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.

Novel FOXF1 Mutations in Sporadic and Familial Cases of Alveolar Capillary Dysplasia with Misaligned Pulmonary Veins Imply a Role for its DNA Binding Domain.

Alveolar capillary dysplasia with misalignment of pulmonary veins (ACD/MPV) is a rare and lethal developmental disorder of the lung defined by a constellation of characteristic histopathological features. Nonpulmonary anomalies involving organs of gastrointestinal, cardiovascular, and genitourinary systems have been identified in approximately 80% of patients with ACD/MPV. We have collected DNA and pathological samples from more than 90 infants with ACD/MPV and their family members. Since the publication of our initial report of four point mutations and 10 deletions, we have identified an additional 38 novel nonsynonymous mutations of FOXF1 (nine nonsense, seven frameshift, one inframe deletion, 20 missense, and one no stop). This report represents an up to date list of all known FOXF1 mutations to the best of our knowledge. Majority of the cases are sporadic. We report four familial cases of which three show maternal inheritance, consistent with paternal imprinting of the gene. Twenty five mutations (60%) are located within the putative DNA-binding domain, indicating its plausible role in FOXF1 function. Five mutations map to the second exon. We identified two additional genic and eight genomic deletions upstream to FOXF1. These results corroborate and extend our previous observations and further establish involvement of FOXF1 in ACD/MPV and lung organogenesis.

Project Success through Effective Decisions: Case Studies on Project Goal Setting, Success Evaluation and Managerial Decision Making

The objective of the thesis is to structure and model the factors that contribute to and can be used in evaluating project success. The purpose of this thesis is to enhance the understanding of three research topics. The goal setting process, success evaluation and decision-making process are studied in the context of a project, business unitand its business environment. To achieve the objective three research questionsare posed. These are 1) how to set measurable project goals, 2) how to evaluateproject success and 3) how to affect project success with managerial decisions.The main theoretical contribution comes from deriving a synthesis of these research topics which have mostly been discussed apart from each other in prior research. The research strategy of the study has features from at least the constructive, nomothetical, and decision-oriented research approaches. This strategy guides the theoretical and empirical part of the study. Relevant concepts and a framework are composed on the basis of the prior research contributions within the problem area. A literature review is used to derive constructs of factors withinthe framework. They are related to project goal setting, success evaluation, and decision making. On the basis of this, the case study method is applied to complement the framework. The empirical data includes one product development program, three construction projects, as well as one organization development, hardware/software, and marketing project in their contexts. In two of the case studiesthe analytic hierarchy process is used to formulate a hierarchical model that returns a numerical evaluation of the degree of project success. It has its origin in the solution idea which in turn has its foundation in the notion of projectsuccess. The achieved results are condensed in the form of a process model thatintegrates project goal setting, success evaluation and decision making. The process of project goal setting is analysed as a part of an open system that includes a project, the business unit and its competitive environment. Four main constructs of factors are suggested. First, the project characteristics and requirements are clarified. The second and the third construct comprise the components of client/market segment attractiveness and sources of competitive advantage. Together they determine the competitive position of a business unit. Fourth, the relevant goals and the situation of a business unit are clarified to stress their contribution to the project goals. Empirical evidence is gained on the exploitation of increased knowledge and on the reaction to changes in the business environment during a project to ensure project success. The relevance of a successful project to a company or a business unit tends to increase the higher the reference level of project goals is set. However, normal performance or sometimes performance below this normal level is intentionally accepted. Success measures make project success quantifiable. There are result-oriented, process-oriented and resource-oriented success measures. The study also links result measurements to enablers that portray the key processes. The success measures can be classified into success domains determining the areas on which success is assessed. Empiricalevidence is gained on six success domains: strategy, project implementation, product, stakeholder relationships, learning situation and company functions. However, some project goals, like safety, can be assessed using success measures that belong to two success domains. For example a safety index is used for assessing occupational safety during a project, which is related to project implementation. Product safety requirements, in turn, are connected to the product characteristics and thus to the product-related success domain. Strategic success measures can be used to weave the project phases together. Empirical evidence on their static nature is gained. In order-oriented projects the project phases are oftencontractually divided into different suppliers or contractors. A project from the supplier's perspective can represent only a part of the ¿whole project¿ viewed from the client's perspective. Therefore static success measures are mostly used within the contractually agreed project scope and duration. Proof is also acquired on the dynamic use of operational success measures. They help to focus on the key issues during each project phase. Furthermore, it is shown that the original success domains and success measures, their weights and target values can change dynamically. New success measures can replace the old ones to correspond better with the emphasis of the particular project phase. This adjustment concentrates on the key decision milestones. As a conclusion, the study suggests a combination of static and dynamic success measures. Their linkage to an incentive system can make the project management proactive, enable fast feedback and enhancethe motivation of the personnel. It is argued that the sequence of effective decisions is closely linked to the dynamic control of project success. According to the used definition, effective decisions aim at adequate decision quality and decision implementation. The findings support that project managers construct and use a chain of key decision milestones to evaluate and affect success during aproject. These milestones can be seen as a part of the business processes. Different managers prioritise the key decision milestones to a varying degree. Divergent managerial perspectives, power, responsibilities and involvement during a project offer some explanation for this. Finally, the study introduces the use ofHard Gate and Soft Gate decision milestones. The managers may use the former milestones to provide decision support on result measurements and ad hoc critical conditions. In the latter milestones they may make intermediate success evaluation also on the basis of other types of success measures, like process and resource measures.

