Determinants of Central bank independence and governance : problems and policy implications

Central bank independence and governance (CBIG) is a term subject to conflicting definitions and so its related studies are difficult to compare. This paper therefore focuses on developing of a more useable definition, and an index model identifying the determinants of independence and governance and their possible policy implications. It also examines various independence measurement tools such as ranking and index. The index model resulting centres on key central bank independence and corporate governance issues, such as, legal aspects, political aspects, price stability objective aspects, exchange rate policy aspects, monetary policy and deficit financing aspects and finally, transparency and accountability aspects.

A critical analysis of the independence of the internal audit function : evidence from Australia

Purpose – This study aims to critically analyse the independence of the internal audit function through its relationship with management and the audit committee.

Design/methodology/approach – Results are based on a critical comparison of responses from questionnaires sent out to Australian chief audit executives (CAEs) versus existing literature and best practice guidelines.

Findings – With respect to the internal audit function's relationship with management, threats identified include: using the internal audit function as a stepping stone to other positions; having the chief executive officer (CEO) or chief finance officer (CFO) approve the internal audit function's budget and provide input for the internal audit plan; and considering the internal auditor to be a “partner”, especially when combined with other indirect threats. With respect to the relationship with the audit committee, significant threats identified include CAEs not reporting functionally to the audit committee; the audit committee not having sole responsibility for appointing, dismissing and evaluating the CAE; and not having all audit committee members or at least one member qualified in accounting.

Originality/value – This study introduces independence threat scores, thereby generating analysis of the internal audit function's independence taking into account a combination of threats.

A critical analysis of central bank independence and governance in Australia and Bangladesh

This study examines central bank independence and governance (CBIG) in Bangladesh and Australia. It applies a unique index model of Ahsan, Skully and Wickramanayake (2008) to assess their respective legal, political, price stability objectives, exchange rate policies, monetary policy and deficit financing practices, transparency and accountability positions from 1991 to 2008. While the model shows CBIG is much weaker in Bangladesh than in Australia, the Bangladesh Bank’s CBIG shown considerable improvement over the period. These findings suggest that the Government of Bangladesh might learn from Australia’s experience with Reserve Bank of Australia and delegate further power and authority to Bangladesh Bank as well as lessen its political interference.

Central bank independence and governance in the South Asia

This paper constructs the central bank independence and governance (CBIG) index for eight South Asian countries and examines their relationship with inflation. This CBIG index is constructed following the unique model developed by Ahsan, Skully and Wickramanayake (2006). This index consists of total 26 variables; all variables together form the overall index and different sub-sets of these variables construct sub-indices (eg. legal; political; price stability objectives; exchange rate policy; monetary policy and deficit financing; and accountability and transparency).
Several countries have improved their CBIG in last fifteen years. The war torn Afghanistan have established a new central bank act in 2003 which has improved the standard of CBIG in the region. In recent time Nepal has made remarkable improvement in its ranking by allowing improved independence to its central bank. Bangladesh has taken lead in term of gradual CBIG improvement in last fifteen years. Sri Lanka, Indian and Pakistan are three countries always maintained a standard level of CBIG. Bhutan and Maldives showed less improvement among the countries. This paper also examines the statistical relationship between CBIG indices and inflation. The results indicate that there is a positive relationship between CBIG and inflation in the region which in contrary to normal expectation that inflation is one of the robust proxy of actual CBIG.

Financial crisis and central bank independence and governance (CBIG)

This study examines the impact of Asian financial crisis on central bank independence and governance in the Asia Pacific. It applies a unique CBIG index-model for 36 countries for the period 1991 to 2005. This paper examines changes in the CBIG in the Asia Pacific before and after the Asian financial crisis in 1997. It applies a panel data pooled regression model and finds that the Asian financial crisis dummy is significantly different in the post-crisis period compared to the pre-crisis period. As a result the improved CBIG in the post-crisis period has contributed to lower the inflation in the entire region.

Internal audit independence and objectivity : emerging research opportunities

Purpose – The purpose of this paper is to provide a review of the recent literature on internal audit independence and objectivity and discuss opportunities for future research. The topics examined are the organizational status of internal audit, the internal auditor's dual role as a provider of assurance and consulting activities, internal audit's involvement in risk management, outsourcing and co-sourcing of internal audit activities, and the use of internal audit as a training ground for managers.
Design/methodology/approach – The approach used in this paper is a review of the literature followed by an identification of further research opportunities.
Findings – The paper summarizes the existing body of knowledge relating to internal audit independence and objectivity and identifies gaps in the literature where further research is needed.
Originality/value – The paper provides researchers with a useful summary of the literature on internal audit independence and objectivity and stimulates them to engage in further research in the area.

