Author
Timothy J. Louwers
Bio: Timothy J. Louwers is an academic researcher from James Madison University. The author has contributed to research in topics: Audit & Corporate governance. The author has an hindex of 7, co-authored 9 publications receiving 303 citations.
Papers
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TL;DR: In this paper, the challenges associated with the identification, examination, and disclosure of related party transactions are discussed and issues and research evidence related to nondisclosure and reliance on management assertions, risk assessment, materiality, fraud detection, the effect of related-party transactions on corporate governance, and international auditing issues.
Abstract: We examine research relevant to auditing related party transactions to contribute to the PCAOB project on this topic and to provide other policy makers, auditors, and academics with an overview of relevant literature. Specifically, we report on the challenges associated with the identification, examination, and disclosure of related party transactions. Additionally, we address issues and research evidence related to nondisclosure and reliance on management assertions, risk assessment, materiality, fraud detection, the effect of related party transactions on corporate governance, and international auditing issues. Overall, we believe that the findings in academic research and the significance of related party transactions in recent prominent fraud cases are consistent with the PCAOB's reconsideration of auditing of related party transactions. We conclude with implications for further research.
105 citations
TL;DR: In this article, the authors examined 83 SEC enforcement actions involving both fraud and related party transactions and found that the most frequent types of transactions in the enforcement actions were loans to related parties, payments to company officers for services that were either unapproved or non-existent, and sales of goods or services to related entities in which the existence of the relationship was not disclosed.
Abstract: Motivated by mixed findings in the auditing literature about the importance of related party transactions as red flags indicating potential fraud, this study examines 83 SEC enforcement actions involving both fraud and related party transactions. In addition to comparing the characteristics of firms in this sample with firms examined in other fraud studies, we describe generally how each type of related party transaction might potentially be used to misstate financial reports and then document the types of related party transactions actually occurring in these fraud cases. Overall, the most frequent type of transactions in the enforcement actions were loans to related parties, payments to company officers for services that were either unapproved or non-existent, and sales of goods or services to related entities in which the existence of the relationship was not disclosed. Misappropriation of the company's assets are most often related to transactions where the cash flow is outward, while instances of misstatement of financial reports are more often related to transactions where the cash flow is expected to be inward. Generally, related party transactions are not necessary as mechanisms for fraud, and their presence need not indicate fraudulent financial reporting. An implication is that it is important for the auditing profession to understand the benign nature of most related party transactions, the differentiating features between benign and fraudulent transactions, and the importance of evaluating a company's related party transactions in light of its broader corporate governance structure.
63 citations
TL;DR: In this article, the authors argue that ethical management practices may be a correlated omitted variable in these studies, thus resulting in causal inference problems in the previous research, and they argue that, rather than the board of directors monitoring and reducing abnormal accruals as has been posited, management who was not engaging in abusive earnings management was attempting to signal the market regarding the quality of the firm's financial information through its choice of board membership.
Abstract: Recent research has linked the reduction of abnormal accruals to corporate governance metrics. The results of these studies, however, are based on samples taken from periods prior to promulgated board independence requirements. In other words, during this time period, management not only had discretion over accounting accruals, but also significant influence over the choice of membership on the board of directors. This study suggests that ethical management practices may be a correlated omitted variable in these studies, thus resulting in causal inference problems in the previous research. We argue that, rather than the board of directors monitoring and reducing abnormal accruals as has been posited, management who was not engaging in abusive earnings management was attempting to signal the market regarding the quality of the firm’s financial information through its choice of board membership.
48 citations
TL;DR: In this paper, the authors examined 43 SEC enforcement actions against auditors related to the examination of related-party transactions and concluded that the audit failures in these fraud cases were more the result of a lack of auditor professional skepticism and due professional care than any deficiency in current auditing standards.
