上市公司财务重述的原因

Restatement is the process of revising a company’s annual accounts to correct errors discovered after financial statements’ formulation. This process often involves a significant breach of management creditability. This study proposes a literature review using the PRISMA 2020 methodology and the VOS viewer software to identify the main lines of previous research. After analysing the results, three areas of study on accounting restatement have been identified: 1) the different proxies used, 2) the determinants or causes of restatement causes, and 3) the consequences and effects of the restatement process. The main conclusion is that, although restatement is not a very common process, it does entail a strong alteration of trust between agents and that it has some notable causes and consequences. Finally, potential future lines of research in this area are outlined.

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Abstract Financial restatements pose a significant problem for companies and stakeholders. Accurate financial information is therefore critical to decision making, and preventing restatements is vital to maintaining the confidence of shareholders, investors, and other stakeholders. In this paper, a quantitative study utilizing a survey to determine the causes and consequences of the financial restatements applied to the Egyptian context. Based on the survey’s results, a proposed architecture was presented to detect and prevent financial restatements using blockchain-based smart contracts. The proposed architecture is implemented based on Remix - Ethereum IDE, with a consortium blockchain, and it consists of three layers, which are the presentation layer, detection and prevention layer, and blockchain layer. All layers are integrated using APIs to detect and prevent restatement caused by accounting errors, reclassification of accounting items, and intentional misstatement, and to inform all various stakeholders of any detected cases. The proposed implemented architecture is tested by a sample of data collected from some Egyptian list companies. According to testing results, it can work in real environments with an accuracy rate of up to 97.5%. The findings of this study are pertinent to listed companies, shareholders, investors, banks, credit institutions, and other stock market regulators, as financial restatements negatively affect a company’s credibility in its financial reporting. The findings extend both the literature on the role of blockchain technology in preventing financial restatements and the literature on experimentally implementing blockchain technology in the Egyptian context.

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PT Garuda Indonesia, Tbk is the government's largest airline company, experienced irregularities in its 2018 financial statements which were published stating a profit, while the previous quarter's financial statements reported a loss. This irregularity reaped a polemic which ended with a sanction from the OJK in the form of a fine and the need to restate financial statements. The purpose of this study is to determine the financial performance of PT Garuda Indonesia, Tbk after the restatement using the Du Pont System analysis so that the causes of the ups and downs of the ROE, ROI, NPM and TATO variables as components of the analysis are known, so that the company can prepare the type of strategy taken to avoid severity. The results of the study found that the financial performance of PT Garuda Indonesia Tbk is in an unhealthy condition.

Environmental, Social, and Governance (ESG) factors are closely tied to the sustainable development of corporations and have become an increasingly important indicator for evaluating corporate sustainability, attracting growing attention from society at large. This paper examines the relationship between ESG information disclosure and financial restatement using data from A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2009 to 2021. The empirical results suggest that, to a certain extent, enhanced ESG disclosure can reduce the likelihood of financial restatements. Heterogeneity tests reveal no significant differences between state-owned and non-state-owned enterprises. Further analysis indicates that ESG disclosure can increase investor attention, which in turn helps curb financial restatement behavior. Moreover, institutional investors play a moderating role in the relationship between ESG disclosure and financial restatement. These findings suggest that increasing ESG information disclosure can help listed companies reduce financial restatements and promote sustainable corporate development.

Accurate financial statements play a vital role in supporting investor decision making, yet cases of financial restatement continue to occur as a result of misstatements in corporate reporting. This study examines the influence of audit committee size, the frequency of audit committee meetings, and firm size on the probability of financial restatements among subsector companies listed on the Indonesia Stock Exchange during the 2021 to 2023 period. The research applies a quantitative approach using regression analysis to evaluate the relationship between governance mechanisms and restatement occurrence. The results reveal that audit committee size and the frequency of meetings do not have a statistically significant effect on the likelihood of financial restatements. In contrast, firm size shows a significant negative effect, indicating that larger companies tend to experience fewer restatements, possibly due to stronger internal controls, better resources, and more established reporting systems. When analyzed simultaneously, all three variables demonstrate a significant combined effect, highlighting the continued importance of both corporate governance structures and firm characteristics in ensuring high quality financial reporting. These findings suggest that while audit committee attributes alone may not directly prevent restatements, the overall governance environment and organizational scale play a crucial role in maintaining the reliability and credibility of financial statements.

As a gathering place for high-potential enterprises, the Growth Enterprise Market (GEM) serves as an industry pioneer and innovation leader, acting as a crucial engine for China's high-quality economic development. For these companies, financial transparency is vital. However, recently, GEM companies like Meishang Ecology have engaged in long-term fraud through financial restatements, damaging their long-term development and capital market health. Based on principal-agent theory, combined with resource dependence and surplus management theories, this paper empirically studies the impact of equity pledges on financial restatements using financial data from GEM-listed companies during 2012-2022. Research shows that equity pledges positively correlate with financial restatements, meaning increased pledged equity proportions significantly raise the probability of financial restatements. This conclusion remains valid after robustness tests using the instrumental variables method, propensity matching score method, and others. Further research shows that equity pledges not only encourage companies to improve their ESG information but also lead to more actions aimed at managing profits in the short term to keep the market calm, which can result in financial restatements. Additionally, equity checks and balances and short-selling pressure moderate the relationship between equity pledges and financial restatements, with stronger internal and external monitoring effectively mitigating corporate fraud stemming from equity pledges.

