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.

Radiation therapy for the solitary plasmacytoma

Plasma-cell neoplasms are classically categorized into four groups as: multiple myeloma (MM), plasma-cell leukemias, solitary plasmacytomas (SP) of the bone (SPB), and extramedullary plasmacytomas (EMP). These tumors may be described as localized or diffuse in presentation. Localized plasma-cell neoplasms are rare, and include SP of the skeletal system, accounting for 2-5% of all plasma-cell neoplasms, and EMP of soft tissue, accounting for approximately 3% of all such neoplasms. SP is defined as a solitary mass of neoplastic plasma cells either in the bone marrow or in various soft tissue sites. There appears to be a continuum in which SP often progresses to MM. The main treatment modality for SP is radiation therapy (RT). However, there are no conclusive data in the literature on the optimal AT dose for SP. This review describes the interrelationship of plasma-cell neoplasms, and attempts to determine the minimal RT dose required to obtain local control.

Is accountability a double-edged sword? Experimental evidence on the effectiveness of internal controls to prevent fraud

Recent legislations oblige organizations to monitor the effectiveness of internal control mechanisms that are necessary to prevent fraud. However, little is known about the effectiveness of different internal controls. We investigate whether the duty to sign work results-one of the most prominent internal control mechanisms-is effective to prevent fraud under different superior instructions. We use a 2×2 between-subjects experimental design with accountability (duty to sign work results vs. no duty to sign) and superior instructions (with vs. without profit maximization cue) as independent variables. Both manipulations of superior instructions reminded people to respect accounting standards and principles but in one condition, an instruction to increase revenues was integrated as profit maximization cue. We expected this cue to trigger a profit maximization decision frame that increases the likelihood for fraudulent revenue recording. 58 managers from an executive MBA class participated in the experiment. We find that superior instructions interact with accountability. Fraudulent revenue recording was particularly observed when people received instructions to increase revenues and had to sign their work results. Consequently, fraudulent behavior can occur without pressure to commit fraud due to profit maximization cues that are communicated by a superior and despite implemented internal control mechanisms. We discuss possible implications of our results for the prevention of fraudulent behavior.

The impact of authority advice and accountability on auditors' decision to recognise norm-violating transactions.

Auditors face the difficult responsibilty to approve companies' financial accounting information reliably. They are trained to work according to accounting standards that are designed to help them in their decision making. Yet, auditors do not work in a social vacuum and are thus subject to various influences. One important source of influence at work is authority figures (e.g., experts, supervisors). On this background, we examined within two studies the impact of (1) authority advice to comply with accounting standards or to additionally maximize profits and (2) of participants' accountability for their decision. In Study 1, (n = 184 accounting students), participants who were advised by an authority to comply with accounting standards had a lower probability to recognise transactions that violated those standards than participants who were advised to comply but also to maximise profit. However, holding participants accountable for their decision reduced the difference between the two groups. In Study 2, (n = 58 managers), we again found an interaction between authority advice and accountability. But unlike the first study, participants only showed a lower probability to recognise transactions that violated accounting standards when they were held accountable and when the authority only advised them to comply with the standards. We discuss our results in light of unethical decision making and different norms or pressures to which managers may be exposed but students may not.

Satellizing Galileo? Non-state Authority and Interoperability Standards in the European Global Navigation Satellite System

This paper explores the extent and limits of non-state authority in international affairs. While a number of studies have emphasised the role of state support and the ability of strategically situated actors to capture regulatory processes, they often fail to unpack the conditions under which this takes place. In order to probe the assumption that structural market power, backed by political support, equates regulatory capture, the article examines the interplay of political and economic considerations in the negotiations to establish worldwide interoperability standards needed for the development of Galileo as a genuinely European global navigation satellite system under civil control. It argues that industries supported and identified as strategic by public actors are more likely to capture standardisation processes than those with the largest market share expected to be created by the standards. This suggests that the influence of industries in space, air and maritime traffic control closely related to the militaro-industrial complex remains disproportionate in comparison to the prospective market of location-based services expected to vastly transform business practices, labour relations and many aspects of our daily life.

Establishing an association between a peri-operative perfusion score system (PerfSCORE) and post-operative patient morbidity/mortality during CPB cardiac surgery.