A 3-step therapeutic strategy for severe alveolar proteinosis.

Pulmonary alveolar proteinosis (PAP) is characterized by accumulation of lipoproteinaceous material in the terminal airways. Whole lung lavage (WLL) remains the gold standard treatment but may be particularly challenging in cases of severe hypoxemia. We present a 3-step strategy that was used in a patient with PAP-associated refractory hypoxemia and that combined venovenous extracorporeal membrane oxygenation (vvECMO), double-lumen orotracheal intubation, and bilateral multisegmental sequential lavage (MSL). The procedure was well tolerated and permitted weaning from the ventilator.

End-tidal carbon dioxide monitoring using a naso-buccal sensor is not appropriate to monitor capnia during non-invasive ventilation.

BACKGROUND: In acute respiratory failure, arterial blood gas analysis (ABG) is used to diagnose hypercapnia. Once non-invasive ventilation (NIV) is initiated, ABG should at least be repeated within 1 h to assess PaCO2 response to treatment in order to help detect NIV failure. The main aim of this study was to assess whether measuring end-tidal CO2 (EtCO2) with a dedicated naso-buccal sensor during NIV could predict PaCO2 variation and/or PaCO2 absolute values. The additional aim was to assess whether active or passive prolonged expiratory maneuvers could improve the agreement between expiratory CO2 and PaCO2. METHODS: This is a prospective study in adult patients suffering from acute hypercapnic respiratory failure (PaCO2 ≥ 45 mmHg) treated with NIV. EtCO2 and expiratory CO2 values during active and passive expiratory maneuvers were measured using a dedicated naso-buccal sensor and compared to concomitant PaCO2 values. The agreement between two consecutive values of EtCO2 (delta EtCO2) and two consecutive values of PaCO2 (delta PaCO2) and between PaCO2 and concomitant expiratory CO2 values was assessed using the Bland and Altman method adjusted for the effects of repeated measurements. RESULTS: Fifty-four datasets from a population of 11 patients (8 COPD and 3 non-COPD patients), were included in the analysis. PaCO2 values ranged from 39 to 80 mmHg, and EtCO2 from 12 to 68 mmHg. In the observed agreement between delta EtCO2 and deltaPaCO2, bias was -0.3 mmHg, and limits of agreement were -17.8 and 17.2 mmHg. In agreement between PaCO2 and EtCO2, bias was 14.7 mmHg, and limits of agreement were -6.6 and 36.1 mmHg. Adding active and passive expiration maneuvers did not improve PaCO2 prediction. CONCLUSIONS: During NIV delivered for acute hypercapnic respiratory failure, measuring EtCO2 using a dedicating naso-buccal sensor was inaccurate to predict both PaCO2 and PaCO2 variations over time. Active and passive expiration maneuvers did not improve PaCO2 prediction. TRIAL REGISTRATION: ClinicalTrials.gov: NCT01489150.