Financial statement restatements often negatively impact investor perceptions and a company's market value. Previous studies have shown that companies conducting restatements experience significant share price declines, with an average decline of 20% following the announcement. This phenomenon reflects investors' high sensitivity to negative information related to the reliability of financial statements and suggests that a company's reputation can be damaged quickly. Financial statement restatements are generally associated with material errors or manipulation of financial information, and are therefore often linked to indications of fraud or deception in prior financial reporting. This study aims to analyze the factors influencing financial statement restatements and their impact on firm value, focusing on infrastructure companies listed on the Indonesia Stock Exchange (IDX) from 2021 to 2023. The research method used is a quantitative approach with secondary data obtained from financial statements and official company publications. The analysis was conducted using logistic regression to examine the influence of fraud factors (pressure, opportunity, and rationalization) on restatements, and linear regression to assess the impact of restatements on firm value. The results of the study indicate that of the three main factors of fraud, only rationalization significantly influences financial statement restatements. Meanwhile, pressure and opportunity do not show significant effects. Furthermore, financial statement restatements were not shown to significantly impact the value of companies in the infrastructure sector during the study period. These findings provide important insights for stakeholders in understanding financial reporting risks and the urgency of strengthening ethics and internal controls in companies.

We examine the association between audit committee (AC) busyness and financial restatement and determine whether AC share ownership moderates this relationship. Using logit regression analysis, we test our hypotheses on a sample of 6408 firm‐year observations from 2004 to 2015 for companies listed on the Australian Securities Exchange. The study reveals that firms with busy ACs engage more in financial restatements. We also find that AC share ownership reduces financial restatements and attenuates the association between AC busyness and financial restatement. Our results are robust to endogeneity concerns emanating from firms’ deliberate decisions to grant shares to AC members. The findings of this research have several important policy implications. For instance, shareholders can benefit from AC members’ monitoring ability by allowing for share ownership. Further, our findings suggest that principles‐based corporate governance guidelines have a beneficial effect on financial reporting quality. While prior studies offer mixed evidence, our research contributes to the auditing literature by providing evidence that AC share ownership moderates the association between AC busyness and financial restatement.

The phenomenon of financial restatement raises public questions regarding the effectiveness of corporate governance, particularly the role of commissioners as supervisory boards. One of the factors that influence the supervisory function is the diversity of commissioners. The research aims to analyze the role of the diversity of commissioners on financial restatements. Diversity is viewed from three aspects, namely independent commissioners, foreign commissioners, and female commissioners. The sample consists of 126 companies listed on the IDX. Data were analyzed using logistic regression. Statistical tests show that there are two variables that affect the financial restatement, namely foreign commissioners and female commissioners. However, the two variables have opposite directions. The existence of female commissioners empirically reduces financial restatements, while foreign commissioners increase the potential for financial restatements. Conversely, independent commissioners have no effect on the financial restatement. Keywords: Commissioner; Diversity; Female

This study investigates whether there is any relationship between audit committee characteristics and financial restatement. Using secondary data over the period from 2005 to 2020 of 76 non- financial firms, the results of the generalized methods of moments (GMM) reveal that audit committee independence, audit committee diversity, audit committee meetings and audit committee expertise are positively significant with financial restatement while total audit committee size is negatively insignificant with it. The overall results shows that although most of the audit committee characteristics significantly influenced financial restatement, none of them helped in reducing managers tendencies to reduce the practices of restating previously reported financial statements. The study concludes with some recommendations for better performance reporting

Background and Purpose: Forced financial restatement (FFR) creates a major concern as it has an instantaneous and disastrous effect on a firm’s share price. Whilst studies focusing on FFR are limited, this study investigated the financial and corporate governance influences that affect the FFR likelihood within the emerging background of Malaysia. This study aims to provide new evidence and insights to Malaysian regulators in developing strategies to reinforce financial reporting quality.   Methodology: The influences of board independence, political connection, audit committee financial expertise, government-related institutional ownership, family ownership and control, corporate reporting quality, and financial distress on FFR occurrence were investigated. A multivariate logistic model was employed on 4,759 firm-year observations from 2002 until 2012. Findings: Findings revealed that aggressive accounting influences the FFR likelihood. Based on the results, the number of independent board directors, the presence of politically connected investors or management, working capital accruals management, real earnings management, and the financial health of the firm amplified the FFR occurrences.   Contributions: This study enriches the body of knowledge on FFR by investigating a wider range of financial and corporate governance factors as possible determinants of FFR.   Keywords: Forced financial restatement, opportunistic, accruals management, real earnings management, Malaysia.   Cite as: Slack, R., Othman, I. W., Stratling, R., Syed-Yusuf, S. N., & Wan Mohd Radzi, W. S. (2023). The effect of financial and corporate governance factors on the forced financial restatement likelihood:  Evidence from Malaysia. Journal of Nusantara Studies, 8(TI), 147-176. http://dx.doi.org/10.24200/jonus.vol8issTIpp147-176

This paper examines the influence of board informal hierarchy on corporate financial restatement behavior. Taking enterprises listed in Shenzhen and Shanghai A-share markets as the research sample, the paper examines the influence of board informal hierarchy on corporate financial restatement behavior and also explores the regulating effects of three situational factors: board size, number of board meetings, board performance pressure. The results show that: The clearer the board informal hierarchy, the more it will inhibit the financial restatement behavior of firms. Meanwhile, board size negatively moderates the relationship between board informal hierarchy and financial restatement behavior; while the number of board meetings positively moderates the relationship between board informal hierarchy and financial restatement behavior; and board performance pressure negatively moderates the relationship between board informal hierarchy and corporate finance.

