Audit fees and asset securitization risks

The thesis investigates “where were the auditors in asset securitizations”, a criticism of the audit profession before and after the onset of the global financial crisis (GFC). Asset securitizations increase audit complexity and audit risks, which are expected to increase audit fees. Using US bank holding company data from 2003 to 2009, this study examines the association between asset securitization risks and audit fees, and its changes during the global financial crisis. The main test is based on an ordinary least squares (OLS) model, which is adapted from the Fields et al. (2004) bank audit fee model. I employ a principal components analysis to address high correlations among asset securitization risks. Individual securitization risks are also separately tested. A suite of sensitivity tests indicate the results are robust. These include model alterations, sample variations, further controls in the tests, and correcting for the securitizer self-selection problem. A partial least squares (PLS) path modelling methodology is introduced as a separate test, which allows for high intercorrelations, self-selection correction, and sequential order hypotheses in one simultaneous model. The PLS results are consistent with the main results. The study finds significant and positive associations between securitization risks and audit fees. After the commencement of the global financial crisis in 2007, there was an increased focus on the role of audits on asset securitization risks resulting from bank failures; therefore I expect that auditors would become more sensitive to bank asset securitization risks after the commencement of the crisis. I find that auditors appear to focus on different aspects of asset securitization risks during the crisis and that auditors appear to charge a GFC premium for banks. Overall, the results support the view that auditors consider asset securitization risks and market changes, and adjust their audit effort and risk considerations accordingly.

Aligning off-balance sheet risk, on-balance sheet risk and audit fees: a PLS path modelling analysis

This study focuses on using the partial least squares (PLS) path modelling technique in archival auditing research by replicating the data and research questions from prior bank audit fee studies. PLS path modelling allows for inter-correlations among audit fee determinants by establishing latent constructs and multiple relationship paths in one simultaneous PLS path model. Endogeneity concerns about auditor choice can also be addressed with PLS path modelling. With a sample of US bank holding companies for the period 2003-2009, we examine the associations among on-balance sheet financial risks, off-balance sheet risks and audit fees, and also address the pervasive client size effect, and the effect of the self-selection of auditors. The results endorse the dominating effect of size on audit fees, both directly and indirectly via its impacts on other audit fee determinants. By simultaneously considering the self-selection of auditors, we still find audit fee premiums on Big N auditors, which is the second important factor on audit fee determination. On-balance-sheet financial risk measures in terms of capital adequacy, loan composition, earnings and asset quality performance have positive impacts on audit fees. After allowing for the positive influence of on-balance sheet financial risks and entity size on off-balance sheet risk, the off-balance sheet risk measure, SECRISK, is still positively associated with bank audit fees, both before and after the onset of the financial crisis. The consistent results from this study compared with prior literature provide supporting evidence and enhance confidence on the application of this new research technique in archival accounting studies.

Aligning off-balance sheet risk, on-balance sheet risk and audit fees: a PLS path modelling analysis

This study focuses on using the partial least squares (PLS) path modelling methodology in archival auditing research by replicating the data and research questions from prior bank audit fee studies. PLS path modelling allows for inter-correlations among audit fee determinants by establishing latent constructs and multiple relationship paths in one simultaneous PLS path model. Endogeneity concerns about auditor choice can also be addressed with PLS path modelling. With a sample of US bank holding companies for the period 2003-2009, we examine the associations among on-balance sheet financial risks, off-balance sheet risks and audit fees, and also address the pervasive client size effect, and the effect of the self-selection of auditors. The results endorse the dominating effect of size on audit fees, both directly and indirectly via its impacts on other audit fee determinants. By simultaneously considering the self-selection of auditors, we still find audit fee premiums on Big N auditors, which is the second important factor on audit fee determination. On-balance-sheet financial risk measures in terms of capital adequacy, loan composition, earnings and asset quality performance have positive impacts on audit fees. After allowing for the positive influence of on-balance sheet financial risks and entity size on off-balance sheet risk, the off-balance sheet risk measure, SECRISK, is still positively associated with bank audit fees, both before and after the onset of the financial crisis. The consistent results from this study compared with prior literature provide supporting evidence and enhance confidence on the application of this new research technique in archival accounting studies.

Bank audit fees and asset securitization risks

Using the lens of audit pricing, we provide insights into auditors’ behaviors in relation to the risk of asset securitizations to bank holding companies in a period encompassing the Global Financial Crisis (GFC) and the introduction of the accounting standards FAS 166 and FAS 167. Using US bank holding company data from 2003 to 2011, we find significant and positive associations between asset securitization risks and audit fees. We find that auditors appear to focus on different aspects of asset securitization risks after the onset of the GFC, and increase their attention to the systemic risks facing bank holding companies in general. After the implementation of FAS 166 and FAS 167, which removed the discretion to treat asset securitizations as sales and required the consolidation of the accounts of special purpose entities, asset securitization risks no longer have a significant effect on audit fees.

Audit reports in Australia 2005-2013 : preliminary analysis

This paper provides a preliminary summary of audit reports for Australian listed public companies for the period 2005 to 2013. This summary focuses on auditor reporting in the most recent period 2011 to 2013.

