Kinney, John, Skaife Ashbough, and William Collins. “The discovery and reporting of internal control deficiencies before S0X-mandated audits.” Journal of Accounting and Economics 44.1 (2007): 166-192. Web.
The use of internal control deficiency (ICD) is critical in disclosing mandated audits associated with an internal control problem. Complex operations are associated with firms that have unbalanced ICD since they are linked to unbalanced organizational change, risk in accounting, and inconsistency in monitoring enforcement actions. Tamweel Company lacks a powerful system that can check the ICD. Thus, it has remained vulnerable to financial misstatement and misappropriation of resources. Fraud has remained a critical concern to the financial performance of Tamweel Company. As a matter of fact, uncontrolled audit and management of financial performance of Tamweel Company. According to Kinney, Skaife, and William (2007):
Relative to non-disclosers, firms disclosing ICDs have more complex operations, recent organizational changes, greater accounting risk, and more auditor resignations and have fewer resources available for internal control. (Kinney, Skaife, and William 178)
Lys, Thomas, Collins Daniel, & Badertscher Brad. “Discretionary accounting choices and the predictive ability of accruals concerning future cash flows.” Journal of Accounting and Economics 53.1 (2007): 330-353. Web.
Earnings management and cash flows are important in discretionary accruals. In fact, restatements of financial statements are necessary for determining the predictability and ability of the respective accruals to conservatively motivate efficiency in financial accountability. As a matter of fact, “contracting explanations of accounting choices are often dichotomized in the literature into the ex-post opportunistic contracting hypothesis and ex-ante efficient contracting hypothesis” to create a unique set of accruals (Lys et al. 340). Tamweel Company has a weak earnings and financial system monitoring system. As a result, it remains vulnerable to a series of fraud committed annually by employees and clients.
Schrand, Catherine, and Zechman Sarah. “Executive overconfidence and the slippery slope to financial misreporting.” Journal of Accounting and Economics 53.2 (2010): 311-329. Web.
This article discusses the contribution of the management towards misstatement and misquotation of financial statements due to overconfidence and unchecked optimism. Besides, the article is specific in asserting that poor management and unaccountability in a company is a result of overconfidence on the side of the executive who trusts junior staff responsible for auditing and balancing financial statements.
Often, overconfidence builds unrealistic optimism which is very hostile to financial accountability and streamlining operations. Besides, the unrealistic optimism facilitates the occurrence of biasness which makes relevant management authority create unrealistic projections and financial misstatements beyond actual returns. As a result, the company is likely to suffer a big blow due to intentional fraud as the space created by the trust factor may be misused by junior employees to commit fraud or become unaccountable on the use of company property (Schrand et el. 315). Corporate governance is a big problem in Tamweel financial company due to relaxed monitoring gauges. As a result, a substantial number of employees engage in unlawful fraud and unaccounted earnings management.
Skinner, Douglas, and Kim Irene. “Measuring securities litigation risk.” Journal of Accounting and Economics 53.2 (2010): 290-310. Web.
Security measurement is vital in determining dummy variables in financial reporting. Besides, the process determines the accuracy and authenticity of data reported as the litigation risk is balanced in a predictive process. Companies lacking a well-designed construct reporting validity often find themselves victims of fraud. A financial reporting system needs to internalize dummy validity measurement for financial variables and accounts (Skinner and Kim 298).
As a matter of fact, relying on the standard industry measure instituted by business laws may not be sufficient since the same is relatively poor and may not necessarily present the actual litigation prediction. Tamweel Company lacks supplementary measurement variables apart from what is instituted by the top management. Thus, monitoring fraud only relies on managerial opportunism rather than a well-organized system that quickly identify the source of fraud and holds the relevant person or department responsible. Tamweel Company lacks corporate disclosure and is a sort of litigation security that balance litigation risks associated with the fraud. Skinner and Kim assert that:
These models typically include firm characteristics such as market capitalization, stock volatility, and stock turnover as well as, in some cases, industry dummies based on FPS. (Skinner and Kim 304)
Willekens, Marleen, & Numan Wieteke. “An empirical test of spatial competition in the audit market.” Journal of Accounting and Economics 53.2 (2010): 450-465. Web.