Corrections of errors resulting from the disobedience of GAAP are financial restatement. Financial statements can increase the integrity of financial information. If the financial statements are restated, they do not meet the fundamental quality, specifically those that can be trusted. The research was conducted to determine the effect of audit quality, institutional ownership, profitability, and XBRL on the restatement of financial statements in manufacturing companies for 2017-2021. Hypothesis testing used multivariate analysis using logistic regression. The results showed that partially profitability has negative effect on the financial restatement. In contrast, the audit quality, institutional ownership, and XBRL do not affect financial restatement for 2017-2021.

Purpose This study aims to examine the relationship between key audit matters (KAMs) and the restatement of financial statements, assessing their impact on the financial statement restatement process. Design/methodology/approach This study aims to examine the economic context of Vietnam by analyzing data from 170 listed enterprises on the Vietnam stock exchange from 2010–2021. Feasible generalized least squares and robustness regression are conducted to give results and conclusions. Findings The results show that the KAMs disclosure in the financial statements has not really significantly affected the quality of an audit, so the KAMs disclosure does not have too much impact on the restatement of financial statements. However, this study found that the number of disclosed KAMs would partly reflect the shortcoming that exists in companies' financial statements. Practical implications The authenticity of financial statements is crucial for companies to meet auditor requirements, particularly KAMs. Restatements can influence business decisions and provide more accurate financial information to stakeholders. Thus, studying the impact of KAMs on restatement is essential for improving the veracity and reliability of financial statements. Originality/value This study clarifies the important role of KAMs in financial statements to recommend investors to be more careful in considering KAMs disclosed by auditors in audit reports. In addition, this study helps to add an overview of KAMs in emerging markets like Vietnam, as well as helps stakeholders to improve the legal system on Accounting – Auditing in Vietnam.

Purpose : This study investigates the role of the characteristics of the Board of Directors (BoD) on financial restatements. The characteristics are reviewed based on board tenure, board size, board independence, female board, foreign board member, board level education, board accounting expertise, and dual board position. Method : The research sample is a manufacturing company on the Indonesia Stock Exchange for 2017-2021. The analytical tool used is logistic regression. Findings : This study found that five board characteristics negatively affect financial restatements: board tenure, board size, board independence, female board, and board accounting expertise. On the other hand, a dual position has a positive effect on financial restatements. Meanwhile, foreign board and board education do not significantly affect financial restatements. Novelty : First, considering BoD as a decision maker in the company, board characteristics influence group dynamics in collaboration and communication to implement corporate governance. Second, studies that analyze the impact of executive boards on financial statements still need to be expanded, especially in Indonesia, which adheres to a two-tier system. Third, previous studies that examine the role of BoD and financial restatements have provided contradictory evidence, and many studies still need to prove the effectiveness of the BoDs’ characteristics on financial restatements. Keywords : Director; Female; Restatement

The research aims to demonstrate the transparency relationship of accounting disclosure with the restatement of financial statements in the light of the role of the company's characteristics within the Iraqi industrial and banking sector. The sample research included financial reports of certain companies and banks listed on the Iraq Stock Exchange that summarized the sample with 16 companies, selected from two different sectors, namely; The banking sector (eight banks), the industrial sector (eight companies), from (2011) to (2021) with (176) views. The transparency of accounting disclosure has been measured through the Standard and Poor s' model. This measure is considered one of the most important and best measures of transparency used ever. But the reissue of the financial statements was measured by a dummy variable (1,0), the latter being the company's characteristics measured by six characteristics (company size, company profitability, leverage, company age, industry type, ownership structure). Research concluded that there is a (positive) correlation between the transparency of accounting disclosure and the restatement of financial statements under the company's respective characteristics (Company Size, Company age, Industry type). That is, as these characteristics increase, they will strengthen the relationship between variables, as well as a negative correlation between the transparency of accounting disclosure and the restatement of financial statements under the Company's characteristics represented by (Ownership structure). When excluding this property the relationship will be more positive. As for the company's characteristics (profitability, leverage) has not recorded a significant impact on research variables.

This article takes the financial restatement of listed companies as the searching point, test the regulatory effect of the financial report inquiry letter issued by the stock exchange. The research shows that: listed companies that received the inquiry letter were more likely to have financial misstatements and financial restatements. In order to ensure the robustness of the research conclusions, we conducted PSM on the inquiried company and non_inquiried company. The conclusion still holds. Using property rights and analyst tracking as the adjustment variables, we found that state-owned companies and more analyst tracking companies will strengthen the positive correlation between inquiries and financial restatements.

In Vietnam, it was discovered that companies with profit errors account for a relatively large proportion, fluctuating around 74% of the total number of companies listed on the stock market of Vietnam for 5 years (2014-2018). Specifically, this rate is 70%, 75%, 73% 80%, and 72% respectively, for the years from 2014 to 2018. With 297,516 million VND in faults, 2016 was the year with the most(Le Ngoc Tuyet, 2020). According to a typical report conducted by the Vietnam Oil and Gas Construction Joint Stock Corporation under the Vietnam Oil and Gas Group, the largest number of errors in 2016 was 65,433 million VND. As a result, the after-auditing profit gap decreased 65,433 million VND compared to the original financial report's 157,156 million VND. The decrease in profit from these consolidated statements was due to a change in the subsidiary’s reports, leading to the revaluation of the consolidated report after the audit, these items such as provision for doubtful debts, unrealized profits, and financial investments of certain member companies of the Corporation, just as to PVX’s explanation report from 2016 (Vietstock, 2020). Associations of Board Size, Audit Reputation, and Debt with Financial

The object is Kangmei Pharmaceutical, a listed company in the pharmaceutical sector. The research is based on corporate governance, the company’s financial restatement behavior is analyzed based on the four aspects of Kangmei Pharmaceutical’s equity structure, institutional investors, independent audit institutions, media and regulatory agencies. In order to avoid Kangmei Pharmaceutical’s adjustments, several countermeasures and suggestions are put forward, and improve the corporate governance theory of the capital market.