BACKGROUND: To date, there is no quality assurance program that correlates patient outcome to perfusion service provided during cardiopulmonary bypass (CPB). A score was devised, incorporating objective parameters that would reflect the likelihood to influence patient outcome. The purpose was to create a new method for evaluating the quality of care the perfusionist provides during CPB procedures and to deduce whether it predicts patient morbidity and mortality. METHODS: We analysed 295 consecutive elective patients. We chose 10 parameters: fluid balance, blood transfused, Hct, ACT, PaO2, PaCO2, pH, BE, potassium and CPB time. Distribution analysis was performed using the Shapiro-Wilcoxon test. This made up the PerfSCORE and we tried to find a correlation to mortality rate, patient stay in the ICU and length of mechanical ventilation. Univariate analysis (UA) using linear regression was established for each parameter. Statistical significance was established when p < 0.05. Multivariate analysis (MA) was performed with the same parameters. RESULTS: The mean age was 63.8 +/- 12.6 years with 70% males. There were 180 CABG, 88 valves, and 27 combined CABG/valve procedures. The PerfSCORE of 6.6 +/- 2.4 (0-20), mortality of 2.7% (8/295), CPB time 100 +/- 41 min (19-313), ICU stay 52 +/- 62 hrs (7-564) and mechanical ventilation of 10.5 +/- 14.8 hrs (0-564) was calculated. CPB time, fluid balance, PaO2, PerfSCORE and blood transfused were significantly correlated to mortality (UA, p < 0.05). Also, CPB time, blood transfused and PaO2 were parameters predicting mortality (MA, p < 0.01). Only pH was significantly correlated for predicting ICU stay (UA). Ultrafiltration (UF) and CPB time were significantly correlated (UA, p < 0.01) while UF (p < 0.05) was the only parameter predicting mechanical ventilation duration (MA). CONCLUSIONS: CPB time, blood transfused and PaO2 are independent risk factors of mortality. Fluid balance, blood transfusion, PaO2, PerfSCORE and CPB time are independent parameters for predicting morbidity. PerfSCORE is a quality of perfusion measure that objectively quantifies perfusion performance.

Impact of a computerized physician order entry system on compliance with prescription accuracy requirements.

OBJECTIVE: To assess the change in non-compliant items in prescription orders following the implementation of a computerized physician order entry (CPOE) system named PreDiMed. SETTING: The department of internal medicine (39 and 38 beds) in two regional hospitals in Canton Vaud, Switzerland. METHOD: The prescription lines in 100 pre- and 100 post-implementation patients' files were classified according to three modes of administration (medicines for oral or other non-parenteral uses; medicines administered parenterally or via nasogastric tube; pro re nata (PRN), as needed) and analyzed for a number of relevant variables constitutive of medical prescriptions. MAIN OUTCOME MEASURE: The monitored variables depended on the pharmaceutical category and included mainly name of medicine, pharmaceutical form, posology and route of administration, diluting solution, flow rate and identification of prescriber. RESULTS: In 2,099 prescription lines, the total number of non-compliant items was 2,265 before CPOE implementation, or 1.079 non-compliant items per line. Two-thirds of these were due to missing information, and the remaining third to incomplete information. In 2,074 prescription lines post-CPOE implementation, the number of non-compliant items had decreased to 221, or 0.107 non-compliant item per line, a dramatic 10-fold decrease (chi(2) = 4615; P < 10(-6)). Limitations of the computerized system were the risk for erroneous items in some non-prefilled fields and ambiguity due to a field with doses shown on commercial products. CONCLUSION: The deployment of PreDiMed in two departments of internal medicine has led to a major improvement in formal aspects of physicians' prescriptions. Some limitations of the first version of PreDiMed were unveiled and are being corrected.

Beyond the Transatlantic Divide: The Multiple Authorities of Standards in the Global Political Economy of Services

This paper explores the plurality of institutional environments in which standards for the service sector are expected to support the rise of a global knowledge-based economy. Despite the careful wording of the World Trade Organization (WTO), a whole range of international bodies still have the capacity to define technical specifications affecting how services are expected to be traded on worldwide basis. The analysis relies on global political economy approaches to extend to the area of service standards the assumption that the process of globalization is not opposing states and markets, but a joint expression of both of them including new patterns and agents of structural change through formal and informal power and regulatory practices. It analyses on a cross-institutional basis patterns of authority in the institutional setting of service standards in the context of the International Organisation for Standardisation (ISO), the European Union, and the United States. In contrast to conventional views opposing the American system to the ISO/European framework, the paper questions the robustness of this opposition by showing that institutional developments of service standards are likely to face trade-offs and compromises across those systems and between two opposing models of standardisation.

Probing the different chaperone activities of the bacterial HSP70-HSP40 system using a thermolabile luciferase substrate.

During mild heat-stress, a native thermolabile polypeptide may partially unfold and transiently expose water-avoiding hydrophobic segments that readily tend to associate into a stable misfolded species, rich in intra-molecular non-native beta-sheet structures. When the concentration of the heat-unfolded intermediates is elevated, the exposed hydrophobic segments tend to associate with other molecules into large stable insoluble complexes, also called "aggregates." In mammalian cells, stress- and mutation-induced protein misfolding and aggregation may cause degenerative diseases and aging. Young cells, however, effectively counteract toxic protein misfolding with a potent network of molecular chaperones that bind hydrophobic surfaces and actively unfold otherwise stable misfolded and aggregated polypeptides. Here, we followed the behavior of a purified, initially mostly native thermolabile luciferase mutant, in the presence or absence of the Escherichia coli DnaK-DnaJ-GrpE chaperones and/or of ATP, at 22 °C or under mild heat-stress. We concomitantly measured luciferase enzymatic activity, Thioflavin-T fluorescence, and light-scattering to assess the effects of temperature and chaperones on the formation, respectively, of native, unfolded, misfolded, and/or of aggregated species. During mild heat-denaturation, DnaK-DnaJ-GrpE+ATP best maintained, although transiently, high luciferase activity and best prevented heat-induced misfolding and aggregation. In contrast, the ATP-less DnaK and DnaJ did not maintain optimal luciferase activity and were less effective at preventing luciferase misfolding and aggregation. We present a model accounting for the experimental data, where native, unfolded, misfolded, and aggregated species spontaneously inter-convert, and in which DnaK-DnaJ-GrpE+ATP specifically convert stable misfolded species into unstable unfolded intermediates.