Auditor independence : shared meaning between the demand and supply sides of the audit services market?

Purpose – The purpose of the paper is to examine the extent to which there is shared meaning of the concept of auditor independence between the three major groups of parties on the demand and supply sides of the audit services market – auditors, financial report preparers and financial report users.

Design/methodology/approach – The paper utilises the measurement of meaning framework (semantic differential analysis) originally proposed by Osgood et al. in 1957. The framework is used to investigate the extent to which there is shared meaning (agreement in interpretations) of the independence concept, in response to alternative audit engagement case contexts, between key parties to the financial reporting communication process. The study's research data was collected in the period March 2004-May 2005.

Findings – Findings indicate a robust and stable single-factor cognitive structure within which the research participants interpret the connotative meaning of the auditor independence concept. An analysis of the experimental cases finds similarities in connotations (interpretations) of an audit firm's independence for the participant groups for most cases, with the exception of cases involving the joint provision of audit and non-audit (taxation) services.

Research limitations/implications – The usual external validity threat that applies to experimental research generally applies to the study. That is, the results may not be generalisable to settings beyond those examined in the study. An important implication of the study is that it emphasises the continuing problematic nature of the joint provision of audit and non-audit services, even in situations where the non-audit services comprise only traditional taxation services.

Originality/value – The study is the first to examine the concept of auditor independence by means of the Osgood et al. measurement of meaning research framework using, as research participants, the three major groups on the demand and supply sides of the audit services market.

The role of board independence in mitigating agency problem II in Australian family firms

We investigate the impact of board independence on earnings management on a sample of family controlled firms listed on the Australian Securities Exchange (ASX). Using panel data over the period 2000–2004, we find evidence of earnings management among family controlled firms in Australia, an environment of high investor protection and private benefits of control. Findings show that a higher proportion of independent directors on boards is effective in reducing earnings management, thereby mitigating agency problems associated with entrenchment and expropriation in family firms. We also find that managers of family firms are less aggressive in managing earnings via discretionary long-term accruals compared to non-family firms.

Additional Saturday rehabilitation improves functional independence and quality of life and reduces length of stay: a randomised controlled trial

Background

Many inpatients receive little or no rehabilitation on weekends. Our aim was to determine what effect providing additional Saturday rehabilitation during inpatient rehabilitation had on functional independence, quality of life and length of stay compared to 5 days per week of rehabilitation.

This was a multicenter, single-blind (assessors) randomized controlled trial with concealed allocation and 12-month follow-up conducted in two publically funded metropolitan inpatient rehabilitation facilities in Melbourne, Australia. Patients were eligible if they were adults (aged ≥18 years) admitted for rehabilitation for any orthopedic, neurological or other disabling conditions excluding those admitted for slow stream rehabilitation/geriatric evaluation and management. Participants were randomly allocated to usual care Monday to Friday rehabilitation (control) or to Monday to Saturday rehabilitation (intervention). The additional Saturday rehabilitation comprised physiotherapy and occupational therapy. The primary outcomes were functional independence (functional independence measure (FIM); measured on an 18 to 126 point scale), health-related quality of life (EQ-5D utility index; measured on a 0 to 1 scale, and EQ-5D visual analog scale; measured on a 0 to 100 scale), and patient length of stay. Outcome measures were assessed on admission, discharge (primary endpoint), and at 6 and 12 months post discharge.

We randomly assigned 996 adults (mean (SD) age 74 (13) years) to Monday to Saturday rehabilitation (n = 496) or usual care Monday to Friday rehabilitation (n = 500). Relative to admission scores, intervention group participants had higher functional independence (mean difference (MD) 2.3, 95% confidence interval (CI) 0.5 to 4.1, P = 0.01) and health-related quality of life (MD 0.04, 95% CI 0.01 to 0.07, P = 0.009) on discharge and may have had a shorter length of stay by 2 days (95% CI 0 to 4, P = 0.1) when compared to control group participants. Intervention group participants were 17% more likely to have achieved a clinically significant change in functional independence of 22 FIM points or more (risk ratio (RR) 1.17, 95% CI 1.03 to 1.34) and 18% more likely to have achieved a clinically significant change in health-related quality of life (RR 1.18, 95% CI 1.04 to 1.34) on discharge compared to the control group. There was some maintenance of effect for functional independence and health-related quality of life at 6-month follow-up but not at 12-month follow-up. There was no difference in the number of adverse events between the groups (incidence rate ratio = 0.81, 95% CI 0.61 to 1.08).

Providing an additional day of rehabilitation improved functional independence and health-related quality of life at discharge and may have reduced length of stay for patients receiving inpatient rehabilitation.