— Financial restatement is the announcement of an ex-post facto remedy for errors, omissions or misleading information in the financial reports of a listed company on a voluntary basis or under the supervision of a certified public accountant or regulatory body. These will inevitably lead to an incalculable loss for investors and a fatal blow to the capital market. This article, I use the combination of the theoretical exposition and empirical inquiry, using the relevant model to explore the factors that affect its financial restatement. It is concluded that the changes of a firm's profitability, short-term solvency and capital-liability ratio will become the key factors of financial restatement, and how to avoid financial restatement as far as possible, it is also necessary to re-check in the process of internal control.

The reported financial statements have a general purpose, namely to provide information about the company's financial position, performance and cash flows that are useful for most users of financial statements in order to make investment decisions and demonstrate management's stewardship for the use of resources entrusted to them. they. The purpose of this study was to determine and analyze the effect of restatement of financial statements on firm value. Profitability, leverage, firm size and audit quality together can explain the possibility of a financial statement restatement

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Purpose The purpose of this paper is to examine how firms utilize corporate communications to restore trust with stakeholders. It investigates the volume and tone of press releases issued by firms before and after financial restatements and examines how prior social performance modifies this relationship. The study also explores whether firms’ communication practices influence investors. Finally, it explores whether firms effectively utilize communication as a tool for trust restoration by examining vagueness and regularity in communications.Design/methodology/approach A difference-in-difference formulation with Tobit, Poisson, and Heckman estimators was used to test a full sample of 464 firms that including restating and non-restating firms. To test restated firms only (N = 116), Tobit, Poisson and Heckman estimators were used. Also, multiple imputation was used to handle missing data.Findings We find that restated firms issue a greater volume of communications and use a more positive tone following financial restatement. Among restating firms, those with positive social performance before restatement issue a greater volume of communications with a more positive tone. Also, we find that volume of communications marginally, positively influences firm Tobin’s Q in the months after a restatement. Finally, our results find that restated firms use less vague expressions in communications and the communications are more regular than non-restated firms.Originality/value This study contributes to the literature by providing comprehensive insights into how firms leverage corporate communications to rebuild trust with stakeholders following financial restatements. This nuanced exploration of communication strategies in the context of trust restoration adds significant value to the existing literature on post-transgression communications and financial restatements.

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Internal control systems are fundamental to effective corporate governance, financial clarity, and operational integrity. This study examines the efficacy of internal control guidelines across a group of companies by combining a theoretical framework with quantitative analysis informed by financial and operational data. A mixed-methods approach is employed, integrating empirical analyses derived from company-level data assessed in Microsoft Excel with a comprehensive literature review. Key performance indicators, such as audit results, profitability metrics, and compliance outcomes, are utilized to assess the effectiveness of internal controls in guaranteeing accountability and performance. The findings align with prior research (Doyle et al., 2007) showing that internal control weaknesses are significantly associated with restatements and lower-quality reporting, while also supporting evidence that effective controls can reduce audit costs over time (Aobdia, 2019). The results indicate that effectively structured and regularly enforced internal control systems are associated with improved operational efficiency, stronger financial reporting, and fewer discrepancies. The study also considers the potential effects of control strength on stock performance and investor confidence. It concludes with practical recommendations for improving internal control implementation and highlights the broader implications for auditors, regulators, and executives seeking to align internal control methodologies with long-term organizational goals.

Financial reporting fraud (FRF) has significant consequences for free markets. We examine the relationship between Internal Information Quality (IIQ) and Accounting and Auditing Enforcement Releases (AAERs) and class-action lawsuits from 2005 to 2018. We propose that lower IIQ results in a higher likelihood of FRF and that filing speed has a convex relationship with FRF. We observe a positive relationship between the presence of material weaknesses and class-action lawsuits. The absence of restatements due to error decreased the odds of an AAER by 97.6 percent and of a class-action lawsuit by 80.1 percent. Each day a firm delayed filing financials, the odds of an FRF lawsuit increased by up to 3.3 percent. A convex relationship exists between filing speed and AAERs, with firms that file either faster or slower than the average having an increased probability of an AAER. We relate these observations to IIQ and provide recommendations for stakeholders. Data Availability: Data are available from public sources cited in the text. Code is available upon reasonable request. JEL Classifications: M41; M42; K22; G38; C25.

This study examines how chief financial officers' (CFOs) social connections to the audit committee impact the quality of internal control over financial reporting (ICFR). Using restatements to identify firms with potential internal control weaknesses (ICWs) during restatement periods, we find that CFOs' social connections to the audit committee are less likely to lead to disclosure of potential ICWs; instead, they are more likely to lead to reporting of potential ICWs for irregularity restatements. Firms with CFOs' social connections to the audit committee exhibit higher financial reporting quality and reputational capital. The negative relation between the CFOs' social connections to the audit committee and disclosure of potential ICWs is more pronounced for CFOs with higher reputational capital. Overall, this research elucidates how CFOs' social connections to the audit committee can facilitate information exchange, enabling the CFO and the audit committee to effectively collaborate and monitor ICFR, which in turn diminishes the likelihood of potential ICWs occurring during restatement periods.

