifen-treated ER+ BC patients. Whilst our study emphasizes the important role of proliferation genes in prognosis, our approach proposes other genes and pathways that may elucidate further mechanisms that influence clinical outcome and prediction of response to tamoxifen.

The potential of metastatic lymph nodes to predict positive resection margins in patients with resectable pancreatic cancer

Objective: Despite progress during recent decades, long-term outcome¦of patients with pancreatic cancer remains dismal. Since positive resection¦margins and metastatic lymph nodes are known risk factors for early tumor¦recurrence, patients at risk should be identified and could potentially benefit¦from preoperative radio-chemotherapy. This study aimed to assess whether the¦presence of lymph node metastasis could be used to predict positive resection¦margins in patients with pancreatic cancer.¦Methods: A series of 146 patients (82 male, 64 female, median age 68 years)¦underwent pancreatic head resection for various malignant diseases (pancreatic¦ductal adenocarcinoma, biliary cancer, periampullary cancer) at our institution¦from 2000 to 2011. Patients were identified from our prospective database¦that collects more than 60 single items of all patients undergoing pancreatic¦resection. Lymph node metastasis and positive resection margins were all¦confirmed by histological evaluation. Positive predictive value (PPV), negative¦predictive value (NPV), sensitivity and specificity were calculated to assess¦the predictive value of metastatic lymph nodes regarding tumor-free (R0) and¦tumor-involved (R1) resection margins.¦Results: There were 110 specimens (76%) with tumor-positive lymph nodes¦and 36 specimens with tumor-negative lymph nodes. Resection margins were¦positive in 47 specimens (32%) and negative in 99 specimens. Sensitivity of¦tumor-positive lymph nodes to detect positive resection margins was 96%, and¦the NPV was 94%. In contrast, specificity was 34% and the PPV was 41%.¦Conclusion: Patients with resectable pancreatic cancer, who have no lymph¦node metastasis, are at very low risk to have positive resection margins (2 of¦36 patients, NPV 94%). In contrast, more than one third of patients with¦metastatic lymph nodes are at increased risk for an incomplete tumor resection¦(sensitivity 96%). If lymph nodesmetastases are highly suspected at preoperative¦staging, a neoadjuvant treatment strategy should be considered to increase the¦R0 resection rate.

Coping with an HIV infection. A multicenter qualitative survey on HIV positive adolescents' perceptions of their disease, therapeutic adherence and treatment.

HIV-positive adolescents face a number of challenges in dealing with their disease and its treatment. In this qualitative study, twenty-nine HIV-positive adolescents aged 13 to 20 years (22 girls), who live in Switzerland, were asked, in a semi-structured interview (duration of 40-110 minutes), to describe their perceptions and experiences with the disease itself and with therapeutic adherence. While younger adolescents most often thought of their disease as fate, older adolescents usually knew that they had received it through vertical transmission, although the topic appeared to be particularly difficult to discuss for those living with their HIV-positive mothers. Based on their attending physician's assessment, 18 subjects were judged highly adherent, 4 fairly and 7 poorly adherent. High adherence appeared linked with adequate psychological adjustment and effective coping mechanisms, as well as with the discussion and adoption of explicit medication-taking strategies. The setting and organisation of health care teams should allow for ongoing discussions with HIV-positive adolescents that focus on their perceptions of their disease, how they cope with it and with the treatment, and how they could improve their adherence.

Different concentrations of Mg++ ions affect nuclear matrix protein distribution during thermal stabilization of isolated nuclei.

The nuclear matrix, a proteinaceous network believed to be a scaffolding structure determining higher-order organization of chromatin, is usually prepared from intact nuclei by a series of extraction steps. In most cell types investigated the nuclear matrix does not spontaneously resist these treatments but must be stabilized before the application of extracting agents. Incubation of isolated nuclei at 37C or 42C in buffers containing Mg++ has been widely employed as stabilizing agent. We have previously demonstrated that heat treatment induces changes in the distribution of three nuclear scaffold proteins in nuclei prepared in the absence of Mg++ ions. We studied whether different concentrations of Mg++ (2.0-5 mM) affect the spatial distribution of nuclear matrix proteins in nuclei isolated from K562 erythroleukemia cells and stabilized by heat at either 37C or 42C. Five proteins were studied, two of which were RNA metabolism-related proteins (a 105-kD component of splicing complexes and an RNP component), one a 126-kD constituent of a class of nuclear bodies, and two were components of the inner matrix network. The localization of proteins was determined by immunofluorescent staining and confocal scanning laser microscope. Mg++ induced significant changes of antigen distribution even at the lowest concentration employed, and these modifications were enhanced in parallel with increase in the concentration of the divalent cation. The different sensitivity to heat stabilization and Mg++ of these nuclear proteins might reflect a different degree of association with the nuclear scaffold and can be closely related to their functional or structural role.