Differentiation in management science is necessary and ethical towards monitoring the authenticity of audit records. Auditing is vital towards managing and tracking a company’s financial performance over some time. These aspects assist the management in critically reflecting on audit differentiation effects and pricing balance. This process is solely based upon the premise of informed prediction that is supported by evidence and accuracy in reporting financial performance. Tamweel company lacks an evidence-based auditing unit and only functions on a spatial audit market differentiation unit. Due to this, auditing records are not accurate and lacks authenticity.
Willekens and Numan assert that “Because industry specialists deliver higher quality as a result of knowledge building within the audit firm, portfolio share measures capture the extent to which an individual audit office has invested in developing industry-specific audit technologies and thus indicate the degree of industry fit between an individual auditor and a client (i.e., the first location effect). (Willekens and Numan 457)
Due to unreliable auditing models, Tamweel company remains vulnerable to fraud, especially in the mid-management bracket.
Cohen, Daniel, Balakrishnan Karthik, and Armstrong Christoper. “Corporate governance and the information environment: Evidence from state antitakeover laws.” Journal of Accounting and Economics 53.2 (2010): 185-204. Web.
Information reporting system of a firm and corporate governance are related and cannot function independently. Therefore, antitakeover laws should be instituted to champion for a flexible but exogenous mechanism of corporate governance for financial service companies. Through decreasing gathering information by private and biased means, full adoption of the antitakeover laws in an ‘informativeness’ company financial statement will increase (Cohen et el. 200). Specifically, this recommendation should be adopted by the management unit of Tamweel Company to improve on reporting of cases of fraud. Cohen et el. (2010) assert that:
When we further disaggregate total accruals into their discretionary and nondiscretionary components according to the Jones model in the third column, we find that the increased ‘informativeness’ of earnings following the passage of the antitakeover laws is attributable to the discretionary rather than the nondiscretionary component of accruals. (Cohen et el. 198)
Reflectively, Tamweel Company should adopt antitakeover laws in order to promote quality of financial reporting in an asymmetry information channel.
Files, Rebecca. “SEC enforcement: Does forthright disclosure and cooperation really matter?” Journal of Accounting and Economics 53.2 (2010): 353-374. Web.
Lenient policies encourage fraud and unaccountability in financial management and use of company resources. Thus, lack of securities and systems to punish and monitor fraud may be associated with continuous fraud in many companies across the globe. Tamweel is not left behind on this. In fact, almost five percent of their revenues disappear as a result of illegal under dealings and fraud in financial statements. Therefore, it is important for this company to embrace cooperation through rewarding staff that are consistent and honest. On the other hand, a stringent fraud punishment policy should be reinstated as a remedy towards discouraging unethical monitory mismanagement and unaccountability. Through adoption of voluntary disclosure, it is possible to enforce actions meant to monitor fraud.
According to Rebecca (2010):
Companies should use data on company-initiated investigations to classify restatements as errors or irregularities. Specifically, they consider a restatement to be more severe (ie., an irregularity) if any one of three conditions is met:
- variants of the words “fraud” or “irregularity” are used to describe the restatement,
- the SEC or DOJ investigates the restatement, or
- the restating firm independently investigates the misstatement. (Rebecca 368)
The above recommendation will create an environment of accountability and discipline due to fear of dire consequences when fraud is detected.
Nanda, Dhananjay, Evans Mark, and Aggrwal Rajesh. “Nonprofit boards: Size, performance and managerial incentives.” Journal of Accounting and Economics 53.2 (2010): 466-487. Web.
The relationship between managerial incentives, performance, and system evaluation is vital in controlling fraud and inconsistencies in financial reporting. Establishment of relevant programs that facilitate motivation and management insight are essential in the fight of fraud. A properly constituted committee within the board of directors is important in monitoring and facilitating implementation of incentive aspects and promoting accountability. In fact, junior employees should be incorporated in these programs to encourage openness as they will feel motivated. In addition, according to Nanda et el. (2010):
A larger board is less likely to intervene because of dysfunctional behavior, such as free-rider problems, thereby exacerbating the agency conflict. This is because organization performance is measured as the aggregate performance across multiple programs or objectives, as opposed to performance relative to a single residual claimant’s objective. (Nanda et el. 472)
Therefore, Tamweel Company should adopt an inclusive system monitoring program consisting of incentives and participation by employees. As a result, the board or management unit entrusted with implementation of these programs will have a clear picture and control of response to question of accountability.