Improving the outcomes of foot and ankle surgery through the audit cycle : a case study

The direct costs of managing adverse outcomes from Australian health care are estimated to be $2 billion. The audit cycle is considered an important tool to assist in the preventive management of adverse outcomes.Australian guidelines for audit cycle design allow for comparison of data sets derived from similar surgical specialities. However a lack of data set standardisation inhibits meaningful comparisons of foot and ankle surgical audits. This research will assist development of a best practice model for auditing foot and ankle surgery. Data derived from this model will improve the safety and quality of foot and ankle surgery. The preliminary phase of this process is to identify and understand the attitudes and behaviours of how and why surgeons participate in the audit cycle. A descriptive embedded multiple case study research design is planned to provide an intense focus on a single phenomenon (the audit cycle) within its real life context (clinical governance). The measures to be included in the case study have been identified by the Balanced Patient Safety Measurement Framework. These include: audit and peer review activity, provider attitudes to patient safety, safety learning, action and performance. A purposive sample of 6 to 8 surgeons (units of analysis) from 3 to 4 specialities (cases) will undergo semi-structured interview. This will investigate: current audit tools and processes; attitudes; and behaviours of surgeons to the audit cycle. Similarities in and differences between the units of analysis will indicate which identified measures function as barriers or enablers of the audit cycle. Reliability and validity (external and construct) will be assessed using established methods for case studies. The descriptive embedded multiple case study will reveal how and why foot and ankle surgeons participate in the audit cycle. This will inform further research to improve the outcomes of foot and ankle surgery through development of an audit tool.

Psychological capital as moderator of organizational change demands on nursing stress

Healthcare organizations in all OECD countries have continued to undergo change. These changes have been found to have a negative effect on work engagement of nursing staff. While the extent to which nursing staff dealt with these changes has been documented in the literature, little is known of how they utilized their personal resources to deal with the consequences of these changes. This study will address this gap by integrating the Job Demands-Resources theoretical perspective with Positive Psychology, in particular, psychological capital (PsyCap). PsyCap is operationalized as a source of personal resources. Data were collected from 401 nurses from Australia and analyses were undertaken using Partial Least Squares modelling and moderation analysis. Two types of changes on the nursing work were identified. There was an increase in changes to the work environment of nursing. These changes, included increasing administrative workload and the amount of work, resulted in more job demands and job resources. On the other hand, another type of changes relate to reduction to training and management support, which resulted in less job demands. Nurses with more job demands utilized more job resources to address these increasing demands. We found PsyCap to be a crucial source of personal resources that has a moderating effect on the negative effects of job demands and role stress. PsyCap and job resources were both critical in enhancing the work engagement of nurses, as they encountered changes to nursing work. These findings provided empirical support for a positive psychological perspective of understanding nursing engagement.

Turnbull : generating undue expectations of the corporate governance role of audit committees

Following an initial consultation draft (Turnbull 1999a), the Internal control Working Party of the Institute of Chartered Accountants in England and Wales, chaired by Nigel Turnbull, executive director of Rank Group plc. has published Internal Control: Guidance for Directors of Listed companies Incorporated in the UK (Turnbull, 1999b). The guidance is commonly referred to as the Turnbull Report. This paper outlines the key recommendations of the report and discusses some of its implications, particularly in the context of the increasing emphasis on a broader corporate governance role for audit committees. The paper suggests that the increasing role envisaged of audit committees for example lately in the UK by Turnbull, may generate undue expectations are premised on an unsubstantiated notion of the contribution of audit committees.

Public policy on corporate audit committees : case study evidence of current practice

Corporate failures and malpractices have led to an increasing emphasis on the governance role of audit committees. The Smith report Audit Committee Combined Code Guidance and the Higgs Review of the Role and Effectiveness of Non-Executive Directors (now incorporated in a Revised Combined Code) represent further attempts to strengthen corporate accountability in the UK. Although the regulatory focus on audit committees indicates confidence in their role as part of the solution to governance failures, questions remain about their efficacy in practice. Against the background of the publication of the Smith report and the wider reliance on audit committees in several countries to help improve corporate accountability, this paper provides research evidence, drawn from an ACCA-sponsored project, on the processes and effects of the audit committees in three UK companies. This study complements other research on audit committees by adopting a case study approach, in order to reflect the importance of investigating audit committee operations from within the organisation and to develop a closer understanding of audit committee impact than is available from generally observable data. The empirical evidence for the case studies was obtained from semi-structured interviews with personnel involved in the audit committee process, internal documents made available by the companies, and publicly available information, including annual reports.