This study examines the relationship between internal control weaknesses (ICWs), independence, and size on the quality of financial statements of local government authorities (LGAs) in Tanzania. The analysis is based on data from a large sample of LGAs’ financial statements for four years from FY 2010/11 to FY 2013/14. The study employed logistic regression to examine whether ICWs (fraud prevention plan, risk management, accounting system, and IT controls), financial independence, and size of LGAs determine financial statement errors/restatements in the LGAs. The study shows that large and financially dependent LGAs with accounting system ICWs are more likely to have lower financial statement quality. However, other ICWs (IT controls, fraud prevention, and risk management) results were insignificant. These results may be attributed to the level of compliance and implementation of the parent ministry’s directives among LGAs. Therefore, practitioners and policymakers should ensure that LGAs not only adopt directives/policies but also fully comply and implement with their requirements as well as build financial management capacity to increase LGAs’ financial independence.

With the rapid development of digital technology, digital transformation has become an important driving force for enterprise development, bringing new challenges and opportunities to corporate governance. This study empirically examines the impact of digital transformation on financial restatements by analyzing a sample of non-financial listed companies on the Shanghai and Shenzhen A-share markets in China from 2011 to 2020. The results show that digital transformation significantly reduces the likelihood of financial restatements through three main mechanisms: improving the quality of internal control, reducing information asymmetry, and enhancing executive compensation incentives. Further analysis indicates that the inhibitory effect of digital transformation on financial restatements is more pronounced in state-owned enterprises, high-tech companies, and those with prominent agency problems. This study provides valuable references for improving corporate governance practices in Chinese enterprises.

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We examine the role of client firms’ managerial ability in audit outcomes, encompassing financial restatements, opinions on internal controls, audit fees, audit effort, and the likelihood of receiving a going-concern opinion. Using a sample of 35,252 firm-year observations of US nonfinancial firms, we find a statistically significant association between managerial ability and audit outcomes. This suggests that firms with high-ability managers experience fewer financial restatements, reduced internal control issues, lower audit fees, shorter audit report lags, and a decreased likelihood of receiving a going-concern opinion. This evidence is robust to various endogeneity tests, including a natural experiment, propensity score matching, and an instrumental variable approach. Moreover, we show that the impact of high-ability managers on audit outcomes is more pronounced for client firms that suffer from weak governance oversight, deal with severe information asymmetry, are far away from auditors, and lack industry-specific auditor expertise, which supports the case for the substitution effects of managerial ability. Overall, our empirical evidence is distinctive and has implications for client firms, auditors, and policymakers.

The use of financial derivatives to hedge economic risks presents several operational and financial reporting challenges to corporations. Special hedge accounting treatment is stringent and complex; different accounting treatments may be used for similar instruments, and risk management strategies, expertise, and judgment are necessary in valuing certain instruments; and careful monitoring and internal controls processes and procedures are necessary to ensure that risks are properly hedged. This study examines whether the use and the extent of the use of financial derivatives are associated with audit risk, financial restatements, and internal control weaknesses. Using a sample of over 6000 firms across non-financial industries from 2012 to 2022, I find that derivative use is associated with an increase in audit fees, restatements, and internal control weaknesses. The fair value of total derivatives used is associated with an increase in audit fees and internal control weaknesses. These findings provide evidence on the hidden costs of derivatives; the auditor’s price increased audit risk in audit fees, and the additional resources needed to support derivative hedges expose firms to additional financial reporting and internal control risks.

We propose that corporate directors are in greater need of soft information about the firm when the quality of hard accounting information is low. We further propose that board meetings constitute a key opportunity for corporate directors to gather soft information about the firm, and empirically investigate the relationship between financial reporting quality and the board's soft information gathering, as revealed by board meeting frequency. Consistent with expectations, we find that boards meet more frequently when accruals quality is low. We further find that the proportion of outside directors, insider ownership, and SOX regulation moderate this relationship. The evidence is reinforced by analysis of management earnings forecasts, financial restatements, and internal control weaknesses and is robust to several alternative earnings quality specifications. Additional empirical tests suggest that our results are incremental to the alternative explanation of increased meeting frequency to address problems in the reporting process per se. We conclude that corporate directors seek more frequent board meetings as an alternative information source to low earnings quality.

Firm managers make ethical decisions regarding the form and quality of disclosure. Disclosure can have long-term implications for performance, earnings manipulation, and even fraud. We investigate the impact of venture capital (VC) backing on the quality and informativeness of disclosure controls and procedures for newly public companies. We find that these controls and procedures are stronger, as evidenced by fewer material weaknesses in internal control under Section 302 of the Sarbanes–Oxley Act, when companies are VC-backed. Moreover, these disclosures are informative and are more likely to be followed by subsequent financial statement restatements than are disclosures made by non-VC-backed IPO companies.

We investigate how bank regulation and supervision influence banks’ internal control quality, banks’ financial statement reliability, and the effort expended by bank auditors. Using material weaknesses in internal controls disclosed under Section 404 of the Sarbanes-Oxley Act as the proxy for internal control quality, we find that banks exhibit significantly higher internal control quality than comparable nonbank financial firms. Using restatements of financial statements as the proxy for financial statement reliability, we find that banks’ financial reports are more reliable than those of comparable nonbanks. Using audit fees as the proxy for audit effort, we find that auditors expend less effort in audits of banks than in audits of comparable nonbanks. Collectively, our findings suggest that the combination of bank audits and banking regulation/supervision significantly improves banks’ internal control quality and financial statement reliability, despite auditors expending less effort in bank audits compared to nonbanks.