Development of a system for 3D high-resolution seismic reflection profiling on lakes

A high-resolution three-dimensional (3D) seismic reflection system for small-scale targets in lacustrine settings has been developed. Its main characteristics include navigation and shot-triggering software that fires the seismic source at regular distance intervals (max. error of 0.25 m) with real-time control on navigation using differential GPS (Global Positioning System). Receiver positions are accurately calculated (error < 0.20 m) with the aid of GPS antennas attached to the end of each of three 24-channel streamers. Two telescopic booms hold the streamers at a distance of 7.5 m from each other. With a receiver spacing of 2.5 m, the bin dimension is 1.25 m in inline and 3.75 m in crossline direction. To test the system, we conducted a 3D survey of about 1 km(2) in Lake Geneva, Switzerland, over a complex fault zone. A 5-m shot spacing resulted in a nominal fold of 6. A double-chamber bubble-cancelling 15/15 in(3) air gun (40-650 Hz) operated at 80 bars and 1 m depth gave a signal penetration of 300 m below water bottom and a best vertical resolution of 1.1 m. Processing followed a conventional scheme, but had to be adapted to the high sampling rates, and our unconventional navigation data needed conversion to industry standards. The high-quality data enabled us to construct maps of seismic horizons and fault surfaces in three dimensions. The system proves to be well adapted to investigate complex structures by providing non-aliased images of reflectors with dips up to 30 degrees.

La PMU au carrefour des nouveaux chemins du système de santé [Redesigning Swiss ambulatory health care system].

Primary care medicine is first in line to meet the necessary changes in our health care system. Innovations in this field pursue three types of objectives: accessibility, quality and continuity of care. The Department of ambulatory care and community medicine of the University of Lausanne (Policlinique médicale universitaire) is committed to this path, emphasizing interprofessional collaboration. The doctor, nurse and medical assistant coordinate their activities to contribute efficiently to meet the needs of patients today and tomorrow. This paper also addresses how our department, as a public and academic institution, might play a major role as a health care network actor. A master degree dissertation in health management has started to identify the critical success factors and the strategic core competencies needed to achieve this development.

Das GRADE-System: ein internationaler Ansatz zur Vereinheitlichung der Graduierung von Evidenz und Empfehlungen in Leitlinien. [The GRADE System: an international approach to standardize the graduation of evidence and recommendations in guidelines]

Clinical practice guidelines have become an important source of information to support clinicians in the management of individual patients. However, current guideline methods have limitations that include the lack of separating the quality of evidence from the strength of recommendations. The Grading of Recommendations, Assessment, Development and Evaluation (GRADE) working group, an international collaboration of guideline developers, methodologists, and clinicians have developed a system that addresses these shortcomings. Core elements include transparent methodology for grading the quality of evidence, the distinction between quality of the evidence and strength of a recommendation, an explicit balancing of benefits and harms of health care interventions, an explicit recognition of the values and preferences that underlie recommendations. The GRADE system has been piloted in various practice settings to ensure that it captures the complexity involved in evidence assessment and grading recommendations while maintaining simplicity and practicality. Many guideline organizations and medical societies have endorsed the system and adopted it for their guideline processes.

Miniaturized bacterial biosensor system for arsenic detection holds great promise for making integrated measurement device.

Combining bacterial bioreporters with microfluidics systems holds great promise for in-field detection of chemical or toxicity targets. Recently we showed how Escherichia coli cells engineered to produce a variant of green fluorescent protein after contact to arsenite and arsenate can be encapsulated in agarose beads and incorporated into a microfluidic chip to create a device for in-field detection of arsenic, a contaminant of well known toxicity and carcinogenicity in potable water both in industrialized and developing countries. Cell-beads stored in the microfluidics chip at -20°C retained inducibility up to one month and we were able to reproducibly discriminate concentrations of 10 and 50 μg arsenite per L (the drinking water standards for European countries and the United States, and for the developing countries, respectively) from the blank in less than 200 minutes. We discuss here the reasons for decreasing bioreporter signal development upon increased storage of cell beads but also show how this decrease can be reduced, leading to a faster detection and a longer lifetime of the device.