The corporate governance effects of audit committees

Arguments associated with the promotion of audit committees in many countries are premised on their potential for alleviating weaknesses in corporate governance. This paper provides a synthesis and evaluation of empirical research on the governance effects associated with audit committees. Given recent policy recommendations in several countries aimed at strengthening these committees, it is important to establish what research evidence demonstrates about their existing governance contribution. A framework for analyzing the impact of audit committees is described, identifying potential perceived effects which may have led to their adoption and documented effects on aspects of the audit function, on financial reporting quality and on corporate performance. It is argued that there is only limited and mixed evidence of effects to support claims and perceptions about the value of audit committees for these elements of governance. It is also shown that most of the existing research has focused on factors associated with audit committee existence, characteristics and measures of activity and there is very little evidence on the processes associated with the operation of audit committees and the manner in which they influence organizational behaviour. It is clear that there is no automatic relationship between the adoption of audit committee structures or characteristics and the achievement of particular governance effects, and caution may be needed over expectations that greater codification around factors such as audit committee members’ independence and expertise as the means of ‘‘correcting’’ past weaknesses in the arrangements for audit committees. The most fundamental question concerning what difference audit committees make in practice continues to be an important area for research development. For future research we suggest: (i) greater consideration of the organizational and institutional contexts in which audit committees operate; (ii) explicit theorization of the processes associated with audit committee operation; (iii) complementing extant research methods with field studie, and; (iv) investigation of unintended (behavioural) as well as expected consequences of audit committees.

Do nursing students have the recall of bioscience necessary to study pharmacology?

Background: For medical and allied health students, bioscience knowledge underpins the successful scaffolding of learning in their developmental and advanced level units. Many of these students complete theory-based Bioscience units, followed by a unit in Pharmacology, which specifically requires knowledge of anatomy, physiology and microbiology. In general, studies of recall report relatively large losses over short retention intervals (months), which accumulate, but level off, for longer retention intervals (years) (Custers, 2010). However, there are no studies that specifically test the recall of bioscience knowledge by allied health students. Methods: We are tracking the recall of bioscience in nursing students prior to, and during, their Pharmacology unit. In each semester, students complete short, basic, knowledge-based MCQ quizzes on concepts from (i) the gastrointestinal system and (ii) fundamental microbiology. Students were given 5 days warning about the microbiology quizzes but were given no warning prior to the gastrointestinal system quiz. Performance in these quizzes was compared to individual student’s results in the final examination on these topics in the first semester of their degree. Results: At the start of the study, the nursing students performed better in the exam MCQs on the gastrointestinal system than on microbiology. In the exam, the students’ mean marks for the gastrointestinal system ranged from 69–83%, and this was successively reduced to 63%, 53% and 49% after 4, 9 and 16 months, respectively. The mean exam marks for microbiology was 48–58%, and this did not change significantly after 4 (63%), 9 (59%) or 16 months (47%). This suggests that warning the nursing students that they were to be quizzed on microbiology may have helped their recall. However, after 16 months regardless of the subject, the nursing students undertaking the Pharmacology unit recalled less than half of the bioscience quiz answers. Conclusions: Nursing students may not have the recall of bioscience necessary to study pharmacology, and this may limit their success in pharmacology. Reference: Custers, E. J. F. M. (2010). Long-term retention of basic science knowledge: a review study. Advances in Health Science Education, 15, 109–128.

A loss of bioscience knowledge in nursing students

Background: Knowledge of the human biosciences is fundamental to the development of competent nurse practitioners (Smales, 2010) with the requisite knowledge and skills, necessary for high quality patient care and good patient outcomes (Logan and Angel, 2011). Many of these students study bioscience units which cover topics in anatomy, physiology, pathophysiology and microbiology. Studies of science recall in general and medical education, report up to 33% loss of knowledge in the first year which declines to 50% in the subsequent year (Custers, 2010). Objectives: The objectives were to test the recall of bioscience knowledge by nursing students and to ascertain their perceptions of the testing. Questions explored: What would the results be for multiple choice questions in fundamental microbiology and gastrointestinal anatomy and physiology (A&P) undertaken by nursing students 4, 9 and 16 months after their first bioscience exam on these topics? Would pre-warning the students of a microbiology quiz and not a gastrointestinal A&P quiz affect the findings? How would the students respond to the testing when surveyed? Recall results: The nursing students performed better in the final exam on gastrointestinal A&P than on fundamental microbiology. There was an approximate 20% loss in knowledge of gastrointestinal A&P after 4 months and this did not change significantly over the next 12 months. Although there was an improved performance in microbiology quizzes after 4 months, there was no significant difference in results over the next 12 months. Survey results: More than 50% of students thought the testing helped them focus for the lectures and made them aware they had some pre-knowledge of the lecture topics. Discussion: Although there was a loss of knowledge of gastrointestinal A&P, it appears that warning the students about the microbiology quiz may have helped their recall. The majority of students valued the testing as a useful learning exercise. References: Custers, E. J. F. M. (2010). Long-term retention of basic science knowledge: a review study. Advances in Health Science Education, 15, 109-128. Smales, K. (2010). Learning and applying biosciences to clinical practice in nursing. Nursing Standard, 24(33), 35-39. Logan, P.A., & Angel, L. (2011). Nursing as a scientific undertaking and the intersection with science in undergraduate studies: implications for nursing management. Journal of Nursing Management, 19(3), 407-417.