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China’s internal control framework follows the Committee of Sponsoring Organizations (COSO) framework, emphasizing enterprise risk management and encompassing financial reporting, operations, compliance, and strategies. The authors review research that uses the COSO-based Internal Control Index to assess internal control quality among all publicly listed firms in China. Unlike the binary classification of internal control weaknesses under the Sarbanes-Oxley Act Section 404, this continuous index captures more nuanced variations in internal control effectiveness and provides two key advantages over traditional assessment of internal control over financial reporting (ICFR). First, while financial reporting can enhance a firm’s monitoring and decision-support systems, the underlying information is determined by operations. Thus, internal control over operations has a greater impact on a firm’s performance than ICFR. While U.S.-based research argues that the effects of ICFR extend to operations, the COSO-based index includes operational controls, allowing for a more direct study of internal control effects. Second, many U.S. corporations fail to report internal control weaknesses, particularly during misstatement years. In contrast, the COSO-based index, compiled by independent scholars, avoids managerial incentives to withhold negative internal control information. Covering institutional background and research evidence from China, the authors survey a wide range of internal control studies related to various aspects of enterprise risk management, such as earnings quality, crash risk, stock liquidity, resource extraction, cash holdings, mergers and acquisitions, corporate innovation, receivable management, operational efficiency, tax avoidance, and diversification strategy.

This study re‐examines the relationship between CEO dismissals and financial restatements using a new, comprehensive dataset covering S&P 1500 firms from 2000 to 2018. This dataset offers several advantages over previous research: it provides precise data on CEO dismissals, enables large‐sample analysis and includes detailed reasons for executive departures. Our findings confirm a positive relationship between financial restatements and CEO dismissals, with a heightened likelihood of dismissal in recent years reflecting increased board attention to ethical issues. Additionally, restatements are revealed to amplify the negative impact of weak financial performance on CEO turnover, as CEOs of poorly performing firms face a higher risk of dismissal after a restatement, whereas strong financial performance generally offers protection. Furthermore, we explore how board characteristics affect this relationship and reveal significant heterogeneity in board responses. Specifically, female board representation, directors’ financial expertise, CEO–board connections, directors’ experience with prior fraud incidents, and multiple directorships all moderate the likelihood of CEO dismissal following restatements. These findings provide new insights into the complex interplay among financial performance, ethical governance and board dynamics in CEO turnover decisions.

We empirically examine whether changes in the Management Discussion and Analysis (MD&A) tone in annual reports can effectively predict financial restatements. The results indicate that changes in MD&A tone are significantly positively correlated with financial restatements; the greater the changes in MD&A tone, the higher the probability of financial restatements. Furthermore, an empirical test shows that the predictive power of MD&A tone changes for financial restatements is relatively stronger when companies (1) face tighter financial constraints, (2) have poorer governance, (3) operate in highly competitive industries and (4) receive a heightened level of external attention. This study not only provides empirical evidence of management tone manipulation based on practices of Chinese companies, but it also marginally expands research on accounting information manipulation.

This study examines the relation between penalties for non-financial regulatory violations and earnings restatements. Financial and non-financial corporate misconduct have been shown to be associated through channels such as shared internal controls and corporate culture. Using corporate misconduct data from the Violation Tracker dataset and coarsened exact matching or entropy balancing to match penalty firm-years with otherwise similar non-penalty firm-years, I examine the relation between regulatory penalties and concurrent and future earnings restatements. I find earnings are significantly more likely to be restated in years when the firm is assessed a regulatory penalty. In addition, penalties strongly predict both the presence and number of earnings restatements in future years. My findings extend our understanding of the relation between financial and non-financial corporate misconduct by applying modern econometric techniques to a significantly more extensive dataset than prior literature. My results suggest penalties for non-financial misconduct are an important leading indicator for earnings restatements and can help stakeholders identify as yet undetected financial reporting problems. Stakeholders may choose to decrease their reliance on the financial statements if a penalty is assessed, and regulatory bodies may consider sharing information across agencies to exploit synergies in monitoring activities.

Abstract This study investigates the impact of media coverage on the incidence of financial restatements by testing two competing hypotheses: the media monitoring hypothesis and the media pressure hypothesis. The media monitoring hypothesis suggests a negative relationship between media coverage and financial restatements, as media acts as an external monitor, improving the quality of financial reporting. The media pressure hypothesis posits a positive relationship, as media coverage can induce short-term performance pressure on managers, leading to opportunistic earnings manipulation and restatements. Analyzing a sample of Taiwan-listed companies from 2000 to 2021, our overall findings support for the media pressure hypothesis, indicating that higher media coverage increases the likelihood of financial restatements. Further results suggest that the positive impact of media coverage on restatements is mitigated by the presence of foreign institutional investors acting as substitution governance monitors. We also show that the positive impact of media coverage on restatements is more evident among firms with high coverage of directors’ and officers’ liability insurance, serving as a complementary mechanism to amplify the media-driven short-term performance pressure on managers. This study expands our knowledge of financial restatements and underscores the significance of acknowledging the role of media in short-term market pressure and the quality of financial reporting. JEL classification numbers: G14, G34, L82, M41. Keywords: Media Coverage, Financial Restatements, Corporate Governance, Short-term Pressure.