Data collection and criticality analysis for cost effective maintenance during the life cycle of a flue gas line

Työn tarkoituksena oli kerätä käyttövarmuustietoa savukaasulinjasta kahdelta suomalaiselta sellutehtaalta niiden käyttöönotosta aina tähän päivään asti. Käyttövarmuustieto koostuu luotettavuustiedoista sekä kunnossapitotiedoista. Kerätyn tiedon avulla on mahdollista kuvata tarkasti laitoksen käyttövarmuutta seuraavilla tunnusluvuilla: suunnittelemattomien häiriöiden lukumäärä ja korjausajat, laitteiden seisokkiaika, vikojen todennäköisyys ja korjaavan kunnossapidon kustannukset suhteessa savukaasulinjan korjaavan kunnossapidon kokonaiskustannuksiin. Käyttövarmuustiedon keräysmetodi on esitelty. Savukaasulinjan kriittisten laitteiden määrittelyyn käytetty metodi on yhdistelmä kyselytutkimuksesta ja muunnellusta vian vaikutus- ja kriittisyysanalyysistä. Laitteiden valitsemiskriteerit lopulliseen kriittisyysanalyysiin päätettiin käyttövarmuustietojen sekä kyselytutkimuksen perusteella. Kriittisten laitteiden määrittämisen tarkoitus on löytää savukaasulinjasta ne laitteet, joiden odottamaton vikaantuminen aiheuttaa vakavimmat seuraukset savukaasulinjan luotettavuuteen, tuotantoon, turvallisuuteen, päästöihin ja kustannuksiin. Tiedon avulla rajoitetut kunnossapidon resurssit voidaan suunnata oikein. Kriittisten laitteiden määrittämisen tuloksena todetaan, että kolme kriittisintä laitetta savukaasulinjassa ovat molemmille sellutehtaille yhteisesti: savukaasupuhaltimet, laahakuljettimet sekä ketjukuljettimet. Käyttövarmuustieto osoittaa, että laitteiden luotettavuus on tehdaskohtaista, mutta periaatteessa samat päälinjat voidaan nähdä suunnittelemattomien vikojen todennäköisyyttä esittävissä kuvissa. Kustannukset, jotka esitetään laitteen suunnittelemattomien kunnossapitokustannusten suhteena savukaasulinjan kokonaiskustannuksiin, noudattelevat hyvin pitkälle luotettavuuskäyrää, joka on laskettu laitteen seisokkiajan suhteena käyttötunteihin. Käyttövarmuustiedon keräys yhdistettynä kriittisten laitteiden määrittämiseen mahdollistavat ennakoivan kunnossapidon oikean kohdistamisen ja ajoittamisen laitteiston elinaikana siten, että luotettavuus- ja kustannustehokkuusvaatimukset saavutetaan.

Developing finished product stocking in a ventilation equipment company

Opinnäytetyön tavoitteena oli analysoida ja kehittää lopputuotteiden varastointia Halton Oy:ssä. Työ toteutettiin, koska yrityksen laajasta tuotevalikoimasta monia nimikkeitä varastoidaan tällä hetkellä ja ne sitovat runsaasti pääomaa varastoon. Lisäksi yrityksellä on vain rajallinen varastointitila käytettävissä ja sitä haluttiin hyödyntää optimaalisesti. Työssä suunniteltiin yritykselle varastoitavien tuotenimikkeiden hallintaprosessi ja lisäksi tutkittiin kuinka yritys voisi tarjota tuotteitaan nopeammin tärkeimmille ulkomaan markkina-alueille. Työn alussa huomio kohdistui myynniltään vähemmän merkittäviin varastonimikkeisiin, joita analysoitiin suunniteltujen kriteerien avulla. Tarkoituksena oli selvittää, mitkä varastonimikkeistä voitaisiin siirtää tilausohjautuviksi. Tärkeimpinä analysointikriteereinä käytettiin nimikkeiden alhaista myyntimäärää, lyhyttä tuotannonläpimenoaikaa sekä varastoitavien nimikkeiden lukumäärää tuoteryhmässä. Työssä huomioitiin kuitenkin myös muita mahdollisia syitä varastointiin. Lisäksi tehtiin havaintoja tilausohjautuvista nimikkeistä, jotka saattaisivat tarvita varastointia. Suunniteltuun hallintaprosessiin sisältyi kriteerien lisäksi myös varastotasojen määrittäminen yrityksen nykyisen varastomallin pohjalta. Työssä tutkittiin kuitenkin myös mahdollisia tulevaisuuden varastomalleja, joiden tarkoituksena olisi parantaa asiakaspalvelua ulkomailla. Tutkimus keskittyi pääasiassa nimikkeiden kysyntöjen analysointiin eri varastomallien myyntialueilla.