Continuous positive airway pressure causes lung injury in a model of sepsis.

Continuous positive airway pressure, aimed at preventing pulmonary atelectasis, has been used for decades to reduce lung injury in critically ill patients. In neonatal practice, it is increasingly used worldwide as a primary form of respiratory support due to its low cost and because it reduces the need for endotracheal intubation and conventional mechanical ventilation. We studied the anesthetized in vivo rat and determined the optimal circuit design for delivery of continuous positive airway pressure. We investigated the effects of continuous positive airway pressure following lipopolysaccharide administration in the anesthetized rat. Whereas neither continuous positive airway pressure nor lipopolysaccharide alone caused lung injury, continuous positive airway pressure applied following intravenous lipopolysaccharide resulted in increased microvascular permeability, elevated cytokine protein and mRNA production, and impaired static compliance. A dose-response relationship was demonstrated whereby higher levels of continuous positive airway pressure (up to 6 cmH(2)O) caused greater lung injury. Lung injury was attenuated by pretreatment with dexamethasone. These data demonstrate that despite optimal circuit design, continuous positive airway pressure causes significant lung injury (proportional to the airway pressure) in the setting of circulating lipopolysaccharide. Although we would currently avoid direct extrapolation of these findings to clinical practice, we believe that in the context of increasing clinical use, these data are grounds for concern and warrant further investigation.

Multiple sclerosis decreases explicit counterfactual processing and risk taking in decision making.

INTRODUCTION: Deficits in decision making (DM) are commonly associated with prefrontal cortical damage, but may occur with multiple sclerosis (MS). There are no data concerning the impact of MS on tasks evaluating DM under explicit risk, where different emotional and cognitive components can be distinguished. METHODS: We assessed 72 relapsing-remitting MS (RRMS) patients with mild to moderate disease and 38 healthy controls in two DM tasks involving risk with explicit rules: (1) The Wheel of Fortune (WOF), which probes the anticipated affects of decisions outcomes on future choices; and (2) The Cambridge Gamble Task (CGT) which measures risk taking. Participants also underwent a neuropsychological and emotional assessment, and skin conductance responses (SCRs) were recorded. RESULTS: In the WOF, RRMS patients showed deficits in integrating positive counterfactual information (p<0.005) and greater risk aversion (p<0.001). They reported less negative affect than controls (disappointment: p = 0.007; regret: p = 0.01), although their implicit emotional reactions as measured by post-choice SCRs did not differ. In the CGT, RRMS patients differed from controls in quality of DM (p = 0.01) and deliberation time (p = 0.0002), the latter difference being correlated with attention scores. Such changes did not result in overall decreases in performance (total gains). CONCLUSIONS: The quality of DM under risk was modified by MS in both tasks. The reduction in the expression of disappointment coexisted with an increased risk aversion in the WOF and alexithymia features. These concomitant emotional alterations may have implications for better understanding the components of explicit DM and for the clinical support of MS patients.

Differentiation of blue ballpoint pen inks by positive and negative mode LDI-MS

Usually, the differentiation of inks on questioned documents is carried out by optical methods and thin layer chromatography (TLC). Therefore, spectrometric methods were also proposed in forensic literature for the analysis of dyes. Between these techniques, laser desorption/ionization mass spectrometry (LDI-MS) has demonstrated a great versatility thanks to its sensitivity to blue ballpoint ink dyes and minimal sample destruction. Previous researches concentrated mostly on the LDI-MS positive mode and have shown that this analytical tool offers higher discrimination power than high performance TLC (HPTLC) for the differentiation of blue ballpoint inks. Although LDI-MS negative mode has already been applied in numerous forensic domains like the studies of works of art, automotive paints or rollerball pens, its potential for the discrimination of ballpoint pens was never studied before. The aim of the present paper is therefore to evaluate its potential for the discrimination of blue ballpoint inks. After optimization of the method, ink entries from 33 blue ballpoint pens were analyzed directly on paper in both positive and negative modes by LDI-MS. Several cationic and anionic ink components were identified in inks; therefore, pens were classified and compared according to their formulations. Results show that additional information provided by anionic dyes and pigments significantly increases the discrimination power of positive mode. In fact, it was demonstrated that classifications obtained by the two modes were, to some extent, complementary (i.e., inks with specific cationic dyes not necessarily contained the same anionic components).