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In-depth analysis of the vital role that openness plays in corporate governance is provided in this paper, with particular attention to how it improves organizational performance measures and reduces financial risk. Transparent corporate governance processes are more important than ever in a time of growing complexity in global business operations and elevated stakeholder expectations. Using a mixed-methods approach, this study combines qualitative insights from in-depth interviews with business executives, regulators, and governance experts with quantitative analysis of financial data from 500 publicly traded companies across several industries. The study's five-year duration, from 2019 to 2023, enables a thorough analysis of trends and causal connections. Based on reduced stock price volatility, fewer substantial financial restatements, and improved credit ratings, our results show a clear positive association between more corporate transparency and better financial risk management. Additionally, the study shows that businesses with more open governance processes routinely beat their less open competitors on a number of important performance criteria, such as customer happiness, employee productivity, and return on equity (ROE). The study also reveals complex connections between particular transparency metrics and performance results, emphasizing the necessity of customized strategies for improving openness depending on organizational and industry-specific factors. These revelations aid in the creation of an all-encompassing framework for putting corporate transparency into practice and gauging its effectiveness, offering practitioners, legislators, and scholars studying corporate governance useful direction.

This study examines the effect of audit committee connectedness through director networks on financial reporting quality, specifically the misstatement of annual financial statements. Using network analysis, we examine multiple dimensions of connectedness and find that after controlling for operating performance and corporate governance characteristics, firms with well-connected audit committees are less likely to misstate annual financial statements. In addition, our study demonstrates that audit committee connectedness through director networks moderates the negative effect of board interlocks to misstating firms on financial reporting quality. We conduct several tests to address identification concerns and find similar results. Our findings suggest that firms with better-connected audit committees are less likely to adopt reporting practices that reduce financial reporting quality.This paper was accepted by Suraj Srinivasan, accounting.

Exploring the results of restating corporate financial statements will illustrate the importance and urgency of corporate digital transformation. This research focuses on the general industrial companies listed on the Taiwan Stock Exchange from 2010 to 2019, with collecting data including corporate governance, financial ratios, and restated financial statements, and uses logistic regression analysis to explore between the financial crises and restatements relationship. In the past ten years, there have been 258 companies that have reorganized their financial statements, and 306 companies have experienced any crisis in the financial crisis. According to the influential variable X left by the two analysis methods, there are a total of 21 main variables and 7 secondary variables. After the analysis, there are two results. First, there is a significant correlation between the restatement of financial statements and the occurrence of a financial crisis. Second, when the financial statements are restated, the probability of a financial crisis will increase. This result shows that the digital transformation of finance will effectively reduce the probability of enterprises re-compiling statements and improve corporate governance.

This study aims to examine the effect of environmental, social and governance (ESG) reporting on the likelihood of accounting restatement through the moderating effect of national culture. To test this study’s hypotheses, the authors applied logistic regression with panel data using the Thomson Reuters ASSET4 database on a sample of 328 European firms listed on the ESG index between 2012 and 2021. Likewise, three robustness analyses were conducted as an expansion of the study. The authors included alternative measures of the dependent and independent variables and applied the simultaneous equation model for the endogeneity test. The results prove a significant negative relationship between ESG reporting and the likelihood of accounting restatement; companies with high ESG reporting are less likely to engage in accounting restatement practices. Moreover, the results demonstrate that some national cultural dimensions moderate the link between ESG reporting and firms’ accounting restatement. Despite the relevance of materiality to ESG reporting, it was not examined in this study. Countries with few observations were included to avoid the limited sample size, hence an unequal distribution of observations within countries. The results have interesting implications for potential business partners and investors. Thus, to encourage sustainable and responsible business practices, governments can strengthen regulation and oversight of accounting data production and processing. This study is unique in examining the moderating effect of national culture on the relationship between ESG reporting and the likelihood of accounting restatement.

This study investigates how audit committee characteristics influence the quality of financial data reporting and corporate accountability in publicly listed companies. Using agency theory and the corporate governance literature, the research specifically explores the roles of independence, financial expertise, and meeting frequency of audit committee members in reducing financial restatements and enhancing accountability. With a quantitative research approach, the study analyzes panel data from 100 firms (50 financial and 50 non-financial) listed on the country’s stock exchange for the period 2018 to 2022. Audited annual reports provided secondary data, and core variables were defined by reference to relevant theories. Descriptive statistics worked to read the distributions of variables and Pearson correlation analysis of identification of preliminary relationships was used. Findings indicated that there were strong positive relationships between audit committee independence financial expertise and an enhancement in the financial reporting. There was a positive strong connection between meeting frequency and the measures of corporate accountability. It was replicated using multivariate regression which depicted that frequency of meetings (p < 0.01) and financial expertise (p < 0.05) served as substantial predictors of financial reporting quality and subsequently less apt to induce restatements. These findings point towards the value of strengthening the composition of audit committees to deliver superior governance outcomes. Firms with financial literacy among members and regular gatherings of their audit committee personnel were more accountable and less prone to financial abnormalities. Such understandings have practical consequences on regulators and corporate boards, in the hope to streamline the inspection of auditing and the intentions of stakeholder confidences. International or sector-specific research can be included into this model in the future

This research aims to analyze and determine the influence of each variable of auditor change, ownership concentration, number of audit committee meetings, company size, profitability and liquidity on restatement cases in non-financial institutional companies listed on the IDX in 2017-2021. The sample used in this research was 76 companies. The research results show that; changing auditors has a significant negative effect on restatements in non-financial companies listed on the IDX; the number of audit committee meetings has a significant negative effect on restatements in non-financial companies listed on the IDX; ownership concentration has a significant negative effect on restatements in non-financial companies listed on the IDX; company size has a significant positive effect on restatement in non-financial companies listed on the IDX; profitability has a positive and insignificant effect on restatement in non-financial companies listed on the IDX; and Liquidity has a significant negative effect on restatement in non-financial companies listed on the IDX.