Shivakumar, Lakshmanan Jayaraman Sudarshan, & Ball Ray. “Audited financial reporting and voluntary disclosure as compliments: A test of the Confirmation Hypothesis.” Journal of Accounting and Economics 53.2 (2010): 136-166. Web.
This article discusses the role of confirmation in financial reporting and recording periodically. As a remedy of fraud, the authors recommend a thorough focusing through proper auditing of financial outcomes as a mean of attaining credibility and accountability. Besides, this facilitates the monitoring process since the management is able to authenticate reported figures against the actual ones within a short period of time. Through adoption of “backward-looking financial reporting the management will be in a position to enhance forward looking disclosure” (Shivakumar et el. 153). As recommended by the authors:
If one accepts the factual premise that independently verifiable information consists primarily of backward-looking actual outcomes and that managers’ private information consists primarily of forward-looking expectations that are costly (perhaps infinitely) to independently verify, then the efficient equilibrium involves the following separation: financial statement information is constrained to a subset that is independently verifiable. ( Shivakumar et el.142)
Reflectively, the above formula is applicable in Tamweel Company through verification of the audit unit responsible for financial reporting to create a credible commitment which translates into audit verification as part of management forecast and voluntary disclosure. When successfully incorporated in the financial reporting system, cases of fraud are likely to decrease significantly.
Thevenot, Maya. “The factors affecting illegal insider trading in firms with violation of GAAP.” Journal of Accounting and Economics 353.1 (2011): 375-390. Web.
Litigation of securities is vital towards redeeming a company from financial disappointments. Through voluntary disclosure, a financial company is in a position to responsively introduce a simultaneous methodology of counterintuitive between litigation and disclosure. Tamweel Company should incorporate evidence based counterintuitive as a remedy for fighting fraud and unaccountability. Besides, according to Thevenot (2011):
Defending enforcement actions diverts time and money that can be used in more productive activities and damages managers’ reputation and labor market prospects. (Thevenot 380)
Thus, incorporation of this recommendation will facilitate fraud management and monitoring at Tamweel financial especially when implemented as a policy.
Works Cited
Cohen, Daniel, Balakrishnan Karthik, and Armstrong Christoper. “Corporate governance and the information environment: Evidence from state antitakeover laws.” Journal of Accounting and Economics 53.2 (2010): 185-204. Web.
Files, Rebecca. “SEC enforcement: Does forthright disclosure and cooperation really matter?” Journal of Accounting and Economics 53.2 (2010): 353-374. Web.
Nanda, Dhananjay, Evans Mark, and Aggrwal, Rajesh. “Nonprofit boards: Size, performance and managerial incentives.” Journal of Accounting and Economics 53.2 (2010): 466-487. Web.
Shivakumar, Lakshmanan, Jayaraman Sudarshan, and Ball Ray. “Audited financial reporting and voluntary disclosure as compliments: A test of the Confirmation Hypothesis.” Journal of Accounting and Economics 53.2 (2010): 136-166. Web.
Thevenot, Maya. “The factors affecting illegal insider trading in firms with violation of GAAP.” Journal of Accounting and Economics 53.1 (2011): 375-390. Web.
Kinney, John, Skaife Ashbough, and William Collins. “The discovery and reporting of internal control deficiencies prior to S0X-mandated audits.” Journal of Accounting and Economics 44.1 (2007): 166-192. Web.
Lys, Thomas, Collins Daniel, & Badertscher Brad. “Discretionary accounting choices and the predictive ability of accruals with respect to future cash flows.” Journal of Accounting and Economics 53.1 (2007): 330-353. Web.
Schrand, Catherine, and Zechman Sarah. “Executive overconfidence and the slippery slope to financial misreporting.” Journal of Accounting and Economics 53.2 (2010): 311-329. Web.
Skinner, Douglas, and Kim Irene. “Measuring securities litigation risk.” Journal of Accounting and Economics 53.2 (2010): 290-310. Web.
Willekens, Marleen, and Numan Wieteke. “An empirical test of spatial competition in the audit market.” Journal of Accounting and Economics 53.2 (2010): 450-465. Web.