Contribution of genetic background, traditional risk factors, and HIV-related factors to coronary artery disease events in HIV-positive persons.

BACKGROUND: Persons infected with human immunodeficiency virus (HIV) have increased rates of coronary artery disease (CAD). The relative contribution of genetic background, HIV-related factors, antiretroviral medications, and traditional risk factors to CAD has not been fully evaluated in the setting of HIV infection. METHODS: In the general population, 23 common single-nucleotide polymorphisms (SNPs) were shown to be associated with CAD through genome-wide association analysis. Using the Metabochip, we genotyped 1875 HIV-positive, white individuals enrolled in 24 HIV observational studies, including 571 participants with a first CAD event during the 9-year study period and 1304 controls matched on sex and cohort. RESULTS: A genetic risk score built from 23 CAD-associated SNPs contributed significantly to CAD (P = 2.9 × 10(-4)). In the final multivariable model, participants with an unfavorable genetic background (top genetic score quartile) had a CAD odds ratio (OR) of 1.47 (95% confidence interval [CI], 1.05-2.04). This effect was similar to hypertension (OR = 1.36; 95% CI, 1.06-1.73), hypercholesterolemia (OR = 1.51; 95% CI, 1.16-1.96), diabetes (OR = 1.66; 95% CI, 1.10-2.49), ≥ 1 year lopinavir exposure (OR = 1.36; 95% CI, 1.06-1.73), and current abacavir treatment (OR = 1.56; 95% CI, 1.17-2.07). The effect of the genetic risk score was additive to the effect of nongenetic CAD risk factors, and did not change after adjustment for family history of CAD. CONCLUSIONS: In the setting of HIV infection, the effect of an unfavorable genetic background was similar to traditional CAD risk factors and certain adverse antiretroviral exposures. Genetic testing may provide prognostic information complementary to family history of CAD.

Single-trial multisensory memories affect later auditory and visual object discrimination.

Multisensory memory traces established via single-trial exposures can impact subsequent visual object recognition. This impact appears to depend on the meaningfulness of the initial multisensory pairing, implying that multisensory exposures establish distinct object representations that are accessible during later unisensory processing. Multisensory contexts may be particularly effective in influencing auditory discrimination, given the purportedly inferior recognition memory in this sensory modality. The possibility of this generalization and the equivalence of effects when memory discrimination was being performed in the visual vs. auditory modality were at the focus of this study. First, we demonstrate that visual object discrimination is affected by the context of prior multisensory encounters, replicating and extending previous findings by controlling for the probability of multisensory contexts during initial as well as repeated object presentations. Second, we provide the first evidence that single-trial multisensory memories impact subsequent auditory object discrimination. Auditory object discrimination was enhanced when initial presentations entailed semantically congruent multisensory pairs and was impaired after semantically incongruent multisensory encounters, compared to sounds that had been encountered only in a unisensory manner. Third, the impact of single-trial multisensory memories upon unisensory object discrimination was greater when the task was performed in the auditory vs. visual modality. Fourth, there was no evidence for correlation between effects of past multisensory experiences on visual and auditory processing, suggestive of largely independent object processing mechanisms between modalities. We discuss these findings in terms of the conceptual short term memory (CSTM) model and predictive coding. Our results suggest differential recruitment and modulation of conceptual memory networks according to the sensory task at hand.

Career engagement : Investigating intraindividual predictors of weekly fluctuations in proactive career behaviors

The present study applies a micro-level perspective on how within-individual differences in motivational and social-cognitive factors affect the weekly fluctuations of engagement in proactive career behaviors among a group of 67 German university students. Career self-efficacy beliefs, perceived career barriers, experienced social career support, positive and negative emotions, and career engagement were assessed weekly for 13 consecutive weeks. Hierarchical linear regression analyses showed that above-average levels of career engagement within individuals were predicted by higher than average perceived social support and positive emotions during a given week. Conversely, within-individual differences in self-efficacy, barriers, and negative emotions had no effect. The results suggest that career interventions should provide boosts in social support and positive emotions.