This study investigates the association between economic uncertainty and audit quality in the BRICS nations, examining both input-based (e.g., audit fees, auditor tenure) and output-based (e.g., restatements, total accruals) measures of audit quality. Utilizing a dataset of 83,511 firm-year observations from 1995–2022, it reveals a significant negative impact of economic uncertainty on audit quality. Additionally, the research explores the moderating role of CEO power, employing principal component analysis to merge various indicators of CEO influence. Findings indicate that powerful CEOs can mitigate the adverse effects of economic uncertainty on audit quality, suggesting a U-shaped relationship between CEO power and audit quality. Methodologically robust, employing techniques like two-stage least squares (2SLS) and two-stage system generalized method of moments (system GMM) to address endogeneity, the study offers a comprehensive analysis of audit quality in the context of economic fluctuations and corporate governance, contributing significantly to the understanding of these dynamics in emerging economies, particularly in the diverse and influential BRICS nations. This study’s findings have significant implications for stakeholders and policymakers, providing insights that can inform policy decisions and enhance corporate governance frameworks.

No abstract available

This study investigates the impact of comment letter reviews on reporting quality in terms of financial restatements, using comment letters from the Chinese market between 2013 and 2020. The baseline results indicate that although receiving a comment letter increases the next year's (year t + 1) restatements, it reduces later years' (year t + 2 onwards) restatements. Moreover, this effect is more pronounced among firms with lower external auditor quality, poorer information transparency, and those located in less marketized provinces. The mechanism analyses show that comment letter reviews improve financial reporting quality because of deterrent effects in the form of increased litigation risk.

Financial statement fraud (FSF) is a significant contributor to losses and has persisted for several years (Association of Certified Fraud Examiners [ACFE], 2022). Previous studies concluded that corporate governance (CG) can significantly reduce FSF (Mangala & Kumari, 2015; Rostami & Rezaei, 2022; Velte, 2023). However, while the literature study acknowledges that CG plays an important role in fraud prevention and emphasizes the importance of effective board composition, effective audit committees, independent commissioners, gender diversity, ownership structure, and engagement with Big 4 accounting firms to the occurrence of FSF, the empirical evidence in Indonesia suggests inconsistent results. This research investigates the role of CG in preventing FSF in Indonesia. The study tested a sample of 72 companies sanctioned by the Financial Services Authority (Otoritas Jasa Keuangan, OJK), Republic of Indonesia, in 2019–2021 and another 72 control sample companies from similar sectors and equivalent market capitalization. A total of 144 data units are analyzed using panel data regression and independent t-test. The study results show that the frequency of audit committee meetings and institutional ownership positively affect the indication of FSF. The study result also shows significant mean differences in the frequency of audit committee meetings and institutional ownership between companies indicated and not indicated to commit FSF. Besides enriching the global discourse on best CG practices, this study provides actionable recommendations for enhancing the integrity and transparency of financial reporting.

Using financial restatements as the contextual setting, we examine whether the accounting expertise of board committees affects the consequences of financial reporting quality. We analyze both short-term consequences—stock market reactions surrounding restatement announcements, and long-term consequences—the incidence of Securities and Exchange Commission (SEC) Accounting and Auditing Enforcement Actions (AAERs), and CEO and CFO turnover after restatements. Our results show that the presence of audit committee members with accounting expertise moderates the consequences of restatements, resulting in less negative stock market reactions and a lower probability of CEO turnover. In contrast, the audit committee’s nonaccounting financial expertise increases the likelihood of AAERs. For the compensation committee, we find that accounting expertise reduces the probability of CEO turnover, while nonaccounting financial expertise exacerbates the negative stock returns around restatement announcements and increases the probability of AAER. In the post–Sarbanes–Oxley Act (SOX) period, restatements have resulted in less severe consequences as companies have increased their propensity to hire accounting experts on the board. Correspondingly, we document that the moderating effects of accounting expertise become less significant, in part because the moderating effects are offset by the changed investor expectations. Overall, our results suggest that accounting expertise of board committees helps mitigate the negative consequences of restatements.

This study investigates the influence of corporate governance on reducing financial statement fraud (FSF) in Jordanian service and industrial companies listed on the Amman Stock Exchange from 2018 to 2022. To achieve this, the study employed the Beneish M-score model to assess the likelihood of FSF and logistic regression to examine the influence of corporate governance structure on fraud mitigation. The study identified 13 independent variables, including board size, board director’s independence, board director’s compensation, non-duality of CEO and chairman positions, board diversity, audit committee size, audit committee accounting background, number of annual audit committee meetings, external audit fees, board family business, the presence of women on the board of directors, firm size, and market listing on FSF. The study included 74 companies from both sectors—33 from the industrial sector and 41 from the service sector. Primary data was collected from financial statements and other information published in annual reports between 2018 and 2022. The results of the study revealed a total of 295 cases of fraud during the examined period. Out of the 59 companies analyzed, 21.4% demonstrated a low probability of fraud, while the remaining 78.6% (232 observations) showed a high probability of fraud. The results indicate that the following corporate governance factors significantly impact the mitigation of financial statement fraud (FSF): independent board directors, board diversity, audit committee accounting backgrounds, the number of audit committee meetings, family business involvement on the board, and firm characteristics. The study provides several recommendations, highlighting the importance for companies to diversify their boards of directors by incorporating different perspectives and experiences.