Abstract: SUMMARY: After several high-profile frauds involving related-party transactions, regulators have raised questions as to whether current auditing standards remain appropriate. In this study, we examine 43 SEC enforcement actions against auditors related to the examination of related-party transactions. We conclude that the audit failures in these fraud cases were more the result of a lack of auditor professional skepticism and due professional care than any deficiency in current auditing standards. In other words, revised auditing standards would likely not have prevented these auditing failures, raising questions about the need for auditing standard revision for related-party transactions at this time. Despite this finding, we conclude with some suggestions to improve the auditing of related-party transactions, such as including the discussion of related-party transaction abuse during SAS No. 99 mandated fraud awareness “brainstorming” sessions.
43 citations
TL;DR: An anonymous survey of university accounting faculty was conducted to assess current perceptions of the peer review process in accounting journals as discussed by the authors, which revealed that most respondents are fairly positive about the peer-review process, especially the process being fair/unbiased and improving the quality of research; the most serious perceived threats to review process integrity involve reviewer misconduct (e.g., delaying reviews for self-interest or rejecting papers for revenge).
43 citations
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01 May 1981
TL;DR: This chapter discusses Detecting Influential Observations and Outliers, a method for assessing Collinearity, and its applications in medicine and science.
Abstract: 1. Introduction and Overview. 2. Detecting Influential Observations and Outliers. 3. Detecting and Assessing Collinearity. 4. Applications and Remedies. 5. Research Issues and Directions for Extensions. Bibliography. Author Index. Subject Index.
4,948 citations
TL;DR: In this paper, the authors summarize relevant academic research findings to contribute to the Public Company Accounting Oversight Board (PCAOB) project on financial statement fraud and to offer insights and conclusions relevant to academics, standard setters, and practitioners.
Abstract: SUMMARY: We summarize relevant academic research findings to contribute to the Public Company Accounting Oversight Board (PCAOB) project on financial statement fraud and to offer insights and conclusions relevant to academics, standard setters, and practitioners. We discuss the characteristics of firms committing financial statement fraud, as identified in the literature, and research related to the fraud triangle. We then discuss research related to the procedures and abilities of auditors to detect fraud, and how fraud risk assessments impact audit planning and testing. In addition, we discuss several “high risk” areas and other issues as identified by the PCAOB. Finally, we summarize prior findings and offer conclusions and suggestions for areas where future research is needed.
353 citations
TL;DR: Li et al. as discussed by the authors investigated whether good governance structures help constrain management's opportunistic behaviors (in the form of transfer pricing manipulations) in one of the world's most dynamic economies and found that firms with a board that has a higher percentage of independent directors or a lower percentage of "parent" directors (i.e., directors who are representatives of the parent companies of the listed firms), or have different people occupying the chair and CEO positions, or have financial experts on their audit committees, are less likely to engage in transfer pricing manipulation.
308 citations
TL;DR: In this paper, the authors investigate how earnings management is associated with corporate social responsibility and investor protection with 139 firms in ten Asian countries and conclude that in Asian countries CSR moderates firms' earnings management and that this is conditioned by the legal system.
Abstract: We investigate how earnings management is associated with corporate social responsibility (CSR) and investor protection with 139 firms in ten Asian countries. In Asia, CSR is increasingly attracting attention but the legal system generally is perceived as being poor. We hypothesize that there is an inverse relationship between CSR and earnings management, as well as between investor protection and earnings management. Regarding earnings management, we investigate earnings smoothing and earnings aggressiveness. We find that Asian firms with relatively good CSR are engaged significantly less with earnings management. Investor protection also is negatively associated with earnings management. We find that this is very case sensitive and depends on the ways in which earnings management and investor protection are actually measured. In addition, we establish that CSR shows positive interaction with investor protection. We conclude that in Asian countries CSR moderates firms' earnings management and that this is conditioned by the legal system. Copyright (c) 2012 John Wiley & Sons, Ltd and ERP Environment.
185 citations
TL;DR: The authors examined the stock market valuation of firms that disclose related party (RP) transactions compared to those that do not and found that RP firms have significantly lower valuations and marginally lower subsequent returns than non-RP firms.
182 citations